Italy has a complex tax system that includes both direct and indirect taxes. The Italian taxation system is administered by the Agenzia delle Entrate, which is the Italian tax authority.
Double Taxation Agreements
Italy has signed double taxation agreements with over 90 countries, including the United States, Canada, Australia, and most of the EU member states. These agreements aim to avoid double taxation on income earned in both Italy and the other country. They also provide relief from withholding taxes on dividends, interest, and royalties.
Main Taxes for Expats
Expats in Italy are subject to the same income tax rules as Italian residents. Income tax is calculated based on the amount of taxable income earned during the tax year, which runs from January 1st to December 31st. The income tax rates for 2023 are as follows:
- The first €15,000 is taxed at 23%.
- The amount between €15,001 and €28,000 is taxed at 27%.
- The amount between €28,001 and €55,000 is taxed at 38%.
- The amount above €55,000 is taxed at 43%.
Expats may also be entitled to claim certain tax credits and reliefs, such as the Family Tax Benefit and the Tax Credit for Energy Efficiency. These credits reduce the amount of income tax payable.
Regional Tax on Productive Activities
The Regional Tax on Productive Activities (IRAP) is a regional tax that is paid by businesses operating in Italy. The IRAP rate varies by region but is typically around 3.9%. Expats who are self-employed or who own a business in Italy are liable for IRAP.
Value Added Tax
Value Added Tax (VAT) is a tax on the sale of goods and services in Italy. The standard rate of VAT is 22%. However, there are reduced rates of VAT for certain goods and services, such as food, medicines, and books.
Wealth Tax (IVIE) is a tax on the net worth of individuals who own assets in Italy. The IVIE rate is 0.76% for real estate assets and 0.15% for financial assets.
Special Tax Breaks for Expats
Non-Domiciled Tax Regime
Expats who become tax residents in Italy but have their permanent home outside of Italy may be eligible for the Non-Domiciled Tax Regime. This regime allows them to pay a flat tax of €100,000 per year on income earned outside of Italy, instead of paying income tax on their worldwide income.
Tax Incentives for New Residents
Expats who become tax residents in Italy may be eligible for certain tax incentives, such as a flat tax rate of 7% on foreign income for up to 15 years. To be eligible, they must meet certain conditions, such as not having been an Italian resident for at least nine of the previous ten years.
Filing a Tax Return in Italy
Expats who are considered resident in Italy for tax purposes are required to file a tax return each year. The tax return must be filed by June 30th of the following year.
Expats can file their tax returns online using the Agenzia delle Entrate’s website. To do so, they need to obtain a username and password, which can be obtained by visiting one of the tax authority offices in person.
When filing a tax return, expats need to provide details of their income, deductions, and tax credits for the relevant tax year. If they have any foreign income or assets, they may also need to declare them on their tax return. It’s important to note that Italy operates on a self-assessment system, which means that taxpayers are responsible for accurately reporting their income and paying the correct amount of tax.
Tax Exit Procedures
Expats who are leaving Italy to move abroad need to follow certain tax exit procedures. Firstly, they need to notify the Agenzia delle Entrate of their departure and provide details of their new address abroad. They should also settle any outstanding tax liabilities before leaving Italy.
If an expat is considered non-resident for tax purposes, they are only liable for Italian income tax on income earned in Italy. However, they may still be liable for Italian tax on any income or gains that arise from Italian sources, such as rental income or capital gains from the sale of an Italian property.
Expats who have paid tax in Italy may be entitled to claim a refund of some of the tax they have paid. To do so, they need to file a tax return for the relevant tax year and claim the refund through the normal tax refund process.
The taxation system in Italy is complex and can be difficult for expats to navigate. Expats in Italy need to be aware of the main taxes that apply to them, such as income tax, IRAP, VAT, and IVIE, as well as any special tax breaks that may be available. They also need to ensure they file their tax returns on time and follow the tax exit procedures if they are leaving Italy to move abroad. By understanding the Italian tax system, expats can ensure they are complying with their tax obligations and maximizing any tax benefits available to them.