Taxes in Italy: The Ultimate Guide 2023 (2024)

What are the taxes in Italy? Are you interested in learning how to benefit from tax reduction options in this European jurisdiction? Read our breakdown of the tax rates in Italy, including Italian property taxes for foreigners.

Swapping your primary residence to become an Italian tax resident might be a great idea, but you could find the Italian tax system confusing. Relax, as we can explain how you pay taxes there. We guide HNWIs over income tax hurdles as part of a precise, holistic plan, in jurisdictions worldwide, including Italy. We’re here to serve you.

Italy Country Overview

Italy has over 60 million inhabitants and is the third‐most populous state in the European Union. An incredibly cultural country, Italy is known for its excellent art, fashion, and food.

What Language Do They Speak in Italy?

While standard Italian is the language used, regional diversity has created several distinct dialects. Other languages spoken throughout Italy include French, Friulian, German, Ladino, Sardinian, and Slovene. English is understood widely in the more metropolitan northern Italy and much less in the more rural south.

What Language Do They Speak in Italy?

While standard Italian is the language used, regional diversity has created several distinct dialects. Other languages spoken throughout Italy include French, Friulian, German, Ladino, Sardinian, and Slovene. English is understood widely in the more metropolitan northern Italy and much less in the more rural south.

Where Is the Biggest City in Italy?

Rome is the largest metropolis in Italy, and also its capital. Nearly 2.9 million people call Rome home, which is almost double the number of citizens in the next largest city, Milan, where most of Italy’s English-speaking population lives. Rome’s located halfway down the boot-shaped Italian peninsula, on the Tiber River, about 15 miles (24 km) inland from the Tyrrhenian coastline.

What Is the Economy Like in Italy?

When World War II ended, defeated Italy saw its economy suffer. The country has developed into one of Europe’s powerhouses on this side of the new millennium. The latest budget will see independent workers become eligible for flat tax instead of the regular progressive tax.

Italian Tax Benefits

Italy is more of a tax-friendly jurisdiction than you might think. A lump sum tax regime allows HNWIs to live in Italy. This is because new Italian tax residents benefit from the flat tax system, which means they pay a fixed amount of tax regardless of foreign income.

By moving your tax residence to Italy, you can see your foreign income become subject to a substitute tax. You are not paying the regulation Italian income tax that applies to non-HNWIs.

You can include family members in your application. They need not be dependent on you either, which means they can include the following:

• a spouse or common-law partner
• adopted and natural children
• foster and natural parents
• in-laws
• siblings

This expat or neo-domiciled individuals tax regime is something that both employees and the self-employed can sign up for. To qualify, you need to meet several requirements, including not being a tax resident for at least 9 out of the preceding ten financial years.

If you haven’t lived in Italy for the previous two years, only 30% of what you earn worldwide will be taxed. Therefore, the highest tax you would pay on your personal income is around 13%.

You can get further tax benefits in southern Italy’s regions like Abruzzo, Basilicata, Calabria, Campania, Molise, Sardinia, or Sicily. Tax is only applied to 10% of your foreign income, and you will get a 90% tax exemption.

You remain eligible to enjoy this special tax regime for 15 years. You will be taxable on 50% of your income during this tax period. However, if you have at least three minors or dependent children as family members, you can reduce this figure to 10%.

You can also enjoy tax benefits when relocating to Italy if you buy your first property there. If you move to Italy, you will only have to pay between 1% and 2% of the purchase price in property tax.

When you buy a holiday home, the property tax increases to 9% of the property value.

Flat taxpayers are exempt from gift and inheritance taxes for assets and rights held abroad. You also benefit from not paying tax on the value of properties owned abroad.

Italian companies are subject to a reasonable 24% corporate tax rate. However, incorporating in Italy comes with additional taxes on dividends, interest, and royalties.

If establishing a primary residence in Italy is what you want to achieve, Nomad Capitalist will help you reach the end goal.

Italian Tax Requirements

Flat Tax in Italy

To qualify for the flat tax, you will need to spend 183 days in Italy or 184 if it is a leap year, according to Article 2 of the Italian Income Tax Code. That makes June 1, or typically June 2, the cut-off period for potential tax residents in Italy.

To be eligible for the flat tax as a foreigner, you must have lived out of Italy for at least the past nine years. The flat tax is the main tax-friendly option you have at your disposal in Italy if you want to spend significant time in the country and establish it as your primary residence.

You must also pay a set amount of €100,000 as a flat tax. For all additional family members with an independent income, there is an additional payment of €25,000. These are one-off annual commitments that correspond with the Italian fiscal year that starts on January 1st.

