It’s absolutely essential to understand what taxes you are required to pay so you don’t find yourself in trouble with Italy’s tax agencies. Expats who are living in Italy are required to file taxes, just like local residents. However, unlike locals, there are certain tax benefits and deductions that Expats may be eligible for.
It’s extremely important to keep in mind that every individual’s financial circumstances are unique and this will impact what you are required to pay and precisely which tax benefits you are entitled to claim. This means that it may be worth meeting with a local tax expert to ensure that you don’t accidentally fall foul of the regulations and laws in Italy. Equally, personal financial advice could open up legal loopholes and deductions that you may not have been aware of.
This is especially true if you are setting up a business in Italy or have complicated sources of income in more than one country. Despite this, Italy’s government has been taking steps to simplify the tax regime and make it easier for Expats to adapt to life abroad.
The Different Types Of Taxation In Italy.
The following are the different types of individual taxation in Italy:
National Income Tax (IRPEF) In Italy.
Italians and Expats living in Italy on a permanent or semi-permanent basis are required to pay tax on the income they earn during that period. Expats who are staying in Italy for more than 6 months of the year are required to pay taxes on any income earned in Italy as well as income earned in other countries, such as the United States or UK. On the other hand, Expats who stay for less than 6 months of the year only need to pay tax on income that is directly earned in Italy.
The main income tax in Italy is called ‘Imposta sul reddito delle persone fisiche’, or ‘IRPEF’ for short. The rates of tax in the IRPEF scheme vary depending on the income bracket that you fall into, with higher rates of tax being charged on higher income brackets.
The National Income Tax Brackets For IRPEF In Italy.
Within the IRPEF scheme, the tax rates are broken down into earnings brackets. Italy has a progressive tax system which means that higher earners are charged at a higher rate for any additional income they earn over and above the previous income bracket. The rates of tax for the IRPEF can be seen in the table below. NOTE: These rates can change.
| Income Bracket | Rate (%) |
|---|---|
| 15,000 Euros and below | 23 |
| 15,001-28,000 Euros | 25 |
| 28,001-50,000 Euros | 35 |
| Over 50,001 Euros | 43 |
For example, if you earn 50,000 Euros a year you will be charged 23% tax on the first 15,000 Euros, then 25% tax on income between 15,001 and 28,000 Euros and finally 35% on the final 28,000 to 50,000 of your earnings.
On top of your basic income tax, there may also be a 10% tax that is charged on any income that is generated from stocks, shares, incentive plans at your workplace and performance-related bonuses.
Regional Income Tax Rates In Italy.
A region in Italy is like a state in the United States. For example, Tuscany and Lombardy are regions. Expats in Italy are subject to regional taxes on their income. These taxes vary from 1.23% to 3.33%, depending on which province you are living in.
Municipal Income Tax Rates In Italy.
Just like the regional taxes, expats may be subject to municipal income taxes. These taxes are very low and vary from 0% to 0.9%, depending on where you are living.
Value Added Tax In Italy.
In Italy, a value-added tax, or ‘VAT’, is levied on most goods and services. The rate of VAT in Italy is generally set at 22% although some essential goods and products are taxed at a much lower rate. You don’t need to declare this because it is automatically added to the price of goods and services that you purchase. However, certain foods, agricultural products and other goods are taxed with only 4% VAT. There are also VAT exemptions for medical care, education and insurance services, among others.
VAT will have a big impact on your budget when you renovate a property in Italy.
Wealth Tax In Italy.
Expats who live in Italy for more than 6 months of the year are required to pay a wealth tax on real estate and financial investments, even if they are outside of Italy. For property in another country, the wealth tax is charged at a rate of 0.76% of the value of the real estate whereas financial investments are taxed at a rate of 0.02% of their value.
Property Tax In Italy.
Taxes for properties in Italy are charged at a rate of 0.5% for your principal residence and 0.86% if you buy a second property in the country.
Inheritance Tax In Italy.
Italy has a standard inheritance tax rate but you may be entirely exempt, depending on your relationship to the deceased. If you receive an inheritance from direct relatives or a spouse, the inheritance tax is 4% over and above 1 million Euros per heir.
