Italian Agency of Revenue building in Milan

Taxation in Italy is levied by the central and regional governments and is collected by the Italian Agency of Revenue (Agenzia delle Entrate). Total tax revenue in 2018 was 42.4% of GDP.[1] The main earnings are income tax, social security, corporate tax and value added tax. All of these are collected at national level, but some differ across regions. Personal income taxation in Italy is progressive.

Income tax

Employment income is subject to a progressive income tax, IRPEF (Imposta sul reddito delle persone fisiche) applying to all workers. The government sets the tax rate according to income, but the regions can add an additional 0.7 percent to 3.33 percent. In addition to the regional income tax, a municipal income tax can be levied which ranges from 0.1 percent to 0.9 percent. Municipalities can also establish progressive tax rates applicable to the national income bracket.[2]

In 2022, the personal income tax rates were as follows:

Income range Tax rate[3]
€0 – €15,000 23%
€15,000 – €28,000 25%
€28,000 – €50,000 35%
over €50,000 43%

Individuals are considered resident for tax purposes if for the greater part of the tax year they satisfy any of the following conditions:

Exemption Area

IRPEF tax from 1974 to 2022, with the temporal evolution of the rates and the various exceptions that have occurred at a national level over the years

Due to the different types of income, exemption from IRPEF is determined at:

The area exempt from IRPEF increases further if there are dependent family members.

New residents of Italy are subject to a more favourable tax treatment on income taxes, providing they were not a tax resident of Italy in the past 24 months.[4] Any taxpayer is entitled to a 70 percent exemption on the employment or self-employment income received for the first five years of tax residency to Italy; the exemption is increased to 90 percent if the taxpayer resides in a Southern region of Italy. The regime is extended for a further five years if the taxpayer meets any of the following conditions:

Corporate tax

Italian Agency of Revenue building in Venice

Italian corporate entities are subject to Corporate Income Tax, IRES (Imposta sul reddito delle società) and to Regional Production Tax, IRAP (Imposta regionale sulle attività produttive). Italy has one of the highest rates of corporate tax – currently at 24 percent. Across the EU28, the average tax is 21.3 percent (2018).[5]

Value added tax

Supermarket receipt showing three categories of IVA

Value added tax or VAT, (in Italian Imposta sul valore aggiunto, or IVA) is a consumption tax charged at a standard rate of 22 percent, which came in on 1 July 2013 (previously 21 percent).

The first reduced VAT rate (10 percent) applies to water supplies, passenger transport, admission to cultural and sports events, hotels, restaurants and some foodstuff. The second reduced VAT rate (5 percent) applies to some foodstuff and social services. The super-reduced VAT rate (4 percent) applies to TV licenses, newspapers, periodicals, books and medical equipment for the disabled. A zero VAT rate (0 percent) applies to intra-community and international transport.

The filing deadline for VAT returns is 30 April of the next year.[7]

Social security

Employment relationship (staff)

Social security contributions apply to everyone in the workforce, divided into contributions by the employer and those by the employee; both sides are obliged to participate. Employers must register with the Italian Social Security Administration (Istituto Nazionale Previdenza Sociale or INPS). The total contribution rate fluctuates around 40 percent of the employee's wage, depending on their position in the company, on the number of employees in the company, and on the industrial sector of the company. Usually the contributions are apportioned as follows:[8]

However, only 33 percent out of this 40 percent is used for INPS purposes; the rest is distributed into several other funds:

The social security contribution, for employees who registered with INPS after 1 January 1996 without a previous social security position in Italy, is calculated and paid up to a maximum amount of €101,427 for the year 2018.

Employment relationship (executive)

Italian Agency of Revenue building in Genoa

Social contributions due from commercial executives:

Social contributions due from industrial executives:

Self-employment relationship

For self-employed individuals who are not VAT number holders and are not covered by a compulsory private pension fund is instituted law 335/95, and according to this individuals must register with INPS in a "separate social security regime". This system is provided for three different rates.

