One of the hardest things about moving to a new country is getting your head around its financial system, and Italy is no exception. When living and working in Italy, it’s important to understand how you’ll be taxed on your income and assets, and learn about some of the deductions you can use to reduce your tax bill. Read on for advice on the following:
- The Italian tax system
- Federal taxes in Italy
- Regional Italian taxes
- Local taxes in Italy
- Italian taxes on goods and services (VAT)
- Who has to pay tax in Italy?
- The Italian tax system for foreigners
- Income tax in Italy
- Tax on property and wealth in Italy
- Inheritance tax in Italy
- Italian business taxes
- Import and export taxes in Italy
- Rebates and reliefs on Italian taxes
- Tax avoidance and evasion in Italy
- Advice on Italian taxes
- Useful resources
The Italian tax system
When it comes to tax rates, Italy is something of a mixed bag compared to its European neighbors. Italy’s top rate of income tax is 43%, a figure considerably higher than the European Union average of 38%.
On the other hand, other taxes incur lower costs. For example, Italy has some of the lowest inheritance tax rates in Europe, and its corporate tax rate for businesses has fallen from 31% to 24% over the last decade.
The Italian Revenue Agency (Agenzia delle Entrate) oversees taxation in Italy. The tax year runs from 1 January to 31 December. Changes are proposed as part of the annual budget, usually in November. The Italian Senate then votes on whether to pass the proposals before the end of the calendar year.
The introduction of a new tax on income derived from cryptocurrency investments was one of the most significant announcements in the 2023 budget. Cryptocurrency profits of more than €2,000 will be taxed at 26% under the new rules.
Federal taxes in Italy
The government sets standard rates and deadlines for the whole of Italy on a handful of important taxes:
- Income tax – the standard rates of income tax range from 23% to 43%
- Corporate tax – companies are taxed on their profits at a rate of 24%
- Inheritance tax – inheritance tax allowances range from zero to €1 million, and rates range from 4% to 8%
- VAT – the standard rate is 22%, but lower rates are available for some goods and services
Regional Italian taxes
Italian income tax rates are set at a national level, but taxpayers must also pay a regional surcharge and municipal tax. How much you’ll pay varies depending on where you live. The regional surcharge varies from around 1.2% to 3.3%, and the municipal tax ranges from 0% to 0.9%.
A regional production charge (imposta regionale sulle attivita produttive, or IRAP) is also payable on top of corporate tax. IRAP is payable in all Italian regions (regioni) and applies where the business is located. If a company operates across more than one regione, the charge is divided based on the proportion of workers in each area. The standard rate of IRAP is 3.9%, but different regions can choose to increase their rates by up to one percentage point.
Local taxes in Italy
Some homeowners in Italy must pay a tax to their municipality (comune) called IMU (imposta municipale unica). This tax is only levied on second homes, buy-to-let properties, and ‘luxury’ residences. So if you only own one property and live in it yourself, you won’t need to pay. IMU is charged at between 0.1% and 1.06% of the property’s cadastral value (valore catastale) depending on the type of dwelling, but check your comune’s current rates, as these can vary. A second property tax covering services provided by the local municipality, TASI (Tributo per i Servizi Indivisibili), was folded into IMU as part of the 2020 Budget.
All homeowners in Italy must pay waste collection tax, TARI (tassa sui rifiuti). A fixed rate is charged based on the size of the property you live in and the number of people living there. TARI is payable once a year, and you should receive an annual invoice in the post from your local council.
Italian taxes on goods and services (VAT)
VAT in Italy is called IVA (Imposta sul Valore Aggiunto), and it is charged on goods and services by businesses and entrepreneurs in Italy. There are several rates, which are as follows:
- 22% – standard rate
- 10% – electric power supplies and specified medicines
- 5% – specified health services and transport services
- 4% – specified food, drinks, and agricultural products
- 0% – education, insurance, some financial services
Businesses must obtain a VAT number (Partita IVA) from the Italian Revenue Agency to register for VAT. This unique 11-digit number identifies a company or self-employed worker. The deadline for filing an annual return is 30 April.
Self-employed people who are resident in Italy and have an annual income of less than €65,000 a year (€85,000 from 2023) can opt for a flat-rate tax scheme that exempts them from VAT obligations.
