Italy offers concession licenses based on a royalty and tax framework. Surface fees are levied at a rate of €92.50 – €2,221.75 / sq km and royalties are payable based on the sale value of gross production; the rate of which varies between 7%-10% depending on the project’s location and hydrocarbon type. Companies are also required to pay corporate income tax (IRES) at a rate of 24% and a regional tax (IRAP) is levied based on the project’s location. The base rate of the tax is 3.9%, although each region can vary this rate by up to 0.92%.
The framework is relatively attractive compared to neighbouring countries. The competitiveness of the regime has also improved since 2015 following the removal of the additional profits tax. Price increases and cost decreases result in a relatively small fiscal burden decrease; this is because the majority of the tax is paid on profits only and therefore remains proportional to the amount of profit made. However, due to the regressive nature of royalties on gross production when prices decrease or costs increase, the fiscal burden does increase more significantly. Additionally, the relatively frequent legislation changes over previous years may have impacted investor’s perception of the regime’s fiscal stability.
In 2019, the country significantly increased surface fees and imposed a moratorium on offshore exploration. These steps are part of a major push towards progressing the energy transition and achieving ambitious decarbonisation targets set. The offshore moratorium was set for an initial 18 month period, although the economic shock caused by the Covid-19 pandemic may effect this. Additionally onshore exploration has been significantly impeded due to sustained environmental pressure and public hostility towards drilling. It is possible that in the longer term, regulation and taxation on the petroleum industry will increase further as the country continues its push towards the energy transition and environmental pressure remains.