Italy tax system: a detailed guide for individuals and companies

You need to file taxes on income and profits if you work or run a business in Italy. This includes self-employed workers. The tax base for these taxes is calculated after you pay social security contributions and make allowable tax deductions.

Italy Golden Visa

Before talking about Italian taxes in detail, it is important to understand who is considered a resident for tax purposes in Italy. Once you are regarded as a tax resident, you have a duty to pay income tax on all your earnings, inside and outside of Italy.

You become a tax resident in Italy if at least one of the following conditions is fulfilled for 183 days a year:

• you are registered with the Registry of the Italian Resident Population — foreign nationals leaving Italy should cancel their registration;

• Italy is the centre of your professional or personal interests — the criteria for this can be maintaining family relationships in Italy, having real estate, bank accounts, financial investments, and more;

• your main residence is in Italy, and you want to live there for the foreseeable future.

Non-resident individuals are taxed only on income received in Italy, such as wages earned by working in Italy or income from Italian investments. Also, non-residents who own property in Italy may be subject to property taxes.

A company is considered a resident company and is taxed on its global income if:

• its legal or administrative headquarters are located in Italy;

• the principal business activity happens within Italian territory;

• it is directly or indirectly held by Italian tax residents;

• its board of directors is made up mainly of Italian residents.

Non-resident companies pay corporate income tax and regional production tax only on their Italian-source income.

The tax year in Italy follows the calendar year, from January 1 to December 31. Therefore, there is no concept of a split tax year like in the UK, and a person is considered a tax resident in Italy for the whole year.

Italian tax residents may have more responsibilities to the country, but they also get the opportunity to live, work, and study in Italy and travel without visas around Europe. The fastest way for wealthy people to become legal residents is to apply for the Italy Golden Visa, also called the Investor Visa.

Personal income tax. Italian residents and foreigners who earn money in the country have to pay federal personal income tax (IRPEF). It is applied to the overall income, which includes capital income, employment, self-employment, entrepreneurial activity, and land income.

Individuals with permanent resident status pay tax on income earned both in Italy and overseas. Non-residents pay the tax only on income earned in Italy.

IRPEF is progressive; it increases with the income amount. The tax rate varies from 23% to 43%.

In addition to the federal income tax, individuals in Italy pay a regional income tax of 1.23—3.33% and a municipal tax of up to 0,9%. Each region and municipality in Italy can change the tax rate for its residents. Wealthier areas usually pay higher rates.

Personal income tax in Italy can be paid in two installments if the payment is €257.52 or more. The first installment of 40% must be paid by June 30, while the remaining 60% must be paid by November 30 of the same year.

Certain expenses can reduce the total taxable income. Among them are medical expenses, education, childcare, mortgage interest payments, charitable donations, renovations made to the property, and some energy-saving improvements.

High-net-worth expatriates can sign up for the Special Tax Regime. It allows new residents to pay a flat sum of €200,000 per year on income from foreign sources, regardless of their amount and nature.

To qualify for the program, individuals must not have been residents of Italy for the previous 9 years. The regime is valid for 15 years from the first year of tax residency. A lot of high-net-worth individuals who pay income tax under the Special Tax Regime obtain an Italian residence permit by investment.

Social security contributions. Italian employees generally pay about 10% of their salary to the Italian National Institute for Social Security.

Self-employed people pay social contributions at a higher rate. Individuals covered by a mandatory pension fund make contributions at a rate of 24%. Self-employed persons with a VAT number who are registered in the separate social security regime pay contributions at around 26%.

Capital gains tax is paid when a person sells an asset at a higher price than they originally paid for it. Property, vehicles, jewellery, stocks, and bonds can be considered capital assets. The standard tax rate is 26%.

Capital gains from real estate owned for more than five years or inherited are usually exempt from income tax.

Dividends, interest rates, and cryptocurrency profits of more than €2,000 are also taxed at a 26% rate. The tax rate on Italian government bonds is 12,5%.