Who has to pay tax in Italy?
If you work in Italy or run your own company, you’ll need to pay tax on your income or profits. Your taxable base depends on the amount left after compulsory contributions (such as social security) and any allowable deductions.
Employees or self-employed workers who live in Italy for more than 183 days a year are considered residents for tax purposes. This means they need to pay Italian income tax on their worldwide earnings.
Those living in Italy for less than 183 days a year only need to pay tax on income derived within the country. This is thanks to its range of double taxation treaties (in Italian) that ensure workers don’t pay tax twice on the same income.
Tax allowances and exemptions
Italy doesn’t have a personal allowance for income tax, but workers can benefit from various deductions. Standard credits include family expenses, medical expenses, and mortgage interest payments. There are also credits available for employment income and pension income.
The Italian tax system for foreigners
Italy strongly incentivizes foreign workers to move to the country and contribute to its economy. With this in mind, a couple of enticing tax schemes are available for internationals moving to Italy.
Workers relocating to Italy scheme
The ‘workers relocating to Italy’ scheme (lavoratori impatriati) allows newcomers who transfer their tax residence to Italy to benefit from lower tax rates on income from employment or self-employment. Under this system, expats only need to declare 30% of their earnings for tax purposes for the first five years. If you live in Abruzzo, Molise, Campania, Apulia, Basilicata, Calabria, Sardinia, or Sicily, you can reduce your taxable base to 10% of your income.
The scheme also allows workers to pay tax on just 50% of their income for an additional five years if they buy a property in Italy or have dependent children.
Tax regime for new residents
This scheme allows high net-worth individuals to pay a flat sum of €100,000 a year instead of Italian income tax. This sum replaces tax on earnings, foreign investment or assets. In addition, individuals using it can add family members for €25,000 each.
Reduced tax rate for retirees
Finally, retirees moving to Italy can benefit from a reduced tax rate of 7% on income derived from foreign sources (such as overseas pension income). To qualify, the recipient must move to a qualifying municipality with 20,000 inhabitants or fewer. This regime is only available in specific areas of Italy.
Income tax in Italy
Italian income tax (IRPEF or imposta sul reddito delle persone fisiche) is a progressive tax payable on earnings from employment and self-employment. The tax bands for 2023 (covering earnings from 2022) are as follows:
- Up to €15,000: 23%
- €15,001–28,000: 25%
- €28,001–50,000: 35%
- €50,001+: 43%
How to file your income tax return
Not everyone in Italy needs to file an annual tax return. For instance, you’ll be exempt if you only earn your income from one employer or earn less than €8,000 in a year.
If you do need to file a return, you can do so online through the Italian Revenue Agency. Two different forms are available depending on your type of employment and the types of income you need to declare. The deadline to file your return is either 30 September or 30 November, depending on which form you must submit.
Self-employed income tax
A special tax regime (regime forfettario) is available for self-employed people in Italy. If you earn below €65,000 a year (€85,000 from 2023), you can choose to pay the standard income tax rates or opt for the flat-rate tax system. This allows you to benefit from a tax rate of 5% for the first five years you run your business and then 15% thereafter.
Tax on property and wealth in Italy
While those who own property in Italy may need to pay IMU and waste collection tax, those with real estate and financial investments outside of Italy may be liable for wealth taxes.
If you sell an Italian property, you may need to pay capital gains tax (imposta sulle plusvalenze – in Italian) on your profits. However, if you’ve owned your property for more than five years and it was your primary residence, you won’t have to pay capital gains tax when you sell.
Meanwhile, you will need to pay capital gains tax at a rate of 26% when selling a buy-to-let property, second home, or holiday home after less than five years. There are some deductions allowable, including the cost of selling the home (such as estate agent fees) and any money you’ve spent on the property.
If you let out a property in Italy, you’ll need to pay tax on your rental income. You have two options. First, you can pay the standard income tax rate and deduct a flat rate of 5% for expenses incurred. Alternatively, you can use the flat rate (cedolare secca – in Italian) scheme. This allows you to pay a rate of 21%, but you won’t be able to offset any deductions.
Inheritance tax in Italy
Inheritance tax in Italy is less punitive than in most other European countries (PDF), with most direct descendants not required to pay any tax on the deceased relative’s estate. The main rules are as follows.
