New minimium taxpayers and withholding tax

A circular of the Italian Revenue Service dated December 22, 2011 states that income coming within the scope of the new minimum tax regime are not subjected to withholding tax.

The minimum tax regime for new taxpayers introduced by Law-Decree 98/2011 has given rise to new provisions on the Income Substitute Tax and surtaxes applied thereto. Article 27, paragraph 1 of Law-Decree 98/2011 provides that the Substitute Income Tax, as well as the Regional and Local Authority Surtaxes provided for under article 1, paragraph 105 of Law no. 244 dated December 24, 2007, is reduced to 5 per cent.

This favorable tax regime may also be applied after the fourth tax period following the commencement of activities but not beyond the tax period in which the taxpayer becomes thirty five years of age (this would otherwise lead to a situation in which the tax payer could potentially have continual tax credits on account of the fact that the tax owed by the latter would be lower than the withholding tax due under articles 25 and 25-bis of Presidential Decree no. 633/1972).

In order to avoid this eventuality, the Italian Revenue Service has, with the aforementioned Circular, clarified that revenue earned by “new” taxpayers paying minimum rates are not subjected to withholding tax.

As a result thereof, “new” taxpayers must issue a declaration to the effect that the activity carried out by them comes within the scope of the favorable tax regime provided for under article 1, paragraph 96-117 of Law 244/2007, as amended by article 27 Law Decree 98/2011 and that the income earned during the course of such activity is subjected to a 5% substitute tax.



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