If a taxpayer owns more than 50% of the shares of a company and is an officer in the same company, the tax on dividends will be almost 50%. The tax on interest on government securities is reduced to 12,5%.

Inheritance and gift tax in Italy has one of the lowest rates in Europe. The tax rate ranges from 4 to 8% and depends on the participants’ relationship:

1. Recipients or heirs in the direct line pay 4% tax on the inherited or donated sum above €1 million. The direct descendants can be spouses, children, parents, and sometimes grandchildren.

2. Siblings are charged 6% tax on the value exceeding €100,000.

3. Family members up to the fourth generation must pay 6% on the entire value of the inheritance or donation.

4. Other heirs, recipients, and non-related inheritors pay 8% on the entire sum.

Inherited real estate is taxed at 3% extra, which is the sum of 2% mortgage tax and 1% cadastral tax on the property value. Non-residents are charged inheritance and gift tax only on assets located in Italy.

Whole-life policies, government bonds and shares, and equity in a family business are not taxed under Italian inheritance law.

Vehicle tax is charged annually on all motor vehicles registered in Italy, even if they are not being used. The tax also applies to vehicles with long-term rentals, leases, or those purchased with installments.

The tax rate depends on the engine horsepower, the region where the car is registered, and the vehicle’s EU emission grades: Euro 0—6. The owners of cars with grades 4, 5, and 6 pay the lowest rate.

The regional set rate is determined by the local government. For example, the vehicle tax rate in Rome is €2.80 per horsepower. A standard car with a 180 horsepower engine registered in Rome would have an annual tax of €504. In Naples, the tax rate is higher — €2.90. It means the owner of the same car would pay €522 per year.

You can calculate the exact tax to be paid on the ACI (Automobile Club d’Italia) website. It will require the car’s licence plate number and the region of residence.

There are certain types of vehicles that are eligible for tax reductions and exemptions:

• historic vehicles over 30 years old;

• vehicles intended for disabled drivers;

• electric vehicles and vehicles that run on liquified petroleum gas (LPG), natural gas, or hybrids;

• vehicles delivered to dealership for resale.

Wealth tax in Italy is levied on properties and financial investments owned by Italian residents outside the country. The tax rate for real estate is 0,76% of the cadastral value.

The wealth tax does not apply to properties used as a main residence or to the marital home assigned to the spouse. The payment is also not required if the total amount is less than €200.

Foreign financial assets are taxed at the 0,2% rate of the value of financial products. The tax is not applied if the average annual value of stock does not exceed €5,000.

Business income tax. Italian corporate entities must pay corporate income tax (IRES) and regional production tax (IRAP) on their worldwide profits. Non-resident companies are charged only for income from Italian sources.

The standard corporate tax rate is 24%, while the regional production tax is charged at 3,9%. Regional authorities can increase or decrease the IRAP rates within the limit of 0,92%.

Some companies pay the regional production tax at a higher rate. For example, the IRAP rate for banks and financial institutions is 4,65%, while insurance companies are charged 5,9%.

When filing the company’s taxes, you can offset certain allowance deductions, such as depreciation of assets, interest payments, and charitable contributions.

Italy offers tax exemptions and lower rates for:

• companies active in any of the 8 Italian special economic zones like Campania, Calabria, or Abruzzo;

• companies dealing with intellectual property investments.

Corporate capital gains are also subject to a 24% income tax. However, under a specific participation exemption regime (PEX), capital gains realised by Italian companies on sales of shareholdings can be 95% exempt from IRES.

Companies that have invested at least €30,000 per year in certain research and development activities are eligible for a tax credit. It can reduce the amount of income tax, regional production tax, or social security contributions. The maximum annual credit is €20 million.

Self-employed and individual entrepreneurs are subject to individual income tax (IRPEF) with ordinary progressive tax rates ranging from 23 to 43% on income exceeding €50,000.

