Italian Local Income Tax ILOR
Law no.825 of 1971 introduced local income tax.
This tax was applied:
in the case of individuals wherever resident, on income accrued within the territory of the State,
excluding income from employment calculated for personal income tax purposes;
In the case of legal persons, on the overall net income calculated for the purposes of corporate
Although initially the revenue was allocated to local authorities, starting from 1974 the income was
included in the State budget and the tax was no longer considered as local.
The tax was deductible for the purposes of personal income tax, while for the purposes of corporate
income tax, it was deductible from 1971 to 1990, partially deductible in 1991 and non-deductible until its
abolition in 1998.
This tax was abolished with the introduction of IRAP (Regional Tax on Productive Activities).
The Dual Income Tax (DIT)
The Dual Income Tax (DIT) is a special regime for the taxation of business income introduced with
legislative decree n. 446/1997 and aimed at creating incentives for companies to increase selfcapitalization thereby boosting economic activities.
With the DIT, the taxable business income is divided into two segments:
The first segment is a hypothetical return calculated by multiplying any qualifying increase in the net
equity of the company by a nominal interest rate provided by the State, in excess of the net equity at the
end of the taxable year which includes 30th September 1996. This income benefits from a reduced rate for
personal income tax or corporate income tax (IRPEG or IRPEF), generally of 19% (7% for newly-listed
The second segment, which is the difference between taxable business income and the amount
included in the first segment, is subject to the standard tax rates. Anti-avoidance rules have been
introduced in order to prevent the practice of multiplying the basis for calculating the DIT by introducing
several times the same new investments. A special anti-avoidance regime has also been provided for in the
case of groups of companies.