Personal income tax applies to an individual’s total income. 

Gross tax is calculated by applying the rates per bracket to the total net income, minus deductible expenses.

RESIDENTS – PERSONAL INCOME TAX

For residents, total income consists of all income, regardless of source. Certain expenses (oneri deducibili – ‘deductible expenses’) may reduce total income, such as social security and welfare contributions, or donations to nonprofit organizations.

Gross tax is calculated by applying the rates per bracket to total income, minus deductible expenses.

The personal income tax is calculated by subtracting the deductions provided for by law from the gross tax: for example, deductions for spouses, children (aged 21 and over) and other dependent family members, and deductions for certain types of expenses incurred during the year (such as health and education expenses, interest on mortgage loans) Any tax credits due should also be deducted.

Deductions are generally applied up to the amount of the tax due. Amounts exceeding the tax due cannot be reimbursed.

NON-RESIDENTS – PERSONAL INCOME TAX

For nonresidents, total income consists only of income earned in Italy.

Nonresidents may only deduct certain deductible expenses from their total income, such as donations. 

As for residents, gross tax is calculated by applying the rates per bracket to their total income, minus deductible expenses. Nonresidents may make certain deductions, such as deductions for employed work, deductions for expenses relating to building renovations, or deductions for certain types of donations from gross tax.

Personal income tax (Irpef) is payable by natural persons who receive the following types of income:

• income from real estate, buildings, and land
• capital gains
• income from employed work (including income from subordinate employment and retirement income)
• income from self employed work
• business income
• other income 

All natural persons, regardless of whether or not they reside in Italy, are liable to pay personal income tax.

In Italy, ‘withholding agents (employers or principals) withhold tax on the amounts they pay to:

• employees and workers who receive an income as employees. The same applies to pensions paid by pension institutions to pensioners
• self-employed professionals, i.e. self-employed persons with registered VAT numbers
• occasional self-employed workers who do not provide their services habitually, and are therefore not required to have a VAT number

The amount of deductions is stated in a Single Certificate that the withholding agent delivers to the worker or pensioner each year. Withheld taxes are called ‘advance payments’ because the income to which they apply is subject to ordinary taxation and must be indicated in the tax return. Withheld taxes should also be indicated in the return and reduce the overall tax liability of the taxpayer.

For self-employed professional workers resident in Italy, the withheld tax is 20%.

However, if the self-employed person is not resident in Italy, the withheld tax is 30% and is ‘for tax purposes’, i.e. it is definitive and does not need to be included in the tax return.

If you work as a self-employed person on a regular, continuous, and exclusive basis with an entity resident in Italy, you must:

• register for a VAT number
• carry out all tax obligations in the course of your business. The first step is to verify whether the activity may fall within the scope of the flat-rate scheme. If it is not covered by the flat-rate scheme, there are the following requirements::
  • keep accounting records
  • file a tax return using the Redditi PF form (in particular, the LM box)
  • submit the Summary Reliability Indices (ISA) form, if necessary
  • submit an IRAP (trade income) tax return, if necessary
  • fulfill any VAT obligations

Tax benefits are provided for employed and self-employed persons who transfer their residence to Italy.

Lavoratori impatriati (workers relocating to Italy) are employees and freelance workers who transfer their place of residence to Italy.

Preferential treatment is also granted in respect to income generated by workers who have transferred to Italy and who commence their activities in Italy beginning with the tax period following that at 31 December 2019.

Under the scheme, for 5 years, income from work as an employee (or similar category) and self-employment in Italy is taxed at 30%, or 10% if the worker becomes resident in one of the following regions: Abruzzo, Molise, Campania, Apulia, Basilicata, Calabria, Sardinia or Sicily.

The scheme may be extended for a further period of 5 years under certain conditions. During the extended period, 50% of the subsidized income will be taxable (10% in the case of workers with at least three children under 18 or otherwise dependent).

The tax relief scheme for new residents concerns persons who become residents for tax purposes in Italy. Persons who sign up for the scheme can benefit from a substitute tax on income generated abroad by paying a flat-rate tax of EUR 100 000 for each tax year generated abroad by paying a flat-rate tax of EUR 100 000 for each tax year.