People starting self-employed or freelance businesses can take advantage of a special taxation regime called Regime Forfettario. It allows them to replace the income tax and IRAP with a single tax of 15%. To qualify, their income has to be less than €85,000 per year. Also, the total expenses for employees work and fees for staff must not exceed €20,000.

If the taxpayer has not been involved in any artistic, professional, or business activity during the previous 3 years, this tax can be reduced to 5% for the first 5 years.

VAT or sales tax. Any business in Italy needs to charge value added tax (VAT) on its products and services. In Italy, it is called IVA. The standard VAT rate in Italy is 22% of any taxable sales — only 1% higher than the EU average. It applies to most goods and services.

Some categories of products and services have reduced VAT rates:

• 10% for food in restaurants, wines and alcohol, olive oil, water supplies, public transportation, real estate maintenance services, hotel accommodation, theatrical performances and concerts;

• 5% for some social services, passenger transport, and herbs, such as basil, rosemary, sage, and oregano;

• 4% for basic food and agricultural products, books, newspapers, medical devices, and wheelchairs;

• 0% for international transport services, intra-community and international trade, services related to education, health, insurance, and real estate transactions.

Italy offers exemptions from VAT obligations to small businesses with an annual gross income up to €85,000 and total gross expenses up to €20,000 for employee work and payments to collaborators in the previous year.

Most taxpayers file VAT returns by the 16th of the following month. Taxpayers who have an annual turnover of less than €400,000 for self-employed persons and service businesses or €700,000 for other activities can pay the VAT quarterly — for the first three quarters of a calendar year. In this case, 1% interest is added to the VAT due.

Social security contributions rate for Italian companies is 30% of the employees’ gross compensation.

Tax residence in Italy does not affect tax expenses on real estate. Property tax rates are the same for both non-residents and Italian nationals.

When buying real estate in Italy, you need to pay several taxes:

• registration tax;

• mortgage tax;

• cadastral tax;

• sometimes VAT.

The tax rates depend on whether you buy the property from a company or a private person and if it is used as a main residence or a second home.

Property registration tax can be 2 or 9% of the cadastral value, but it can never be less than €1,000. The buyer is charged 2% of the cadastral value if the property is their primary residence in Italy. They must spend more than six months per year there. The registration tax rate rises up to 9% if the real estate is considered a second home.

The mortgage tax in Italy is fixed. A buyer pays €50 to purchase property from a private seller and €200 if the seller is a company registered in Italy.

Cadastral tax is the same as mortgage tax. It is €50 on purchase from a private seller and €200 from a registered company.

If the seller is a registered company, they can choose to charge VAT on the transaction. In this case, the buyer will pay the VAT and the fixed registration tax of €200. It is possible in two situations:

1. The property is bought from a construction company within 5 years of completion.

2. The residential property is classified as social housing.

For main residences bought from a registered seller, VAT is 4%. For second homes, VAT is 10% for the majority of homes. For properties classed as luxury and stately homes, the VAT rate is 22%.

Selling real estate in Italy can require paying capital gains tax at a 26% rate if the property value has increased during ownership. The tax won’t be applied if you have owned the real estate for more than 5 years. Capital gains tax is also not charged if you received the property by inheritance or as a gift.

Owning real estate has several taxes to pay regularly:

• IMU — a municipal property tax;

• TASI — a tax on local municipality services;

• TARI — a tax on waste collection.

IMU is charged with Italian property intended for any use, including business activities. Depending on the municipality, the tax rate can vary from 0.46 to 1,06%. The standard IMU rate is 0,76%.

Note that the tax base is not the cadastral value of the object. You must increase the cadastral value by 5%, and then multiply that number by a coefficient. To this tax base, you apply the IMU tax rate.

The coefficient depends on the type of property. The coefficient for apartments and other residential buildings is 160. For shops or similar commercial buildings, it is 55.

You can use this website to calculate the IMU rate for your own Italian property.