- Spouses, children, or those in a direct line to the deceased (such as grandchildren) each have an individual tax-free threshold of €1 million. Inheritance tax is levied at 4% on the sum inherited above €1 million.
- Brothers and sisters of the deceased each have a tax-free threshold of €100,000. Tax is charged at 6% on the sum inherited exceeding this amount.
- Other heirs don’t have a tax-free threshold. Relatives up to the fourth degree of separation pay tax at 6%, while other heirs and non-related inheriters pay 8%.
Inheritance tax is payable within 60 days of the date on which the assessment of the estate is served. In addition, inherited real estate is taxed at 3% (2% mortgage tax and 1% cadastral tax). The latter is based on the property’s cadastral value, which is usually lower than the market value.
Italian business taxes
Businesses in Italy must pay corporate tax (Imposta sui redditi delle società – Ires) and regional production tax (Imposta regionale sulle attività produttive – Irap) on their profits. The standard corporate tax rate is 24%, while regional production tax is charged at 3.9%. Some companies, such as those in financial services and insurance, pay a higher rate of Irap.
When filing your company’s taxes, you can offset a range of allowable deductions, for example, depreciation of assets, interest payments, and charitable contributions. In addition, some companies can benefit from lower rates of taxation. This is the case for small businesses and those operating in one of Italy’s special economic zones. If you are setting up a company in Italy, consider taking expert advice on your allowances.
Import and export taxes in Italy
Imports to Italy from outside the EU are liable for duty if they are worth more than €150. Rates range from 0% to 17%, and average 4.2%. You can check how much import duty you’ll need to pay on different goods on the Excise, Customs, and Monopolies Agency (Agenzia delle Accise, Dogane e Monopoli – ADM) website.
Italy has one of the highest gas taxes in the European Union. According to the Tax Foundation, Italy’s charge of €0.73 per liter is second only to the Netherlands (€0.82 per liter). In addition, Italy’s tax on diesel at €0.62 per liter is the highest in the EU.
Rebates and reliefs on Italian taxes
In addition to the standard tax credits, there are a series of other tax ‘bonuses’ available in Italy, which can change from year to year.
In 2023, these include:
- 110% Superbonus – a tax deduction for those who carry out renovations for energy-efficient buildings and protection against earthquake damage.
- Bonus ristrutturazioni – a 50% tax deduction for people renovating their homes, with a spending limit of €96,000.
- Bonus risparmio idrico – a bonus of €1,000 for Italian residents who install water-saving plumbing in new or existing buildings.
You can read a complete list of tax bonuses and deductions on the Agenzia delle Entrate website.
Tax avoidance and evasion in Italy
Italy has significant problems with tax evasion. Data from the European Commission shows the country loses €99 billion a year from it, with €30 billion attributed to unpaid VAT. This is the highest figure in any EU country. The Bank of Italy says more than 80% of payments in Italy are still made in cash, which increases the prevalence of VAT evasion.
Italy does have measures in place to limit the amount of lost tax payments. It has pioneered the use of artificial intelligence, with an algorithm used to identify which taxpayers are at risk of not paying their bills. As a result, the government says more than a million high-risk cases were identified in 2022, and €6.8 billion in fraud was prevented.
You can face severe penalties for inaccurate, incomplete, or fraudulent tax filing. These include:
- Failure to file a tax return – 120–240% of the taxes due
- Tax return showing lower taxable income than the actual income – 90–180% of taxes due
- Late or unpaid taxes – 30% of unpaid tax, 1% per day within 15 days, 15% between 15 and 90 days
More serious tax fraud, such as creating invoices for non-existent transactions, fraudulent tax returns, or concealing or destroying accounting documents, can result in far higher fines and imprisonment.
Advice on Italian taxes
Getting to grips with the tax system in a new country can be tricky. One way to make your tax returns easier is by getting professional advice from an English-speaking tax expert. This is especially helpful if you intend to set up a company in Italy.
You can find an accountant by checking our Directory or contacting the CNDCEC (Consiglio Nazionale dei Dottori Commercialisti e degli Esperti Contabili), the mandatory trade body for accountants operating in Italy.