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Taxation in Italy

Taxation in Italy

Updated on Monday 18th April 2016

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The income tax for employees in Italy is progressive, according to the annual income, while the corporate tax for legal entities (IRES) is fixed at the rate of 27.50%. The minimum income tax for employees is:
 
-    23% for an annual income until 15,000 Euro;
-    27% for amounts between 15,000 Euro and 28,000 Euro per year;
-    38% for amounts between 28,000 and 55,000 Euro;
-    41% for amounts between 55,000 and 75.000 Euro;
-    43% for every income over 75,000 Euro.
 
The income tax must be paid by individuals who live and obtain income in Italy and who are registered at the Office of Records of the Resident Population.
 
Residents in Italy have to pay the following taxes
 
personal income tax, applied at a progressive rate, as mentioned above;
social security;
accident insurance, applicable for employees working in fields of activities which are considered of potential risk;
regional tax on productive activities
 
The companies that run businesses in Italy must pay the corporate tax and there are a few types of companies that are exempt from paying this tax. The corporate tax is not mandatory for institutions related to church, sport clubs, foundations for charity etc.
 

VAT rates and social contributions

 
The normal rate for VAT (value added tax) is 22%, but there are also reduced rates for certain categories of goods and services. For example, the VAT rate for pharmacy products, entertainment and cultural events, hotels, restaurants is 10%. For food, books and medical stuff, the VAT rate is 4%. The VAT in Italy should have increased from the 1st of January 2016, but under the Italian Stability Law, the increase was delayed for the 1st of January 2017. Under this law, the VAT rates applicable in Italy will be modified as such: 
 
from the 1st of January 2017, the standard VAT rate will increase at 24%, the reduced VAT rate will increase at 13%, while the super reduced rate will be maintained at 4%;
from the 1st of January 2018, the Italian government will further increase the standard VAT rate at 25%
 
For social security contributions, employers must retain 9.19% of the wages paid to their employees; the 9.19% social security rate is applicable for income up to EUR 46,031, while for employee’s salaries above this sum, the social security rate is 10.19%
 
The Italian authorities introduced a regional tax on productive activities at the rate of 3.90% on the net production value. This tax must be paid by non-commercial entities and professionals.
 
Social contributions in Italy cover several benefits, related to pensions, maternity leave or unemployment. 
 

Taxes for foreigners

 
The taxes that are mandatory for locals are not the same as the taxes for foreign citizens who run a business in Italy. The foreigners who are not residents in Italy must pay taxes on incomes and gains obtained in Italy, while the residents are required to pay taxes for all their income, obtained all over the world, at the rates available in Italy.
 
The foreign citizens who are running businesses in Italy should know how to avoid the double taxation. This is possible if Italy signed a double tax treaty with the country of residence for the foreigner.
 
Foreigners living in Italy for more than 183 days will be considered residents in the following situations:
 
they have been registered with the Registry Office; 
they have the main place of business in Italy
 
If you want to find out more about the taxation in Italy and how you can minimize your taxes, you may contact our attorneys in Italy.
 

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