In this article, we analyse a complex and constantly evolving issue: the tax regime of ecclesiastical entities in Italy. Due to concordatory agreements with the State, these entities benefit from tax benefits, as they are equated to entities with charitable or educational purposes.

However, the exercise of commercial activities by these same entities raises questions about the full applicability of such tax benefits, requiring a careful examination of the current regulations.

Legal Basis

Tax benefits for ecclesiastical entities are based on the following regulations:

• Lateran Pacts: the Lateran Treaty of 1929, which governs relations between the Italian State and the Catholic Church, established a series of tax privileges for the Church.
• Agreements with other religious confessions: other religious confessions recognized by the Italian State also benefit from tax benefits, based on specific agreements.
• Ordinary legislation: State laws have subsequently specified and updated the provisions contained in the Lateran Pacts and agreements.

Types of Tax Benefits

Tax benefits in favour of ecclesiastical entities primarily concern:

• Income tax: ecclesiastical entities enjoy a preferential tax regime compared to commercial companies.
• Value Added Tax (VAT): in general, ecclesiastical entities are not subject to VAT for their institutional activities.
• Municipal Property Tax (IMU): exemptions or reductions are provided for properties used for religious worship or other institutional activities.
• Registration tax: documents related to acts and contracts involving ecclesiastical entities are subject to reduced or exempt rates.
• Donations: charitable donations in favour of ecclesiastical entities can be deducted from the donor’s income.

Elements to Consider When Paying Taxes

The tax regime for ecclesiastical entities and their activities is a complex and constantly evolving issue, influenced by a combination of legislative, historical, and specific factors of each Religious Congregation.

Here are the fundamental elements to consider when paying taxes:

1. Distinction between institutional and commercial activities

• Institutional activities: these are all activities aimed at achieving the institutional purposes of the religious entity, such as worship, religious education, social assistance, and the promotion of religious culture. These activities are generally exempt from many taxes, in recognition of their social and cultural role.
• Commercial activities: these are activities that have a profit-making purpose or that compete in the market, such as managing farms, producing and selling goods and services, and organizing paid events. These activities are subject to ordinary taxation, like private businesses.

2. Types of Ecclesiastical Entity

The tax regime also varies based on the type of ecclesiastical entity:

• Civilly recognized ecclesiastical entities: these enjoy greater tax benefits, thanks to specific agreements with the State.
• Other religious entities: the applicable tax rules may vary depending on the agreements stipulated with the State.

Why is it important to know these distinctions?

Understanding the tax implications of religious work is fundamental for various reasons, the most important of which are:

• Ensuring the correct application of the rules: this avoids errors that could lead to penalties.
• Optimizing economic management: this involves identifying opportunities to reduce the tax burden.
• Guaranteeing the sustainability of activities: this is achieved by efficiently planning economic resources.

What are the “commercial activities” carried out by ecclesiastical entities?

To understand which taxes are due, it is essential to delve into the question of what commercial activities are carried out by ecclesiastical entities.

This is what the law says: ecclesiastical entities must necessarily carry out one or more of the so-called activities of religion or worship. This is one of the essential conditions for the Ministry of the Interior to recognize them as ecclesiastical entities: indeed, if these activities were to cease, and with them the purpose of “religion or worship”, such qualification could be revoked by a decree of the Ministry of the Interior as provided for by Article 19, paragraph 2, of Law 222/1985, concerning “Provisions on ecclesiastical entities and property in Italy”.

For example, these institutional activities include: the exercise of worship and care for souls, the formation of clergy and religious, missionary purposes, catechesis, and Christian education.

In parallel with the activities of “religion or worship”, over time other activities have developed, known as “diverse activities”, which include all other activities, including commercial or profit-making ones. These latter are subject, while respecting the structure and purpose of ecclesiastical entities, to the laws of the State concerning such activities and the tax regime provided for them.