All percentages equals to maximal limit of €101,427 established by law in 2017.

Other taxes

Italian Agency of Revenue building in Reggio Calabria

Wealth tax on real estate properties owned outside of Italy

The Italian wealth tax on real estate properties (Imposta sul valore degli immobile situati all'estero or IVIE) owned outside of Italy by an individual who qualifies as a resident for Italian tax purposes has been introduced in Italy. The wealth tax due is proportionate to the percentage owned and the size of the property. The applicable tax rate is equal to 0.76 percent. No IVIE is due if the tax is lower than €200; otherwise, the entire IVIE amount is due.

Wealth tax on financial investments owned outside of Italy

The Italian wealth tax on financial investments (Imposta sul valore delle Attivita Finanziarie detenute all` Estero or IVAFE) owned outside of Italy by an individual who qualifies as a resident for Italian tax purposes has been introduced in Italy. The wealth tax due is proportionate to the percentage owned and the size of the property. The applicable tax rate is equal to 0.2 percent for the year 2018.[10] Only for bank accounts, the above-mentioned tax is a flat amount equal to €34.20 for each bank account. This flat amount is not due if the average saving amount is lower than €5,000, taking into consideration all the bank accounts owned by the taxpayer.

Inheritance, estate, and gift taxes

A tax on inheritance and donations was reintroduced in October 2006 after a five-year period during which this tax was abolished. The percentage and exemption limits applicable to transfers of money or assets depend on the beneficiary's relation with the deceased person or donor.

Shares and government bonds received as an inheritance are not taxed.

Specific provisions apply to a handicapped person.[11]

Regional tax on productivity

Italian Agency of Revenue building in Monza

The regional tax on productivity (IRAP) is applied at a flat rate up to 3.9 percent. This flat rate is applicable to the productive activity exercised. The taxable base is the difference between the compensation received and the direct business expenses, excluding any cost of personnel and interest.

Municipal taxes on real estate owned in Italy

The Italian Financial Bill for the year 2014 introduced relevant changes to the municipal tax on real estate owned in Italy. The tax law introduced a 'unique municipal tax' (Imposta municipale unica or IUC).

IUC is composed of three different taxes:

Tax evasion and lack of guarantees

Italy has the largest number of "major tax evaders" in Europe, according to the estimated figures,[12] tax evasion amounting to over €180 billion. Evasion is sometimes seen by evaders as the best way to ensure the right of defense from the alleged excessive tax claim of the State.[13]

See also

References

  1. ^ "Revenue Statistics 2018 - Italy" (PDF). OECD. 2018.
  2. ^ "Italy - Taxes on personal income". taxsummaries.pwc.com. Retrieved 2019-04-28.
  3. ^ "Personal income tax (IRPEF) rates". taxing.it. IRPEF - Imposta sul reddito delle persone fisiche. 2023.
  4. ^ "New residents regime in Italy". www.accountingbolla.com. 2021.
  5. ^ Italy corporate tax rate
  6. ^ https://www.guidafisco.it/calcolo-irap-aliquote-851 guidafisco.it
  7. ^ "Italy - Value-added tax (VAT)". TaxSummaries. 2018.
  8. ^ "Italy - Other taxes impacting individuals". taxsummaries.pwc.com. Retrieved 2019-04-30.
  9. ^ "Fasdac". www.fasdac.it. Retrieved 2019-04-30.
  10. ^ "Your guide to paying inheritance tax in Italy". TransferWise. 2018-02-06. Retrieved 2019-04-30.
  11. ^ "Inheritance Tax Rates and Online Calculator". iCalculator. 2020-02-13. Retrieved 2020-02-13.
  12. ^ "Evasione Fiscale Italia - I numeri da conoscere". Money.it. July 1, 2015.
  13. ^ Buonomo, Giampiero (2015). "Codice del processo tributario, un convegno fa chiarezza". L'Ago e Il Filo. Archived from the original on 2012-08-01. Retrieved 2016-04-13.