IRAP (Imposta Regionale sulle Attivita Produttive) is a regional tax on the net value of production carried out in Italy. It is charged on companies, partnerships and certain organised businesses, and unusually its base is broadly value added before financing costs, so labour and interest are generally not deductible in the way they are for IRES.
The standard IRAP rate is 3.9% of net production value, but regions may vary it within limits, and higher rates apply to banks, financial institutions and insurers. Since 2022, individual sole traders and self-employed professionals are no longer subject to IRAP, which removed the tax for a large share of small operators.
For a manufacturing company with a net production value of EUR 800,000, standard IRAP is 3.9% x EUR 800,000 = EUR 31,200, payable in addition to any IRES on profit.
IRAP has no direct equivalent in the UK or US, though it is sometimes compared to Germany's Gewerbesteuer (trade tax), which is also locally set and levied on business activity rather than pure profit. See how Italian business taxes compare in our country tax comparison or review corporate tax basics.