Italy Expands Digital Services Tax in 2025 Budget
Italy's 2025 Budget Law has significantly expanded the scope of its Digital Services Tax (DST) by removing one of the two previous revenue thresholds, bringing more companies under taxation.
Background and purpose of DST
Italy introduced DST in 2019 (L. 145/2018), effective from January 1, 2020, following OECD and EU recommendations. The tax targets revenues from digital services provided within Italy, addressing concerns about multinational tax avoidance through profit shifting to low-tax jurisdictions. Italy’s DST has one of the broadest scopes in Europe.
Scope of Italy’s DST
The tax applies to any business, regardless of residency, that provides taxable digital services in Italy. Non-resident taxpayers must obtain an Italian tax ID unless they have a fiscal representative or permanent establishment in the country.
Taxable services and rates
DST is a 3% excise duty on gross taxable revenues, applicable to:
- Digital advertising services – Targeted ads delivered through digital interfaces.
- Digital interfaces – Platforms enabling user interaction.
- Transmission of user data – Sale of user-generated data collected via digital platforms.
Sales of advertising space, including intermediation via digital platforms, are also taxable.
The tax aims to prevent multinationals from circumventing permanent establishment rules through fragmented operations.
Determining taxable services
Excluded services include direct purchases of goods and services, even when intermediated. The tax applies based on user location, determined by IP tracking or geolocation methods. A service is deemed rendered in Italy if:
- Ads are displayed to users in Italy.
- A user in Italy accesses a digital interface.
- Data is generated by a user in Italy.
Expanded taxpayer base
Previously, DST applied only if both of these thresholds were met:
- Global revenue of at least €750 million.
- Digital services revenue in Italy of at least €5.5 million.
The 2025 amendment removes the second threshold, meaning any company exceeding €750 million in global revenue is now subject to DST, regardless of their digital service revenue in Italy.
Compliance and payment deadlines
DST is calculated on gross revenue without deductions for costs but excluding VAT or other indirect taxes. The payment schedule has been updated to the following dates:
- Advance payment – 30% of the prior year’s DST, due by November 30.
- Final payment – Remaining balance, due by May 16 of the following year.
Market impact and double taxation concerns
The expansion of DST increases the tax burden on more businesses, potentially discouraging investment in Italy. Since DST is classified as an indirect tax without pass-through obligations, only resident taxpayers can deduct it from corporate income tax. Foreign entities may face double taxation as no tax credit or treaty relief is available.