The tax is paid in two installments on June 16 and December 16 of each financial year. IMU is not applied to property considered the taxpayer’s main residence, provided it is not a luxury home.

The TASI rate varies from 0,1% to 0,25%, depending on the city where the property is located. The tax is paid in two parts, together with the IMU. The sum of IMU and TASI cannot be higher than 1,06%, which is the maximum IMU tax rate.

The tax on waste collection is paid once a year. The tax rate depends on the city, the property’s square metres, and the number of people living there. On average, TARI costs €325 for a family of four that lives in a house of 80 m². Between 2018 and 2022, the TARI rate increased by 7,7%.

Import duty is levied on items with a value of at least €150 that are imported to Italy from non-EU countries. The tax rates range between 0 and 17%, with an average rate of 4,2%. Products valued above €22 are also subject to VAT. Taxes and duties are not applied to small goods that are below these two thresholds.

Depending on the type of product, the VAT rate will be different. For example, cameras are taxed at 4,2%, while health and beauty products are charged at 6,5%.

Export taxes are generally not levied on goods leaving Italy.

Italy provides several tax reliefs to encourage residents to invest in the country’s economic growth and sustainability. Most of the measures are related to property.

Superbonus. A tax reduction up to 110% on building renovations for energy-efficiency and protection from earthquake damage.

The initiative includes a variety of measures, such as insulation solutions, efficient window frames, replacing heating and air conditioning systems, and installing facilities for renewable energy production.

Renovation bonus. A 50% tax deduction for recovery renovations of residential buildings. The maximum spending limit for each real estate object is €96,000. The work can include extraordinary maintenance, restoration, and building renovation.

Water saving bonus. A €1,000 bonus for Italian residents for installing water-saving plumbing in new or existing buildings. The bonus can be requested only once, for a single property.

Drinking water bonus. If you install systems aimed at improving the quality of drinking water, such as filtration or mineralisation, you can apply for a tax credit of 50% of the costs. The bonus was introduced in order to reduce the consumption of plastic containers. The maximum amount of expenses is €1,000 for individuals and €5,000 for businesses.

First home purchase subsidies are available for those who do not own another property in Italy or are going to sell it within 12 months of the new subsidised purchase. It allows the buyer to pay a registration tax of 2% instead of 9%, together with the mortgage and cadastral taxes at €50 each.

Young people under 36 are eligible for tax exemption from registration, mortgage, and cadastral taxes when buying their first home

According to the European Commission, Italy loses more than €99 billion per year to tax evasion. It is the highest figure among the EU countries. Almost a third of this amount is unpaid VAT. One of the reasons is that more than 80% of payments in Italy are made in cash.

Due to the tax evasion problem, Italy implemented heavy fines for inaccurate, incomplete, or fraudulent tax filings. Here are some of them:

• 120—140% of the taxes due for failure to file a tax return;

• 90—180% of the taxes due for tax returns showing a taxable income lower than the one assessed;

• 30% of the unpaid or late paid tax; within 15 days of the delay, the penalty is 1% per day, while between 15 and 90 days of delay the penalty increases to 15%.

Tax fraud that involves creating invoices for fictitious transactions, false tax returns, concealing or destroying accounting documents can result in much higher fines and imprisonment.

Tourists. In most Italian cities, travellers pay a tourist tax for staying in hotels, bed and breakfasts, or holiday rentals. The tax rate depends on the popularity of the city, the duration of the stay, and the type of accommodation.

Each municipality determines the tax rate independently. For example, you can expect to pay from €3 to €7 per day in Rome, from €2 to €5 in Milan, and between €1 and €5 in Florence. Tourists who visit Venice pay up to €10 per day during the carnival.

Non-EU nationals are eligible for a VAT refund in Italy if they purchase items for at least €175 in a certain shop. Foreigners can claim the refund at an airport before their departure. They should fill out an official form, show the receipt, the items they bought, and the return tickets.

