Business expenses in Italy: what you can deduct in 2026, and the caps

Last reviewed: November 2026 · Reviewed by Stéphane Gombauld, tax expert, technologist and digital nomad

You freelance from Italy or run an Italian company, and you want to know which costs lower your tax bill. This guide covers the 2026 deduction rules and caps, the proof the tax office expects, and when a flat-rate regime wins.

Italy business expenses in 2026: the key figures

What changed for 2026

• New hyper-depreciation. For business investments in qualifying new capital goods from 1 January 2026 to 30 September 2028, the depreciable cost is increased. The uplift is 180% up to EUR 2.5 million, 100% up to EUR 10 million and 50% up to EUR 20 million (art. 1(427) Law 199/2025).
• The 20% reduced IRES rate is gone. It rewarded reinvested profits in tax year 2025 only. From 2026 the standard 24% applies again.
• Traceability, limited to costs in Italy. The traceable-payment rule for meals, hotels and taxis applies only to costs incurred in Italy, under art. 109(5-bis) TUIR as it now reads.
• Hiring super-deduction continues. The extra 20% deduction on new permanent hires runs through 2027 (art. 1(399) Law 207/2024).

Is this guide for you?

Read on if you…

• are a freelancer with a partita IVA (VAT number) in Italy under the ordinary regime;
• run or plan to set up an Italian SRL and want to know what it can deduct;
• are choosing between the forfettario and deducting real costs.

Probably not your case if you…

• are an employee with no business income: see personal tax deductions and benefits of Italy;
• live outside Italy and only invoice Italian clients: Italian deduction rules do not apply to your foreign business.

What business expenses can you deduct in Italy?

The core test is inerenza (inherence): the cost must relate to the activity that produces your income. It must also be certain, documented and booked in the right tax year. For freelancers, taxable income is the fees received minus deductible expenses (art. 54 TUIR).

Costs you usually deduct in full

• rent of an office or co-working desk;
• salaries and employer social contributions;
• accountant (commercialista), lawyer, notary and chamber of commerce fees;
• software, hosting, cloud services and subscriptions;
• advertising, marketing and website costs;
• business insurance, bank charges and payment-platform fees;
• IMU, the municipal property tax, on property used in the business. It is deductible for income tax but not for IRAP (art. 1(772) Law 160/2019).

Costs with a percentage cap

Here's the catch. Several everyday costs are only partly deductible, however well you document them.

• Cars (art. 164 TUIR). Unless the car is essential to the business, as for a rental fleet, only 20% of its costs is deductible. A car assigned to an employee for business and private use is 70% deductible.
• Phones. Up to 80% of telecom costs (art. 102(9) TUIR).
• Meals and hotels. 75% deductible under art. 109(5) TUIR. The VAT on them is fully recoverable for companies, per PwC's deductions summary (secondary).
• Entertainment (spese di rappresentanza). Gifts worth up to EUR 50 are fully deductible. Other entertainment is deductible within a yearly cap: 1.5% of revenue up to EUR 10 million, 0.6% up to EUR 50 million and 0.4% above (art. 108(2) TUIR).

The traceable-payment rule

Entertainment and gifts, and meals, hotels and taxis in Italy, must be paid traceably to be deductible. That means a bank or postal transfer, or another payment system listed in art. 23 of Legislative Decree 241/1997. The rule sits in arts. 108(2) and 109(5-bis) TUIR. Pay a client dinner in cash and you lose the deduction, receipt or not.

Equipment: depreciation, not a one-off deduction

You cannot deduct a laptop or machinery in the year you buy it. You spread the cost through ammortamento (tax depreciation) at the maximum rates in a ministerial decree, which vary by asset and sector. In the first year, you can only use half the normal rate (art. 102 TUIR).

A few assets follow special rules:

1. Goodwill and trademarks bought in an asset deal: up to 1/18 of the cost a year (art. 103 TUIR).
2. Patents and know-how: up to 50% of the cost a year.
3. Leased assets: lease costs are deducted over at least half the depreciation period, whatever the contract length. For real estate the minimum is 12 years.

For bigger purchases, check the new hyper-depreciation window before you buy.

Interest and bad debts

Companies deduct interest expense up to their interest income. The excess is deductible up to 30% of gross EBITDA (ROL), and the rest carries forward (art. 96 TUIR). Provisions for bad debts are deductible up to 0.5% of receivables, until the reserve reaches 5% (art. 106 TUIR). Small debts at least six months overdue are deductible losses: up to EUR 2,500, or EUR 5,000 for the largest companies (art. 101(5) TUIR).

What is never deductible in Italy?

• Fines and penalties. They are not inherent costs, including tax penalties, per PwC (secondary).
• Income taxes and most of IRAP. Income taxes are never deductible (art. 99 TUIR). From IRAP you deduct only the share linked to staff costs, plus a flat 10% linked to interest costs (art. 6 Decree-Law 185/2008).
• Private costs: groceries, clothes, family holidays and the private share of a mixed-use asset.
• Inflated costs with blacklisted suppliers. Costs with suppliers in jurisdictions on the EU list of non-cooperative jurisdictions are deductible only up to market value (art. 110(9-bis) TUIR). The limit falls away if you prove a real business interest and actual execution.
• Undocumented costs. Domestic purchases come with an e-invoice through the Sistema di Interscambio; a bare receipt is weak evidence.

