The New Legal Interest Rate and Its Tax and Taxpayer Repercussions: A Complete Guide

 

As part of the constant regulatory and fiscal developments affecting the Italian landscape, one of the most relevant changes for the year 2024 concerns the reduction of the legal interest rate. With the Ministerial Decree of November 29, 2023, published in the Official Gazette No. 288 of December 11, 2023, there has been a significant change: the legal interest rate, provided for in Article 1284 of the Civil Code, has been reduced from 5 percent to 2.5 percent on an annual basis. Not only does this change directly affect the calculation of legal interest, but it also has important repercussions in the area of taxation and contributions.

Effective Date and Application

The new rate of 2.5 percent takes effect on Jan. 1, 2024, marking a turning point for taxpayers and businesses, particularly with regard to tax amends, installment payments of amounts due and other tax and contribution provisions.

Fiscal Effects

The “ravvedimento operoso,” a mechanism that allows taxpayers to voluntarily regularize minor tax violations while benefiting from reduced penalties, sees a change in the calculation of default interest. The interest, in fact, will be calculated at the new legal rate in force in the various periods, thus affecting the amounts due in case of omitted, insufficient or late tax payments. In addition, the reduction in the legal interest rate significantly impacts the options to installment the amounts due, both as a result of adhering to institutions for the deflection of litigation and for facilitated settlements provided by various regulations, including the so-called “pace fiscale.” Even in these cases, the calculation of interest will undergo significant changes.

“Crystallization” of the Legal Interest Rate.

One interesting change is the “crystallization” of the legal interest rate in relation to certain acts, such as the assessment with adhesion. This means that once the act of adhesion is finalized, the applicable interest rate will remain fixed, regardless of future changes in the legal rate.

Contributory Effects

The change in the legal interest rate also affects civil penalties for failure to pay or late payment of social security and welfare contributions, allowing for a reduction of the penalties themselves to the new rate of 2.5 percent. This provision is intended to provide relief to businesses and self-employed workers in difficult situations, while promoting regularity of contributions.

Conclusions

The update of the legal interest rate represents a significant change that will affect multiple aspects of the Italian tax and contribution system. For taxpayers, professionals and businesses, it is critical to understand the implications of this change in order to optimize tax and contribution management ahead of 2024. TMC Advisory, with its experience and expertise, is at its clients’ side to navigate these changes, offering expert advice to make the most of the opportunities arising from the recent regulatory changes. Our mission is to ensure that every company can face the ongoing changes with serenity and preparedness, optimizing tax and contribution compliance in line with the latest legislation.