All Italian taxes are collected on a national level, while some of them differentiate on a regional level.
As taxes are an important part of living in Italy both for ex-pats and locals, let’s see how the Italian tax system works.
Overview Of Italian Taxes
Taxes in Italy are levied by the central and regional governments. The Italian Agency of Revenue responsible for collecting and enumerating taxes. The major sources of revenue in Italy are:
- income tax;
- social security;
- corporate tax.
Personal income taxes in Italy are progressive, this means that as your income increases, the taxable amount increases. You will also have to pay wealth levies on properties and financial investments you own outside of Italy.
Before you can start any formal activity in Italy, you must have a tax code (Codice Fiscale). The tax code is like a social security number in the United States. It is made up of 16 unique alphanumeric code which is issued to every Italian citizen from birth.
Students and foreigners must apply for a tax code if they want to stay in Italy. Your Italian tax code allows you to open a bank account, buy/sell property or car, get employed, and enjoy other social amenities.
Who is considered an Italian tax resident?
Ex-pats and foreigners that are visiting Italy for a family reunion, tourism, or a simple visit can enjoy a tax-free stay unless:
- they stay in Italy for more than 183 days in a calendar year;
- are registered with the Record of the Italian Resident Population (Anagrafe);
- are an Italian resident or own a business in Italy.
Income tax also called individual taxes or IRPEF (Imposta Sul Reddito Delle Persone Fisiche) is collected at a progressive rate for income or compensation generated from employment.
Any cash or funds generated from employment, such as shares, donations, compensation, and benefits are liable to income taxation. Employers are mandated to deduct income tax from their employee’s income or benefits monthly.
Individual Tax collected from employees must be paid to the Regional Tax Office (Agenzia Entrate) on or before the 16th of the following month.
The rate of this tax ranges from 23%-43%. Based on the revenue generated from an employee’s income, these are the rate deducted for income tax in Italy:
|27%||€15,001 – €28,000|
|38%||€28,001 – €55,000|
|41%||€55,001 – €75,000|
There are also income taxes at the municipal and regional levels. Municipal tax rates are between 0.1% and 0.8% and they vary by municipality. While Regional tax rates range between 1.2% and 2.03%.
Exceptions On Income Tax
There are other types of income taxes that are subjected to taxation from IRPEF. These types of levies are exempted because of the different types of income. Some levels of incomes that are not subject to this taxation include:
- €8,000 for subordinate workers whose employment period coincides with the whole year;
- €7,500 for pensioners below 75 years whose pension is cashed in for the entire year or receive palimony from ex-spouses;
- €7,750 for pensioners older than 75 years with a pension period that coincides with the whole year;
- €4,800 for taxpayers with other income sources.
Social Security in Italy
Social security contributions also called Istituto Nazionale Previdenza Sociale (INPS) are made by both the employer and his employees. It usually amounts to 40% of salary.
This type of social insurance is done to provide benefits to the employee for unemployment, accidents at work, sickness, invalidity, pensions, family allowances, maternity, and occupational diseases. National health service is not included in the social security contributions.
Before a company can partake in the Italian social security contribution, the company must have:
- tax code;
- INAIL code;
- INPS code;
- employment agency access code;
- must be registered with the Labor Office.
Just like the Italian income tax, the amount of income earned monthly, the role you play in a business, or the categories of the business will determine the taxable revenue. But the general contribution rates for employers are usually around 30% and 10% for Employees.
The Italian government has introduced a policy known as the “Inbound Expatriate Regime”. The Inbound Expatriate Regime (Lavoratori Impatriati’ regime) is a favorable tax regime for highly-skilled foreign employees & workers that are coming to Italy to work.
If the employee resides in southern Italy, the islands of Sicily or Sardinia, he/she has higher incentives. The taxable income is only 10% for the first five years, meaning that the remaining 90% is yours and untaxed. While retired ex-pats have a 7% flat tax rate on all foreign income.
This increasing amount of tax abatement in Italy is outstanding, especially for ex-pats. The Italian Republic has the highest number of “major tax evaders” in Europe, tax evasion costs the government over €180 billion. Paying taxes on time is one of the best ways to show you quality as a good citizen a promoting national growth.