Non-residents who receive income in Italy can reduce their tax payments on income and capital. If there is a double tax agreement (DTA) between Italy and the country where they are tax residents, they can pay taxes in one country or in both countries, but at lower rates. The full list of countries that have signed a double tax agreement with Italy can be found on the website of the Ministry of Economy and Finance of Italy.

How to get dual and multiple citizenship in Italy

If there is no DTA between countries, you will have to pay taxes both in Italy and in your country of tax residence.

New tax residents in Italy pay taxes on their global income, including profits from real estate owned outside of Italy, foreign interests, dividends, and capital gains.

New residents, who were not tax residents in Italy for the past 9 out of 10 years, are offered a Special Tax Regime. They can pay a flat-rate tax of €200,000 per year on all their non-Italian-sourced income for up to 15 years.

Foreign workers who haven’t been tax residents in Italy in the preceding 2 years can apply for a tax regime called Lavoratori Impatriati. It allows employed or self-employed workers and entrepreneurs to pay only 30% of their income tax. If they reside in the southern regions of Italy, the tax is reduced even more — they will pay income tax on only 10% of their income.

The special tax status is valid for 5 years but can be extended for another 5 years. To qualify, the person must commit to residing in Italy and become a tax resident for 2 years. Also, they need to have a university degree and spend around 85% of their work in Italy.

Retirees can benefit from a 7% flat tax rate on their passive income outside Italy. The applicant must move to a municipality with 20,000 or fewer inhabitants in specific areas of Italy. The tax regime is valid for a maximum of 10 years.

Business owners who obtained a residence permit under the Investor Visa for Italy program do not have to stay in Italy for 183 days per year. The investor can remain a tax resident of their country but pay tax in Italy on income from their Italian business.

The fastest way for wealthy people to become legal residents in Italy is to apply for the Italy Golden Visa, also known as the Investor Visa. It allows third-country nationals to obtain an Italian residence permit in 3 months by investing in the country’s economy.

Italy offers 4 investment options to choose from:

1. Invest at least €250,000 in an innovative startup approved by Italian authorities.

2. Invest €500,000 or more in a company incorporated and operating in Italy.

3. Invest €1,000,000 or more in socially essential projects.

4. Purchase government bonds for at least €2,000,000.

A residence permit issued under the Italy Golden Visa program is valid for 2 years. It can be extended for 3 years if the investment is maintained. Investors can apply with their family members: spouse, children, and parents.

Italian residents can travel visa-free to the Schengen countries, enrol their children in Italian universities, and enter Italy even when the borders are closed for foreigners.

After 5 years of residence, the investors can apply for permanent residence in Italy. After another 5 years, they become eligible for Italian citizenship by naturalisation. They will also need to pass a language test and keep a clean criminal record.

1. Most Italian taxes are set at a national level, but they also have regional surcharges. Municipalities have the right to change the tax rates within the given limit.

2. Individuals in Italy pay taxes on their income, capital gains, inheritance, and vehicles. The income tax is progressive and varies from 23 to 43%. Inheritance and gift taxes in Italy are among the lowest in Europe — the rate is between 4 and 8%.

3. The main taxes for companies in Italy are corporate income tax of 24%, regional production tax of around 3,9%, and 22% VAT.

4. While buying property in Italy, you need to pay registration, mortgage, and cadastral taxes. The rates mostly depend on who you buy the property from and whether you will use it as your first or second residence.

5. Owning property in Italy also implies paying several taxes: a municipal property tax, a tax on local municipality services, and a tax on waste collection. Their rates depend on the type of property and where it is located.

6. New residents in Italy can apply for one of the special tax regimes. Italy offers reduced tax rates to high-net-worth individuals, foreign professionals, and retirees.

7. The fastest way to become a resident of Italy is to participate in the Italy Golden Visa program. You can get an Italian residence permit in 3 months by investing at least €250,000 in the country’s economy.