This chapter contains a description of tax provisions applied to agriculture in 2019, unless otherwise specified. They include taxes on income and profit, property, good and services, environmental taxes, and tax incentives for R&D and innovation.
Taxation in Agriculture
Report
Table of contents
Share
Facebook
Twitter
LinkedIn
Chapter 22. Italy
Abstract
22.1. Overview
The 2016 Italian farm structure survey by the Italian National Institute of Statistics (ISTAT) has registered a remarkable decrease in the number of agricultural holdings (a decrease of 22% compared to 2013 and a decrease of 29% since 2010). In 2016, there were 1 145 705 farms of which 94% are individual farms. The remaining farms take other legal forms, i.e. corporate farms 1% and other forms 5%.
The agricultural sector is characterised by small-sized holdings. Farms with less than 5 hectares account for 62% of the total number of farms while cultivating only 12% of the national utilised agricultural area (UAA). Land consolidation is taking place. Over the period 2013 to 2016 the number of farms with UAA below 5 hectares and micro-farms with a UAA below 1 hectare decreased by 68%, while the number of farms with holdings of greater than 5 hectares increased by 16% and large-sized farm holdings, with an UAA higher than 50 hectares, increased by 3.4%. Meanwhile large-sized holdings with an UAA of greater than 50 hectares represent only 4% of total farms but are responsible for cultivating 43% of the total UAA. Farm sizes have increased throughout the country and at a national level the average UAA of farms has increased from 8.4 hectares to 11 hectares (an increase of 31% over the period 2013 to 2016).
The main sources of tax revenue in Italy are the personal income tax (IRPEF), corporate income tax (IRES) and the value added tax (VAT). The personal income tax is paid by all natural persons while the corporate income tax is paid by legal entities, independently from the economic sector in which they operate. The value added tax is paid by all consumers of goods and services. These taxes are paid at national level and their revenue is distributed among the state, regions and municipalities.
Tax treatment of the agricultural sector results in a lower tax burden as a result of the application of many tax advantages (tax breaks, lower rate of social security contributions for employers and exemptions) and income taxation calculated on the basis of the cadastral register. Additionally farmers pay reduced taxes on fuel which accounts for 40% of the tax expenditure on agriculture in 2017. Consequently, the tax burden in the agricultural sector decreased from 21.5% in 2011 to 19.3% in 2015, while for other sectors there was a strong increase from 40.7% to 43.4%.
Reforms implemented in the last ten years have further reduced the farm taxation. In particular, the Stability Law of 2016 exempted farmers from having to pay the regional tax on economic activities (IRAP) and the municipal tax on land property (IMU).
22.2. Income taxation
Natural persons residing in Italy must pay personal income tax (Imposta sul reddito delle persone fisiche — IRPEF) on both regular and occasional income. IRPEF is basically a state tax, but since 1998 a part of IRPEF is allocated to regions and municipalities. Personal income tax is based on a progressive system composed of six categories of income:
Category 1 - Income from real estate properties (income from agriculture, forestry and other estate property including income from buildings).
Category 2 - Income from capital investments.
Category 3 - Income from wages and salaries.
Category 4 - Income from professional and independent personal services.
Category 5 - Income from trade and industry.
Category 6 - Income from other sources.
Taxable income for each of the six categories is determined by its own set of rules. The tax basis is the aggregate income from the six categories of income.
Real estate properties in Italy are registered either in the property land registers or in the urban building land registers. Income from agriculture and forestry is defined as income from real estate properties (category one) and determined by registered assigned yields (cadastral basis) and not on the basis of actual yields or income generated. Yields in the land register are estimated as average values of land and buildings and are very low. This results in a preferential tax treatment of agriculture and forestry.
Yields from other real estate properties are taxable under income category six, income from other sources (e.g. income from mines, salt works, lakes, ponds, etc.).
The income from real estate is deemed, in principle, to belong to the person who has the right to use the estate and not to the owner (if these are different persons). Social contributions do not enter the income tax base.
Tax on incomes of legal persons (Corporate income tax - IRES) is a state tax. The basis of assessment is total net income from companies and other legal persons. There are some exceptions from the tax liability, e.g. incomes of agricultural cooperatives, small-scale fisheries cooperatives, or labour and production co-operatives under certain conditions. The tax rate is a flat 24% on the total taxable income.
