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Livestock and related activities: when income stays agricultural

The one-quarter feed limit, excess animals taxed at a flat rate or analytically, related activities, agricultural VAT and the flat-rate regime, with example.

Livestock farming remains within agricultural income (reddito agrario, the cadastral-based income of farming activities) as long as the farm’s land is capable of producing at least one quarter of the feed needed for the animals raised; animals in excess generate business income (reddito d’impresa), calculated on a flat-rate basis or on actual costs and revenues. Related activities generate agricultural income only if they mainly concern the farm’s own products and the final product is on the ministerial list. Exceeding these limits also affects access to the flat-rate regime (regime forfetario) for other activities.

The framework

Under Article 2135 of the Italian Civil Code (codice civile, c.c.), a livestock farmer is anyone who manages the biological cycle of the animal or a necessary phase of it, even without actually using land. The tax rule is more restrictive. Article 32, paragraph 2, letter b), of the Consolidated Income Tax Act (Testo unico delle imposte sui redditi, TUIR: Presidential Decree, d.P.R., no. 917 of 22 December 1986) treats as generating agricultural income only livestock farming with feed “obtainable for at least one quarter from the land”: what counts is the potential capacity of the land owned or farmed, not the feed actually produced. The number of animals falling within the limit is determined using the criteria of the decree provided for in paragraph 3 of the same article.

For animals in excess, Article 56, paragraph 5, TUIR provides for a flat-rate income: each animal is attributed the average agricultural income per head, multiplied by a coefficient, without deducting any costs. The average value and the coefficient are set by the biennial decree provided for in the same paragraph 5 (for the 2018-2019 period, Ministerial Decree, d.m., of 15 March 2019, Official Gazette, G.U., no. 80 of 4 April 2019): before the calculation, it must be checked which decree is referred to in that year’s instructions to schedule RD of the tax return. The coefficient does not apply to those who raise livestock using exclusively the labour of their own family members, where the relationship does not constitute a family business (impresa familiare): in that case income per head equals the average value alone. The flat rate applies to individual entrepreneurs, simple partnerships (società semplici) and non-commercial entities; not to general partnerships (snc) and limited partnerships (sas), which paragraph 5 excludes by referring to Article 55, paragraph 2, letter c), nor to corporations. For agricultural companies that have made the election under Article 1, paragraph 1093, of Law no. 296 of 27 December 2006, the law does not say how animals in excess are to be treated: the point must be examined case by case. In the tax return the flat rate may be waived and income from animals in excess determined analytically. Anyone raising livestock above the limit must keep a chronological stock-in and stock-out register by species and cycle (Article 18-bis of Presidential Decree no. 600 of 29 September 1973; from 1 January 2027 the provision moves to the consolidated code on compliance and assessment, Legislative Decree, d.lgs., no. 141 of 5 August 2026).

The related activities under Article 2135, third paragraph, c.c. (handling, preservation, processing, marketing and enhancement of products obtained mainly from livestock farming) generate agricultural income if the final product is included in the list of the biennial decree provided for in Article 32, paragraph 2, letter c), TUIR, currently the Ministerial Decree of 13 February 2015. Outside the list, but with the predominance test met, income equals 15% of the consideration received (Article 56-bis, paragraph 2); for services provided mainly using the farm’s own equipment and resources, it equals 25% (paragraph 3). Both coefficients apply to individual entrepreneurs, simple partnerships and taxpayers that have made the election under Article 1, paragraph 1093, Law no. 296/2006 (paragraph 4). Here too it is possible to opt for the ordinary regime (paragraph 5).

For VAT purposes, the livestock farmer is an agricultural producer (Article 34, paragraph 2, letter a), Presidential Decree no. 633 of 26 October 1972) and, on sales of products listed in Table A, Part One, deducts VAT on a flat-rate basis using the compensation percentages. With turnover in the previous calendar year not exceeding 7,000 euros, made up for at least two thirds of sales of those products, the farmer is exempt from VAT payments and from documentary and accounting obligations, including the annual return; the obligation to number and keep invoices remains (paragraph 6). From 1 January 2027 the TUIR provisions cited move to the new consolidated income tax code (Legislative Decree no. 117 of 19 June 2026), which also includes the grounds for exclusion from the flat-rate regime (Article 233, formerly Article 1, paragraph 57, Law no. 190/2014). From the same date the VAT provisions move into the consolidated VAT code (Legislative Decree no. 10/2026).

