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Tax Law in Italy

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The Italian Tax System is mainly codified in a general Tax Law (in Italian: Testo Unico per le imposte sui redditi) which is updated each year by an annual Finance Act (in Italian: Legge Finanziaria).

The main topics of this Tax Law are:

  • Italian resident corporations and individuals are subject to Italian tax on world wide incomes;
  • Non-resident corporations and individuals are subject to tax on Italian-source incomes only;
  • Progressive rates apply for individuals: the higher the income, the higher the rate of tax payable.

Taxes in Italy are generally referred to by acronym, and are divided in two types:

  • Direct taxes such as the income tax on corporations and individuals (IRE);
  • Other taxes (indirect taxes) such as tax on goods, services, imports (VAT), Regional production tax (IRAP), municipal property tax on buildings and agricultural lands (ICI), etc.

In Italy the tax system is administered by Agenzia delle Entrate, the national tax Authority. Its local tax offices give information to all citizens, whether they are Italian resident tax-payers or not.

TAX NUMBER (CODICE FISCALE)

Italian and foreign citizens who open a bank account, to sign a work contact or to receive electrical power or a telephone connection, need their Italian Tax number (in Italian: codice fiscale). To apply the Tax number foreign citizens need a valid Stay Permit and Passport.

The application of Tax Number must be made to the Italian Tax Authority (Agenzia delle Entrate) in the city where the foreign citizen resides. Its local tax offices manage the applications for Tax number.

The citizens receive from the Ministry of Finance a plastic card with the tax number.

TAXES FOR INDIVIDUALS

Individuals are liable for tax on their income as an employee (in Italian: lavoratore dipendente) and on income as a self-employed person (in Italian: lavoratore autonomo).

Tax will be payable on income earned in Italy and overseas by any individual who meets the condition of a “permanent resident” of Italy.

A foreign resident citizen who is employed in Italy pays tax only on income earned in Italy. A condition must be passed to be considered an Italian resident: a life centered in Italy, or being registered in the municipal population registry (in Italian: Anagrafe comunale della popolazione residente) as living more than 183 days a year in Italy.

Individuals are subject to direct and other (indirect) taxes:

DIRECT TAX

IRPEF (in Italian: Imposta dei Redditi): This is the personal income tax to which partners who are physical persons are subject. It’s assessed by percentage of earnings according to tax brackets. All individuals, whether resident or non-resident, are subject to this income tax.
All resident individuals are also subject to the Regional and Municipal surtax IRE (in Italian: Addizionale IRE).

OTHER (INDIRECT) TAXES

IVA (in italian: Imposta sul valore aggiunto): This is imposed on all transactions involving goods and services. This tax is paid by an entrepreneur on goods and services received and can normally be credited against the tax payable on their own turnover, so that in effect only the value added is taxed.
IVA is assessed by percentage of value of transactions according an ordinary rate of 20%; the others are: 4% for basic food stuffs, 10% for textiles and 38% for luxury items.

IRAP (in Italian: Imposta regionale sulle attività produttive): This is a tax which in 1998 incorporated various others. This tax is paid by the entrepreneurs and corporate bodies, in each tax period according to the net value produced in the given regional Authority’s territory. The percentage payable differs for capital stock companies and partnerships. The ordinary rate is 4,25%; for public bodies it’s 8,5%. IRAP is not deductible from income tax.

CONVENTION AGAINST THE DOUBLE TAXATION

According to article 128 of Italian Tax Code, non-resident citizens can agree to the Conventions against the double taxation.

The Conventions against the double taxation are international bilateral agreements and grant solutions to those corporations and individuals that suffer tax treatments on an item in the same time period: i.e. double taxation. This convention settles sharing of the taxation power between two states when such a case occurs. The goal of this agreement is to promote the exchange of good and services, the inflow of capital, technology, and persons without the burden of double taxation, on the one hand, and the prevention of fiscal evasion through administrative assistance between contracting parties on the other.

 

The contents of this page should not be taken as an authoritative statement of Italian law and practice. Neither the author nor the publisher are responsible for the results of actions taken on the basis of information contained in this summary, nor for any errors or omissions. This text is not intended to render legal, accounting or tax advice. Readers are encouraged to seek professional advice concerning specific matters before making any decision.

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