The commercial activities carried out by ecclesiastical entities are multiple and vary according to the Congregation and the historical and social context. Among the most common examples we find:

• Agriculture and livestock farming: many religious orders manage farms, vineyards, orchards, and livestock farms, producing high-quality and sustainable food.
• Handicraft production: the production of religious objects, such as rosaries, sacred images, and liturgical vestments, is a traditional activity of many orders.
• Educational services: schools, universities, and vocational training institutes are among the most widespread activities, aimed at promoting the cultural and human development of people.
• Health services: hospitals, clinics, and nursing homes are managed by numerous religious orders, offering medical and nursing care to people of all ages.
• Tourism activities: hotels, restaurants, and accommodation centres are managed by some religious orders, offering hospitality and tourist services in places of special historical and cultural interest.

How did the commercial activities of ecclesiastical entities arise?

The association between ecclesiastical entities and works of charity, assistance, and education has its roots in the distant past: over the centuries, as is well known, many Congregations have founded schools, hospitals, and other institutions to meet the needs of the population, often in contexts where the State was unable to provide these services.

These activities, initially carried out purely out of a spirit of solidarity, have over time become structured and organized, often taking on the characteristics of real businesses. They are therefore primarily the result of responding to a need evident in the local reality.

Sometimes, they can also arise in a complementary manner, either to support pastoral activities or to meet the needs of the territory by offering an additional service. The “Case per ferie” (“Holiday homes”) are the clearest example.

Originally, they were conceived as places to accommodate children and young people during the summer who attended schools of religious entities. The primary need for education was enriched in this case by a broader offer to meet a more social need. A similar example is that of spirituality homes, which were specifically designed to offer additional places of silence and prayer.

The Complexity of Commercial Activities

All activities undertaken by ecclesiastical entities, whether of “religion or worship” or “diverse”, undoubtedly involve costs and revenues.

Although not legally required to produce an annual balance sheet and income statement, ecclesiastical entities take the management of their commercial activities very seriously: their mission, in fact, includes offering a quality service, characterized by maximum comfort and assistance to the user who benefits from such service. It is also necessary to analyse, monitor, and plan the revenues of their own activities. The primary objective of generating social value, therefore, meets the need to control the management of activities to at least break even.

In the last decade, the general increase in costs and management complexities has led ecclesiastical entities to continue providing services while incurring significant losses. Unfortunately, this situation is no longer sustainable; if previously breaking even was considered a simple objective, it has now become an essential priority.

Conclusion

In conclusion, it is therefore fundamental to underline how important it is to carry out these activities in a professional manner, relying on expert consultants in the sector, as the financial situation of ecclesiastical entities is complex and requires a multidisciplinary approach. It is necessary to find a balance between the need to guarantee economic sustainability and the maintenance of the institutional mission.

Collaboration between Church and State, the involvement of the faithful, and the openness to new forms of financing are key elements to face the challenges of the future.

It should be remembered that the tax regulations in this area are particularly complex and subject to frequent changes and updates, for which we recommend that you follow our advice:

• Consult a lawyer and a tax expert specializing in the sector: to have a precise and up-to-date answer regarding the legal and tax situation of a particular ecclesiastical entity, it is advisable to consult a lawyer and a tax expert specializing in tax law.
• Verify the agreements with the State: the agreements between the Italian State and the various religious confessions contain specific provisions on tax matters.
• Check regional and local regulations: there may be regional and local provisions that impact the taxation of the commercial activities of ecclesiastical entities.

In conclusion, the commercial activities of ecclesiastical entities play a very broad role, as vast as it is complex to analyse. Consequently, the taxation of the commercial activities of ecclesiastical entities in Italy is also a very delicate issue that requires a case-by-case analysis: it is important to consider the type of entity, the activity carried out, and the applicable regulations.

At Fiat Lux, we are committed to addressing these issues on an ongoing basis, seeking to provide you with increasingly relevant and interesting information, and we hope that our contribution can be useful to your experience. If you have any questions or doubts, please do not hesitate to write to us at: info@fiatlux.legal. We will be happy to share our knowledge with you.