What changes in concrete terms

An individual livestock farmer fattens calves. Applying the decree’s criteria, his land covers 450 of the 600 animals raised: 150 animals, or 25%, are in excess. During the year he sells 480,000 euros’ worth and incurs costs of 420,000 euros. If he waives the flat rate and keeps accounts, allocating revenues and costs in proportion to the number of animals (a convenience criterion not laid down by law: it must be documented and replaced by specific allocation when the accounts allow it), business income from the animals in excess is 120,000 minus 105,000, i.e. 15,000 euros, in addition to agricultural income from the land. With the flat rate under Article 56, paragraph 5, income depends only on the animals in excess and on the values in the decree and is often lower; but costs do not count, not even in a loss-making year.

If the same farmer ploughs and harvests for third parties with the farm’s machinery and collects 20,000 euros, taxable income is 5,000 euros (25%).

For the flat-rate regime under Law no. 190 of 23 December 2014, paragraph 57, letter a), excludes those who apply special VAT schemes or flat-rate income determination regimes. According to Circular no. 10/E of 4 April 2016 of the Italian Revenue Agency (Agenzia delle entrate), section 2.3, the special agricultural scheme does not prevent the flat-rate regime for another activity as long as the agricultural activity generates agricultural income within the limits of Article 32; it does prevent it, however, when the activity under the special VAT scheme generates business income. On the prudent reading, the flat rate under Article 56, paragraph 5, is also one of the flat-rate income determination regimes that letter a) treats as a ground for exclusion. If the farmer in the example wished to open a shop, for as long as he applied the special VAT scheme to the excess livestock farming (or the flat rate on animals in excess) he could not apply the flat-rate regime to the shop. Leaving those regimes (opting for ordinary VAT, Article 34, paragraph 11, Presidential Decree no. 633/1972, and waiving the flat rate in the tax return) is not enough: the excess livestock farming remains a business activity and its revenues count towards the 85,000-euro limit under Article 1, paragraph 54, letter a), of Law no. 190/2014. In the example the limit would be exceeded, so the flat-rate regime would remain excluded.

In practice

• Every year, before the tax return, the accountant compares the animals raised with those that may be raised, using the layout of schedule RD, on the basis of land registry extracts and lease agreements.
• The livestock farmer updates the stock-in and stock-out register during the year: if there are animals in excess it is mandatory; otherwise it is the simplest evidence in the event of an audit.
• In the income tax return the choice is made between the flat rate and analytical income, after checking that the year’s accounts allow it.
• Before opening a second activity under the flat-rate regime, check that livestock farming and related activities remain within the limits of Article 32.
• For soccida contracts (livestock partnership agreements under which the animals’ growth is shared between the parties), keep the contract, the records of the start and end of each cycle and the valuation of the sharing of the growth.

Mistakes to avoid

• Counting purchased or produced feed: the limit is measured on the potential capacity of the land.
• Treating as agricultural a related activity whose final product is not included in the Ministerial Decree of 13 February 2015: even with the predominance test met, the income is business income.
• Applying the flat rate under Article 56, paragraph 5, in an snc or an sas.
• Applying the multiplying coefficient when only family members work on the farm without a family business.
• Taking the flat-rate regime for granted for the second activity when the livestock farming is in excess.
• Providing for the sharing of growth in the soccida without actually implementing it: the Agency looks at the parties’ actual conduct and at the accounting records (ruling no. 134/2024).

References

Article 2135 c.c.

Articles 32, 55, paragraph 2, letter c), 56, paragraph 5, and 56-bis, Presidential Decree no. 917 of 22 December 1986

Legislative Decree no. 117 of 19 June 2026, Article 233

Article 34, Presidential Decree no. 633 of 26 October 1972

Legislative Decree no. 10/2026

Article 18-bis, Presidential Decree no. 600 of 29 September 1973

Legislative Decree no. 141 of 5 August 2026

Article 1, paragraphs 54 and 57, Law no. 190 of 23 December 2014

Article 1, paragraph 1093, Law no. 296 of 27 December 2006

Ministerial Decree of 13 February 2015 (Official Gazette no. 62 of 16 March 2015)

Ministerial Decree of 15 March 2019 (Official Gazette no. 80 of 4 April 2019)

Agenzia delle entrate, Circular no. 10/E of 4 April 2016, section 2.3, ruling no. 134/2024, instructions to schedule RD of the Redditi tax return forms