All persons who are resident in Italy are liable without restriction for income tax on all their domestic and foreign earnings. Non-resident persons are liable for income tax only on any income earned in Italy.
A person is regarded as resident in Italy if they are registered as resident for at least 183 days in a year, have their place of work (domicilio) or have registered their place of residence (residenza) within the territory of the state. Residency is assumed even if only one of these conditions is met.
Total income includes income from real estate, capital assets, non-self-employed activity, self-employed activity, corporate income and other incidental income. The total of these sources of income forms the taxable base. There are several special allowances which can be offset against this, including pension contributions, social security contributions, voluntary pension contributions etc.
The most important direct tax for private individuals is income tax: IRPEF (imposta sul reddito delle persone fisiche). It is a progressive tax, i.e. higher tax rates are applied to higher income levels.
Tax rates according to annual income:
|Annual income||Tax rate|
|Up to 15,000 euros||23%|
|From 15,000 to 28,000 euros||27%|
|From 28,000 to 55,000 euros||38%|
|From 55,000 to 75,000 euros||41%|
|From 75,000 euros||43%|
Tax deductions (for example allowances for dependent members of the family, premiums for life insurance and accident insurance, medical expenses, recycling work or energy saving work on buildings, etc.) may be deducted from the gross tax. There is no provision in law for splitting income between spouses.
Regions and municipalities are allowed to levy a surcharge on income tax (IRPEF). In South Tyrol, the regional income tax surcharge is 1.23%. Income up to € 28,000 is exempt. Parents of dependent children where the parental income is less than € 70,000 are entitled to a tax deduction of 252 euros per child.
So far, only a few, individual municipalities have taken advantage of the ability to levy a municipal surcharge on income tax. The rates of assessment may vary from one municipality to another and also depend on the level of income. The rates of assessment currently lie between 0.10% and 0.80%.
Corporation tax IRES (Imposta sul reddito delle società)
The profits of incorporated companies, cooperatives and commercially active corporate bodies are subject to corporation tax (IRES), which was reduced in 2017 (from the previous 27.50%) to 24.00%.
Regional tax on productive activities IRAP (Imposta regionale sulle attività produttive)
The regional tax on productive activities IRAP (Imposta regionale sulle attività produttive) must be paid for any regular engagement in independently organised activities aimed at the production or exchange of goods or services. In practice, this means that all companies, and most other forms of business, are subject to IRAP. The IRAP does not apply to micro-businesses with beneficial tax regimes (dei minimi regimes or regimo forfettario) or small enterprises and self-employed persons who have no independent structure, no staff deployment or exceptionally high deployment of company assets, but this will need to be assessed on a case-by-case basis.
IRAP is calculated on the net value added of a company, i.e. on the income earned plus personnel costs for fixed-term employment and financial expenses. Social security contributions can be deducted from the assessment basis and there is also provision for additional allowances and lump-sum deductions. In South Tyrol, a reduced tax rate of 2.68% applies.
Value added tax VAT (Imposta sul valore aggiunto – IVA)
Italy, as part of the European Single Market, falls under the VAT legislation of the European Union. The VAT Directives are issued by the European Union and set out the principles of VAT legislation that must be implemented by Member States.
Those liable to pay this tax are primarily all businesses and freelance professionals, public and private bodies, as well as private individuals (in some exceptional cases).
The standard rate of VAT has been set at 22% and is generally applied to the sale of goods and the provision of services. There are however many exceptions
The reduced VAT rate of 10% applies to food (apart from basic foodstuffs), household electricity, drinking water, hotel and restaurant services and recycling work or energy saving work on residential buildings.
The VAT rate of 4% is applied to basic foodstuffs (for example, bread, rice, milk, butter, cheese, cooking oil, fruit, vegetables, etc.) as well as to any benefits granted for the acquisition or extension of the primary residence.
For the trader VAT is basically a pass-through tax (tax neutral), since the VAT can be deducted from the purchases, provided that the purchases relate to the business activity.
The tax return: Who has to file a tax return? Who can help with the preparation of the tax return?
In Italy, all citizens are required to handle their tax returns and payment due dates etc. proactively. Over the last few years the Italian Government has endeavoured to provide taxpayers with a pre-filled tax return (dichiarazione precompilata); nevertheless, each taxpayer must personally ensure that all income is declared in a timely manner and that taxes are paid by the due date.
When preparing your tax return, you can either contact the tax assistance centres (Centro assistenza fiscale, CAF for short) or one of the tax consultants, who are listed in the official professional registers. These can also provide information in individual cases as to whether a tax return must be submitted and if so, what must be submitted.
Tax benefits for wise minds
The Decree for the Internationalisation of Enterprises (D.Lgs. 147/2015) created some interesting tax benefits for highly qualified and senior workers who move to Italy. The tax benefit allows a 50% reduction in the income tax payable on employment activities for a maximum of 5 years, provided that the employee has not lived in Italy for the previous 5 years and remains in Italy for a minimum of 2 years.
The State Budget Law 2017 extended this innovation, so that the above-mentioned tax benefit can also be claimed by the self-employed. Currently the benefit is to remain in force until 2020. The precise conditions for this benefit must be assessed on a case-by-case basis; a blanket implementation is not applicable.
More information on tax law and its application can be found on the Agentur für Einnahmen web site (Italian or German).
Please note that this information about Italian tax law is a translation from original sources and has been provided purely for the convenience of visitors to the website. Whilst every attempt has been made to ensure that it is accurate and up-to-date, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy or reliability of the information provided.< Back