The individual income tax (known as IRPEF) is a progressive rate tax. It means that the level of taxation increases as income increases.
This income tax is also applied to company income if:
- a company is a sole proprietorship, an ordinary partnership or a non-stock partnership;
- a company is a joint-stock company or a cooperative venture managed under the so-called transparency regime. [1]
The tax base is calculated on the business income that results from the difference between revenues and the costs sustained for performing business activities. If applicable, this difference can be modified by applying tax variations [2] and IRPEF computation.
E.g.: let us assume that a sole proprietorship has revenues amounting to 100,000 euros and costs amounting to 60,000: its business income is 40,000 euros and no tax variations are to be applied. The IRPEF tax is calculated on this amount.
E.g.: let us assume that an individual firm has revenues amounting to 150,000 euros and costs of 100,000. Tax variations amount to 20,000 euros. The firm’s income is equal to 50,000 + 20,000 = 70,000 euros. The IRPEF tax is calculated on this value,.
For further information on IRPEF calculation, please refer to the In-depth guide to Personal Income Tax.
[1] To better understand how the transparency regime works, please refer to Articles 115 and 116 of Presidential Decree 917/86 (the Consolidated Law on Income Tax). The full text is available at: http://www3.unisi.it/ammin/uff-ragi/Fisco/DPR917-86.htm.
[2] Tax variations may increase or decrease company income: they include amounts of different natures which, according to the tax laws, are to be added to the difference between revenues and costs in calculating taxable income.