Opening a Bank Account and the Tax System in Italy | InterNations (2024)

What is the Tax System in Italy?

If you are going to receive an income of some sort, it’s only natural to want to know what the tax system is like in Italy. Income taxes are among the highest in Europe. If you are going to receive a high income, be prepared for tax rates as high as 40%. Keep reading to know all about the tax system in Italy, the various types of taxes, and the rates that apply to you.

Types of Taxes in Italy

The most relevant taxes in Italy are:

• income tax
• social security
• corporate tax
• value-added tax

Italy has several double taxation agreements in place, so check if it applies to your specific situation.

What is the Income Tax in Italy?

Income tax in Italy is known as IRPEF, imposta sul reddito delle persone fisiche, and it applies to salaries, pensions, interests, and dividends. This type of tax is progressive—the more you earn, the higher taxes you pay. These taxes are withheld monthly on the income you receive from your employer.

Rates are set annually by the government. Below are the current tax brackets in Italy:

Income EURIncome USDTax Rate1—15,0001—1,65023%15,000—28,00016,500—30,80027%28,000—55,00030,800—60,50038%55,000—75,00060,500—82,50041%Over 75,000Over 82,50043%

Besides these rates, which are established nationally, you have to pay regional taxes on your income. These regional taxes are progressive as well and can go from 1.23% to 3.33%, depending on your income level.

Municipal Tax

On top of these, you may have to pay municipal taxes on your income depending on where you are residing. These range from zero to 0.9%. You may also have to pay additional municipal tax along with your income tax balance for the previous year. This is a one-off payment set to 30% of said tax.

When am I Considered a Tax Resident?

You are considered a resident for tax purposes if, for the greater part of the year (183 days or more), you stay in the country, have your main business in the country, or are registered in the Office of Records of the Resident Population.

Tax Returns and How to Pay Taxes in Italy

To pay taxes in Italy, you must file a tax return electronically. There are two types of tax returns you can file: 730 Model return and Model Income return.

730 model applies to employees that qualify as Italian tax residents for two years consecutively. It may also be filed by residents who do not have a work contract. This model must be filed by 23 July of the following tax year.

Model income return must be filed by those receiving a non-Italian payroll or holding investments or bank accounts outside of Italy. It includes tax withheld, capital gains (Form RT), foreign income and assets (Form RW) and must be filed before its deadline, 31 October of the following fiscal year.

If your salary is your sole income source, which your employer should be withholding on a monthly basis, these taxes can be considered comprehensive, and you are not subject to other compliance obligations.

Tax Concessions for Expats

Some expats may be subject to a tax abatement of 50% on their income tax if they meet the following criteria:

• They perform a high-managerial or directing role;
• They have been a nonresident of Italy in the previous five fiscal years, and remain a resident in Italy for at least two fiscal years;
• They have an employment connection with an Italian company;
• Their work activity is carried out in Italian territory.

Taxes for the Self-Employed in Italy

There are three ways you can be self-employed in Italy, and the requirements on the type of taxes that apply to each may differ:

• Self-employed (lavoro autonomo or lavoro in proprio)
• Freelancer (lavoro indipendente or libero professionista)
• Sole trader (commerciante in proprio, imprenditore or ditta individuale)

In general, self-employed workers who are considered residents for the purpose of taxation must pay taxes on their income and file a tax return annually. The tax rates that apply to self-employed workers, both freelancers and sole traders, are the same as for employees (mentioned above).

Paying Corporate Tax as a Self-Employed Worker

If you open a limited liability company, you pay corporate tax as well. Corporate tax includes rates for the IRES and IRAP, which can vary from region to region.

These taxes do not include social security contributions, which you must pay as well. We cover all you need to know about social security in the working section of this guide.

Before you incur in any type of trade, make sure you have the right visa and work permit to carry out self-employed work and are properly accredited and registered with the right authorities to carry out your professional activity. It is very important that you do so beforehand, to avoid heavy fines, having your equipment confiscated, and even being deported from the country.

How to Pay Taxes as Self-Employed

To pay taxes as self-employed, you must file a tax return annually on the Italian Revenue Agency website (Agenzia delle Entrate). This corresponds to the form UNICO Persone Fisiche, which must be submitted until 2 October. Income tax should be paid by 30 June.

The requirements and process of paying taxes may vary according to the type of business you carry out. If you are a freelancer, besides paying income taxes, you will need to have a VAT number. Clients who you invoice withhold 20% of the value for tax payments to the government and pay it themselves.

As a sole trader, you may also need to register for a VAT number, depending on the type of activity you carry out. Sole traders do not need to file corporate taxes.