22.3. Property taxation
In 2012, the new property tax IMU (Imposta municipale propria) replaced the Italian Council Tax (ICI). The standard 0.8% rate applies to most other properties in Italy. The rate is fixed by the municipality that can change this rate by 0.2%, by issuing local regulations. Farmers are exempt from IMU from 2016.
Regional tax on productive activities (IRAP) (Imposta Regionale sulle attività produttive) is charged on the value of net production resulting from the business activity within the region. The tax revenue is distributed among the state and regions. The Stability Law of 2016 eliminated the regional tax on productive activities for the majority of farmers.
Sale and transfer of agricultural land ownership is subject to Registration tax (Imposta di registro), Mortgage tax (Imposta Ipotecaria), Cadastral tax (Imposta catastale) and Stamp duty (Imposta di bollo). The normal tax rate of the registration tax is 15% reduced to 9% if the buyer is a farmer or a professional farmer enrolled in the registries of agricultural pension funds. Farmers or professional farmers pay EUR 50 for cadastral and EUR 50 registration taxes and are exempt from stamp duty.
22.4. Tax on goods and services
The value added tax (VAT) is applied to all goods and services and paid by consumers. The VAT rate applied to agricultural goods (i.e. vegetables, cereals) is 4%, whereas the standard VAT rate is 22% and a VAT rate of 10% applies to other food products (water, meat, fish) in 2018 and 2019. The VAT rate applied on fuel and electrical energy used by farmers is 10%. The VAT rate on fertilisers is 4% and on pesticides it is 10% for all users.
Non-VAT registered farmers in Italy can add a flat rate to the price of their outputs as compensation for paying VAT on inputs. Farmers use the following rates 11 flat rates for different categories of goods: 2% (wood, natural cork), 4% (frogs, fish, crustacean and shellfish, fresh milk for food consumption, packaged for retail and milk products, plants and parts of plants, vegetables and eatable plants, fruit, spices, cereals, algae, oil of olive, cider, wine vinegar, raw tobacco and raw flax), 7.30% (horses, sheep, goat, certain other domestic animals such as rabbits and pigeons, bees and silkworms), 7.50% (poultry), 7.65% (live animals of bovine species), 7.95% (live animals of pork species), 8.30% (certain types of meat), 8.50% (certain types of meat and fat), 8.80% (eggs, honey, wax, fur), 10% (fresh milk not treated for the retail sale), 12.30% (wines of fresh grapes with some exclusions).
Excise taxes are charged on energy products (petrol, gas oil, natural gas and coal), alcohol, tobacco and electricity. Excise tax is lower for fuel used by the agricultural sector. Motor fuels and other petroleum products are generally subject to tax on mineral oils (Imposta di fabbricazione sugli oli minerali). This is a state tax. However, there are many exemptions and reduced rates; for instance, the reduction is 22% of the full tax for use of a certain quantity of fuels used in agriculture, horticulture, forestry and fish farming. The reduction in the tax on motor fuels is important for farmers. From a purely quantitative point of view, this measure is the most important “tax saving” attributable to the agricultural sector and accounted for 35% of the total agricultural tax expenditures in the period 2012-16. In 2017, the tax saving derived from the application of the reduced excise tax rate on fuel in the agricultural sector was EUR 990 million which equals 40% of the total agricultural tax expenditures.
22.5. Environmental taxes
There are no special tax provisions applied to the agricultural sector in order to reduce the consumption of natural resources (water) or discourage the use of farm inputs such as energy, fuel etc.
22.6. Tax incentives for R&D and innovation
The Italian taxation system does not include specific provisions to favour innovation and investments in the agricultural sector. Farm investments are generally supported by direct public expenditure programmes more than tax incentives (Pillar II of the Common Agricultural Policy). There are some general provisions that apply to all firms.
22.7. Other taxes
The special treatment for the agriculture sector in the social security system consists of the application of a reduced rate on social security contributions paid by employers which operate in disadvantaged and mountainous areas. This results in a discount of up to 80% of the total amount of social security payments.