Keep your evidence for as long as the tax office can audit you. That is until 31 December of the fifth year after filing, or the seventh if you filed nothing (art. 43 Presidential Decree 600/1973). An inaccurate return costs 70% of the extra tax since the 2024 penalty reform (art. 1(2) Legislative Decree 471/1997). See tax fraud regulations of Italy.

Forfettario or ordinary regime: which deducts better?

The forfettario is Italy's flat-rate regime for self-employed people with revenue up to EUR 85,000, a threshold that applies in 2026 under Law 190/2014. You pay a 15% flat tax on a notional profit, set by applying a fixed coefficient to your fees.

The trade-off is simple. Your real expenses are ignored. The coefficient assumes a fixed cost ratio for your activity.

Honestly? If your real costs are below the ratio the coefficient assumes, the forfettario usually wins. A founder with heavy travel, staff or equipment often does better under the ordinary regime, where every inherent euro counts. Compare all the regimes in tax incentives for expats and digital nomads in Italy.

Freelancer or company: how do deductions compare?

The deduction rules barely change between a freelancer and an SRL. What changes is the rate each euro saves.

The 2026 Budget Law set the IRPEF middle rate at 33%. Registering a company goes through the ComUnica single filing, and the register completes registration within five days.

The management warning. Since 2024, a company is Italian resident if its legal seat, effective management or day-to-day management is in Italy for most of the year, under art. 73 TUIR, as amended by Legislative Decree 209/2023. It cuts both ways. A foreign company you run from Milan becomes Italian. An Italian SRL you run from abroad can become resident there, and its expenses face two sets of rules. Compare entities in legal forms of business in Italy and rates in corporate income taxes in Italy.

Common mistakes (and what they cost)

• Paying a client dinner or hotel in Italy in cash → the cost is not deductible at all, even with a receipt.
• Deducting 100% of a mixed-use car → the tax office cuts it to 20% and adds a 70% penalty on the extra tax, plus interest.
• Expensing equipment in one year → depreciation is spread over years, with half the rate in year one; the excess is disallowed.
• Staying in the forfettario out of habit → with high real costs, you may pay more tax than under the ordinary regime.
• Running an Italian SRL from abroad with nothing in Italy → another country can claim the company, and its deductions are disputed twice.

Frequently asked questions

What expenses can a freelancer deduct in Italy?

Under the ordinary regime, any cost that relates to your activity and is documented: office or co-working rent, software, accountant, marketing, insurance and equipment through depreciation. Cars are generally 20% deductible, phones 80%, and meals and hotels 75%, paid traceably when incurred in Italy. Under the forfettario you deduct no real costs: a fixed coefficient sets your taxable profit.

Can I deduct my car in Italy?

Partly. If the car is not essential to your business, only 20% of its costs is deductible. A car assigned to an employee for business and private use is 70% deductible. Only cars that are essential to the business, such as a rental fleet, are fully deductible. Keep a clear record of how the car is used.

Are meals and travel deductible for Italian companies?

Yes, with limits. Meals and hotel stays are 75% deductible. When incurred in Italy, they count only if paid by transfer or another traceable method. The VAT on them is fully recoverable. Gifts to clients up to EUR 50 each are fully deductible, while other entertainment is capped at 1.5% of revenue up to EUR 10 million.

Are fines and tax penalties deductible in Italy?

No. Fines and penalties are not considered costs related to your business, so they never reduce your taxable income. That includes tax penalties, such as the 70% penalty for an inaccurate return or the 25% penalty for late payment. Interest on late tax is a separate question; check it with your accountant.

Is the forfettario better than deducting real expenses?

It depends on your cost ratio. The forfettario taxes a notional profit, set by a fixed coefficient, at 15%, for revenue up to EUR 85,000. If your real costs are lower than the coefficient assumes, it usually wins. With high real costs, staff or heavy investment, the ordinary regime with real deductions often wins.

Related guides

• Legal forms of business in Italy: sole trader, partnerships and SRL
• Corporate income taxes in Italy: IRES, IRAP and dividends
• Specific taxes in Italy, including VAT
• Italy tax landscape overview
• Business expenses in Malta
• Business expenses in Austria
• All country tax guides

Sources

• Law 199/2025, 2026 Budget Law – Gazzetta Ufficiale (Italian Official Gazette)
• Law 199/2025, art. 1(427) hyper-depreciation – Normattiva
• TUIR art. 109 (inherence, meals and hotels, traceability) – Normattiva
• TUIR art. 108 (entertainment and gifts) – Normattiva
• TUIR art. 164 (company cars) – Normattiva
• IRES and IRAP – Chamber of Deputies, Research Service
• Law 190/2014, art. 1(54) forfettario – Normattiva
• Italy: Corporate deductions – PwC Worldwide Tax Summaries (secondary)

This guide is general information, not personalised tax advice. See how we research and review.