Corporate Tax In Italy.
There are two categories of corporate tax in Italy. The first-rate, known as the ‘IRES’ is a tax on the worldwide income of an Italian resident corporate entity and is charged at a rate of 24%.
The second type of corporate tax is known as the ‘IRAP’ and is a regional corporate income tax. This is charged at a standard rate of 3.9%. However, different regions have different rates and in some cases, it can be as low as 0.92%.
What Is Considered As Income In Italy?
If you live in Italy for more than 6 months of the year then you need to pay tax on all of the income that you earn, even if it is generated outside of the country. If you live in Italy for less than 6 months of the year you only need to pay taxes on income that is generated within Italy.
There are many subtleties in the regulations and plenty of opportunities to qualify for various exemptions, however, as a general rule, the following types of income are subject to tax in Italy:
Income generated from a business while you are a resident in Italy.
Income that is generated from an Italian pension.
Any income generated from an Italian trademark or patent.
Income generated from Italian capital gains and income.
Income that is generated from employment in Italy, including remote and freelancer work contracts.
Do You Have To Pay Tax On Your Pension If You Are An Expat?
If you are receiving a pension that is sourced in Italy then you will have to pay taxes on this income. However, if you have an overseas pension you will not usually have to pay tax on it because you would probably have already paid tax on it in the country of origin, the United States or UK for example.
To find out whether you need to pay tax on a foreign pension in Italy you should check with your local embassy and ask what the status of the ‘double taxation treaty’ is for your country of origin.
If, on the other hand, you have applied for, or already obtained, Italian citizenship then you will probably have to pay tax on any pension, even if it’s sourced from overseas.
When Is The Deadline For Filing Taxes In Italy?
Remember, a good part of the taxes in Italy are paid at source. Each year, Form 730 is due by the 30th of September and Form Redditi PF by the 30th of November. Individuals who are not resident in Italy during the tax year and or during the year when the tax return is due should file their taxes using the Redditi PF only.
NOTE: Form 730 is a simplified income tax return. Typically the amount to be paid or refunded is added/taken form your paycheck. Married couples can file Form 730 jointly. If form 730 is not applicable, you have to submit the Modello Redditi PF. Married couples cannot file Redditi PF jointly.
Do You Have To File Taxes If You Are An Employee In Italy?
No, if your only source of income is a job in Italy then you don’t have to file for income taxes. Your taxes are filed and paid automatically through the nationwide PAYE system and are simply deducted from your monthly pay check.
If you have changed your job, claimed unemployment benefits or have other sources of income, then you may need to file to adjust your payable taxes, although you should seek advice from your new employer about whether this will apply to your circumstances.
Tax Exemptions That You Need To Be Aware Of In Italy.
There are tax exemptions that are available to people with a low income and deductibles for specific categories of expenses. These exemptions and deductions apply to the nationwide IRPEF income tax regime. You do not need to pay income tax if:
You earn less than 8,000 Euros as an employee in Italy.
If you are under 75 years old and earn less than 7,500 Euros in total each year.
If you are over 75 years old and earn less than 7,750 Euros in total each year, through your pension for example.
Tax Deductions That You Need To Be Aware Of In Italy.
When calculating your income tax filings you may be able to claim deductions for expenses related to the following categories:
Healthcare expenses.
Educational expenses, including fees for university.
Kindergarten fees.
Renovations on a property in Italy.
Mortgage interest payments on your primary residence in Italy.
There may be some other categories that you are able to claim as tax deductibles. If you are unsure you should always seek professional advice from a local tax expert. For example, the Italian government has introduced excellent tax breaks to attract Expats to move to the country, including a flat rate of tax on foreign income and tax breaks relating to any property you buy.
Talk To An Expert Before Filing Taxes In Italy.
Even though it might seem a bit confusing, the tax system in Italy is fairly easy to navigate. Of course, if you have complex personal circumstances you should always be ready to seek professional guidance from a local tax expert. However, if you only have one or two sources of income, the system is very easy to comply with.