VAT, or value-added tax, or IVA, Imposta sul Valore Aggiunto, in Italian, is a consumption tax that applies to the supply of goods and services in Italy by entrepreneurs, professionals, or artists, and on imports by anyone. In some cases, intra-community acquisitions are subject to VAT.

In Italy, the standard VAT rate is 22%, and reduced rates are provided for many types of goods and services, such as 4% for listed food, drinks and agricultural products or 10% for electric power supplies for listed uses, and listed drugs. Specific goods and services expressly listed in Presidential Decree n. 633/72 are exempt from VAT, for example, education, insurance services, specific financial services, supply, and leasing of particular immovable property.

VAT registration is mandatory in Italy for persons engaging in the following activities:

• business or agricultural activities
• artistic or professional activities on a regular basis.

Registration involves the acquisition of a VAT number; this is an 11-digit code that must be displayed on every invoice or other commercial document issued or received in the course of business.

Non-resident persons intending to start a business, art or profession must discharge their VAT obligations in Italy if they also perform activities for final consumers or non-commercial entities that are not VAT-registered. At the same time, they will be able to exercise the rights arising from the tax, such as the right to deduct VAT on purchases and to claim refunds.

Foreign operators are not required to register for VAT in Italy if their customers in Italy are exclusively other VAT entities established in Italy. For example, registration is not necessary if an entity not established in Italy sells goods only to other traders, and not to final consumers. In this case, all VAT obligations will be borne by the Italian operator.

IRES

The tax rate of the corporate income tax (IRES) is 24%.

Who is liable to pay IRES:

• joint-stock companies and partnerships limited by shares, limited liability companies, cooperative companies, mutual insurance companies, European companies (EC regulation No. 2157/2001 ) and European cooperatives (EC regulation No. 1435/2003) which qualify as tax residents in Italy
• public and private entities resident in Italy, including consortia, trusts, entities for collective investment, and non-profit organizations (NPOs)
• all sorts of companies and other legal entities, including  trusts, which are not tax resident in Italy, only with respect to income from items from Italian sources

Entities that are considered tax resident in Italy include:

• companies or entities that for the majority of a relevant tax period have (i) their legal seat registered in Italy, (ii) their place of effective management located in Italy, or (iii) the main object of their business located in Italy
• entity for collective investment set-up in Italy
• trusts (and similar institutions) established or organized in a country with which Italy does not exchange information on tax matters if at least one of the owners and one of the beneficiaries are tax residents in Italy
• trusts established or organized in a country with which Italy does not exchange information on tax matters, if subsequent to their establishment, a resident taxpayer of Italy transfers to the trust (part of) real estate properties located in Italy or (part of) real estate property rights with respect to real estate properties located in Italy.

IRAP

Italian corporate entities and non-resident companies, only on Italian source income, are subject to a corporate income tax, IRES, and a regional production tax, IRAP.

The regional production tax ( IRAP) is a local tax on productive activities realized within a regional territory. The standard rate is 3.9%, but higher  IRAP rates are, for example, applicable to banks and financial institutions (4.65%) and insurance companies (5.90%).

Regional authorities have the right to increase or decrease the IRAP rates within the limit of 0,92%.

IMU – the IMU (Imposta Municipale Unica) tax is calculated using the cadastre income value (Rendita Catastale) of your property. There are several cadastral categories of properties and the rate used for the calculation is higher for non-residents than residents.  The rate can vary from year to year, and each municipality (Comune) decides on the rate it will use (within perimeters set by the government). Property tax is due two times per year (June and December).  Tenants do not have to pay IMU.

The IMU is not due for the main residence and related appurtenances. Main residence means the property, registered or inscribed in the building register urban as a single real estate unit, in which the owner or the holder of real rights lives habitually and resides at the registry office.

TARI – is the waste disposal tax (Tassa sui Rifiuti). It is calculated based on the size of your property and the number of inhabitants. You will have to declare this data in your TARI declaration.