You will need to register at the town hall in Italy. Proof of a local address is essential. This can include a purchase deed or rental agreement, meaning evidence that you are domiciled or resident in Italy.

Italian tax rates are generally progressive, ranging from 23% to 43%.

So, by paying a flat rate, you will make substantial savings. Your primary Italian residence makes the country your center of economic interest. This will mean you pay Italian tax on your worldwide income. However, you are liable to additional taxes in Italy to regional authorities and your local municipality, and these are generally minimal charges.

The following type of income fall within the remit of the regime:

• any income from self-employment generated from activities carried out abroad
• any income from business activities carried out abroad through a permanent establishment
• any income from employment carried out abroad
• any income from a property that the new resident owns abroad
• interest from bank accounts paid by non-residents
• capital gains generated by the new resident following the sale of unqualified shareholdings in foreign companies

The substitute tax does not apply, however, to capital gains resulting from the sale of companies and non-resident entities during the first five tax years of the 15 year period. You will need to pay capital gains tax in this instance. If you don’t maintain Italian tax residency for at least two years, prepare to be hit with additional taxes, interest, and penalties.

Corporate Tax

Corporate income tax is known as IRES (imposta sul reddito sulle società) and is taxed at 24%.

Who pays corporate income tax in Italy? Limited liability companies, joint-stock companies and partnerships limited by shares, cooperative companies, mutual insurance companies, European companies, and European cooperatives. That’s because they qualify as tax residents in Italy.

Public and private entities resident in Italy, including consortia, trusts, undertakings for collective investment, and non-profit organizations, are all liable, as are companies and other legal entities, including trusts, which are not tax residents in Italy but source income from the country.

There’s also a regional production tax, known as IRAP (imposta regionale sulle attività produttive). IRAP tax is around 3.9%, but higher IRAP rates apply to banks and financial institutions, 4.65%, and insurance companies, 5.90%. Regional authorities can raise or lower the rates within the limit of 0.92%.

Italy’s standard VAT, or IVA (imposta sul valore aggiunto), rate is 22%. Reduced rates include 4% for listed food, drinks, and agricultural products or 10% for electric power supplies for documented uses and listed drugs. Specific supplies of goods and services are exempt from VAT, such as education, insurance services, specific financial services, supply, and leasing of particular immovable property.

Property Tax in Italy

Italian real estate is calculated by fiscal value, the value recorded in the land registry. The fiscal value is usually significantly lower than the value recorded in the purchase deed or transaction value. Residential property taxes can be on the fiscal or the transaction value.

Buying property in Italy triggers a mortgage tax known as imposta ipotecaria. It’s not charged as a rate but as a flat €50 if you purchase property from a private seller. Buying from a registered company increases this mortgage tax to €200. You pay the same amount of land registry tax, imposta catastale. Both the land registry and mortgage taxes are Italy’s main sales taxes.

Purchasing property in Italy also incurs a registration tax. This stamp duty is charged at a flat fee of €200 plus 10% VAT when buying from a VAT-registered company. The VAT increases to 22% if you are purchasing a luxury property. Registration tax is known as imposta di registro in Italian.

There’s even a waste collection tax.

Resident homeowners are exempt from the twice-yearly IMU (imposta municipale sugli immobili) tax paid on property ownership. The IMU tax considers fiscal value along with several factors, which means the rate varies from region to region.

Italian Tax Conclusion

Italy generally runs a progressive tax system with rates fluctuating between 23% and 43% on personal income tax. However, corporate income tax is fixed at 24%, although there are add-ons, such as a 3.9% regional production tax.

The lump sum regime means paying a flat annual tax of €100,000 plus €25,000 for every eligible family member, which also brings capital gains tax savings.

Buying property in Italy also creates tax obligations for both the buyer and seller. A tax payable will be between 2%-9% of the property’s value.

Both the property’s fiscal and transaction values are used to calculate sales taxes. Expect to pay registration tax or stamp duty and waste collection taxation. Owning luxury properties can increase the rates. Property owners must also pay IMU tax unless it’s a primary residence.

Go Where You’re Treated Best

Despite the chance to reduce taxation thanks to a lump sum, there are lower tax options than in Italy. If you are planning a move to Italy and still have lots of questions, get in touch, and the Nomad Capitalist team will find the best solution for you.

Italian Tax FAQ

We can help you with much more than the tax paid on your foreign income. Our holistic plans cover everything from Citizenship by Decent to offshore gold storage. Please feel free to contact us today to learn more about how we can help you reach new heights in wealth and freedom.