2016 Stability Law Draft. Flat-rate regime and tax incentive regimes: what to expect in 2016?

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Introduction

Law no. 190/2014 provided, on the one hand, for the introduction of a new tax regime and, on the other, for the repeal of the minimum taxpayers regime, the former minimum taxpayers regime and the new business start-ups regime. This refers in particular to the flat-rate regime, which provides for taxation at a substitute rate of 15% and a reduction of revenues through coefficients defined for each business sector.

The new Stability Law for 2016 (currently in draft form and therefore subject to amendment) provides for a partial amendment of this regime, since the very narrow revenue thresholds have confined the regime to a particularly limited scope of application.

In addition to providing for higher income thresholds (by EUR 10,000 or 15,000 depending on the case), the draft provides for the amendment:

• of the tax incentives for new businesses;

• of the social security incentive, which now consists of the possibility of reducing part of the contributions (previously, a derogation from the minimum contributions was granted, but this – combined with the very low revenue thresholds – presupposed earning an income that did not even exceed that minimum).In light of these new amendments, it must be acknowledged that the tax regime is much more attractive than the earlier version set out in Law no. 190/2014.Below we illustrate the new potential of the regime in light of the amendments envisaged with effect from 1 January 2016, bearing in mind that during the parliamentary process the rules we are about to set out may undergo some adjustments.

Conditions for access to the flat-rate regime

The Stability Law for 2016 is essentially in continuity with the previous provisions, so no particularly significant changes are made to what applied in the previous year, at least at a structural level. It should be noted, however, that the limitation concerning the prevalence of income from the activity over the employment/pension and similar income received by the worker is removed and replaced by a less restrictive formula, and that the thresholds for entering and remaining in the incentive regime are changed.

As a result of the changes made, taxpayers may access the regime in question if, in the previous year, they:

• achieved revenues or received fees, calculated on an annual basis, not exceeding those shown in the table below (between EUR 30,000 and 50,000, as a result of the changes envisaged by the new Stability Law for 2016). Where there are several activities to which different revenue/fee thresholds apply, reference must be made to the highest threshold;

• incurred expenses for the employment of workers not exceeding EUR 5,000 gross per year for employees, project-based collaborators (co.co.pro.), occasional work, associations in participation, and work performed by the entrepreneur’s family members under art. 60 of the TUIR;
• the total cost of capital assets at 31 December (before depreciation) does not exceed EUR 20,000.

There are certain circumstances that preclude taxpayers from accessing the new flat-rate regime. The draft Stability Law for 2016 provides for a change, this time in a restrictive direction, limiting use of the regime for employees/similar workers whose income exceeds EUR 30,000 (except in the case of termination of the employment relationship). The following taxpayers cannot access the new flat-rate regime, namely those falling into one of the following cases:

It should be specified that there are no further restrictions on access to the regime (unlike the minimum taxpayers regime), so the new flat-rate regime may also be applied to persons already in business. There is no maximum time limit for use of the regime and, in particular, no age limit, unlike the minimum taxpayers regime.

Simplifications for those who join the regime

With regard to the simplifications provided by the regime, the draft Stability Law for 2016 makes no changes to what was previously provided by Law no. 190/2014.

In summary, the advantages and simplifications granted by the flat-rate regime are as follows:

• VAT is not charged by way of recharge (rivalsa);

• no right to deduct VAT on purchases;

• intra-EU supplies of goods are treated as domestic supplies under art. 41, paragraph 2-bis, Decree-Law no. 331/93;

• intra-EU purchases of goods up to EUR 10,000 are taxed in the EU State of the supplier;

• services received from and rendered to non-residents, applying arts. 7-ter et seq. of Presidential Decree (D.P.R.) no. 633/72;

• imports / exports respectively with VAT paid at Customs or non-taxable (without the possibility of purchasing goods and services using the VAT ceiling (plafond)).
• With regard to compliance obligations, the incentive flat-rate regime imposes the following obligations on taxpayers:

With regard to income tax, note the exemption from the obligations of recording and keeping accounting records. Those who join the regime, however, are required to retain the documents received and issued. With regard to withholding taxes, flat-rate taxpayers are not subject to withholding at source and, for this purpose, issue a specific declaration which may also be included in the invoice. In addition, no withholding at source has to be made (there remains, in any case, the obligation to state, in the income tax return, the tax code of the recipient of sums that have not been subject to withholding).

As regards sector studies and IRAP, taxpayers who adopt the new flat-rate regime are excluded (as are minimum taxpayers).

Calculation of the tax

For the purpose of determining income, as in the previous year, the flat-rate regime does not take into account total costs, but applies a profitability coefficient that differs for each type of activity.

In particular, taxpayers who adopt this regime determine their taxable income by applying the profitability coefficient shown in the table to the amount of revenues or fees received. A substitute tax of 15%, in lieu of income tax, regional and municipal surtaxes and the regional tax on productive activities (IRAP), is applied to the taxable income.

It is also provided that social security contributions are deducted from the income determined according to the criteria just described.

Overall, therefore, taxable income must be determined on the basis of the following calculation:

With regard to the determination of taxable income, the following cases should be noted:

• in the case of a family business, the substitute tax, calculated on income before the share attributed to family members, is due from the owner;
• for the purpose of recognising deductions for dependent family members, the flat-rate income is also relevant.

The incentives

Under Law no. 190/2014, for taxpayers who meet the requirements for the flat-rate regime and start a new activity, income subject to the 15% substitute tax was reduced by one third for the year in which the activity started and for the following 2.

Now, the draft Stability Law for 2016 provides that the tax rate is reduced to 5% for the year in which the activity starts and for the following 4. To avoid problems of coordination with the previous regime, it is specified that those who started their activity in 2015 using the flat-rate regime may access this incentive measure.

Social security contributions regime

As is well known, the flat-rate regime provided for an ad hoc social security regime, under which taxpayers could derogate from the minimum contribution laid down by Law no. 233/90. This incentive is now to be amended so as to provide a general reduction in the contributions payable. In particular, those who join the regime can reduce the contributions payable by 35%.

Finally, we reiterate that the provisions just described will become final only upon final approval of the legislative measure.