Italy: taxes for expats

Parent Category: ROOT Published: Friday, 13 August 2021
Flag of Italy

Expat's guide on Italy tax system 

Italy has one of the most beautiful landscapes in all of Europe. Its ancient ruins, architecture, great-tasting cuisines, fun-filled people, and tourist-friendly policies make Italy a frequent travel destination for both expats and tourists.

Some of these attractions leave strong memories in the minds of tourists, and most of them end up becoming permanent residents.

One thing to consider when moving to Italy is the taxes being collected in the country. Taxations are levied by the federal government and the regional governments of the federation. It is collected by the Agenzia Delle Entrate [Italian Agency of Revenue]. In 2018, the total tax revenue made up 42.4% of Italy’s GDP.

Some of the most recognized types of tariffs are income, corporate, VAT, and social security. These types of levies are usually collected by the central government. While other tariffs, licenses, and duties are collected at regional levels. If you are interested in knowing more about the types of taxes collected, we will be looking closely at individual, corporate, and expatriate taxes in Italy.

 

Income taxes

Italian individual income duties, also called “Impostasulredditodellepersonefisiche”, IRPEF, or IRE is a progressive income tax bracket with the personal levy and is usually calculated on the total income of an Italian resident or revenue generated in Italy. Income generated from the property, capital, employment, startups, and other sources is also taxable. Generally, any income generated in the country is taxable.

Italian tariff rates are progressive but are usually between 23% and 43%. Additional taxes may be due at the regional levels (about 0.9% - 2.03%) and municipal level (0.1% - 0.8%). Non-cash compensation, property, are also taxable, gifts and inheritances are tax-free.

Similar to the process in other countries, there are other types of taxes on top of income tax available in Italy.  The table below contains the monthly income and salary in Italy.

Rate

Earnings

23%

Less than €15,000

27%

€15,001 - €28,000

38%

€28,001 - €55,000

41%

€55,001 - €75,000

43%

More than €75,000

 

Exceptions to income taxes

Certain individuals and businesses may receive tax-exempt status and be provided with complete relief from taxes, reduced rates, or levies on only a portion of items. If your business or category falls into any of these areas you will receive tax relief.

 

Corporate tax

Italian corporate entities are required to pay due Corporate Income Tax. Italy has one of the highest corporate taxes in Europe [average tax in Europe is 21.3%]. Every company is required to pay about 24% in taxes.

Italian corporate [also called Imposta Sul Reddito Delle Società (IRES) or Imposta Regionale Sulle Attività Produttive (IRAP)] are levied on the resident companies worldwide earnings. While Non-resident companies are levied only on their Italian sources of revenue.

 

 

Expatriate tax

Italian non-residents are taxed only on profits and gains generated in Italy, while residents are taxed on their worldwide earnings and gains. Under the “Foreign Pensioners’ regime”, people who fall under this category and receive foreign pension can pay a substitutive levy of 7% on all foreign source revenue.

 

Does Italy tax foreign income?

If you work in Italy for less than 183 days, you are considered non-resident and taxed only on your Italian source income. But if you stay longer than 183 days, you will immediately be considered resident and taxed on your worldwide earnings.

The United States is one of the few nations that tax international revenue earned by its citizens and permanent residents residing abroad. If you are a citizen of the USA or any country that taxes citizens on their worldwide revenue, there are provisions that help protect you from double taxation such as foreign earned income exclusion, tax credit, and exclusion on foreign housing.

 

Tax treaties

Italy has tax treaties with over 84 countries. Any withholding taxes payable on dividends, interest and royalties, foreign taxpayers, and non-residents in Italy can be reduced. The treaties also allow the amount of withholding tax charged to your home country to be reduced to between 10% and 15%.

Italy has the highest number of tax evaders in Europe, tax evasion costs the government over €180 billion every year. Evading taxes sometimes seem like the best approach to save more money and avoid paying the “excessive tariff claim of the State”, but these are serious crimes with severe punishments.

There are sanctions for non-payment and late payment of taxes in the country. You can be charged up to 30% for late payment or non-submission of the tariff return. The only people exempted from submitting tax returns are people who did not carry out a business or professional activity, did not receive any income, or received income already taxed or exempted.