More favourable credits on tax paid abroad

As from 1 January 2004, the Italian system for calculating the credit on taxes paid abroad has changed. Taxpayers deriving income abroad can reduce their Italian taxable income by detracting some of the tax definitely paid abroad (the amount depends on the relation between income derived abroad and income derived in Italy).

The maximum amount of potential tax credits has increased, as the overall income on which Italian tax is calculated is evaluated net, no longer gross, of losses from previous taxable periods allowed as a deduction. Moreover, a more advantageous criteria has been introduced for the carry-forward or carry-back of foreign taxes definitely paid exceeding the amount of Italian tax related to the income produced in the country.

In this way, the differences between foreign and Italian tax rates are eliminated. In particular, if the tax paid abroad is higher than the tax which can actually be credited against the tax due on the overall income, the excess part of the foreign tax can be used (carry-forward) in the subsequent tax years up to the eighth. Vice versa, if the tax paid abroad is less than that which can actually be credited against the tax due on the overall income, the difference constitutes a bonus which can be used in the next tax years (up to the eighth).