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Taxation in Italy

Taxation in Italy

Updated on Friday 08th January 2021

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The taxes in Italy are divided between taxes payable by natural persons and taxes payable by legal entities. Employees are also charged for their income, which is retained from their salaries by the companies that hires them. The taxes in Italy referring to employment are charged on a progressive system (lower incomes are charged with lower taxes, while higher incomes, with higher taxes). 
 
The tax level is calculated based on the annual income of the employees, and the same procedure is applicable with regards to the taxation of legal entities in Italy, with the exception that the corporate income tax is charged at a fixed rate. Our team of lawyers in Italy can provide more details on the tax system applicable in this country. 
 

What are the personal income tax rates in Italy? 

 
As we presented above, the taxes in Italy referring to the salaries of Italian employees or of persons obtaining taxable income are calculated on a progressive system, which means that different rates will apply. Our law firm in Italy can present more details on this subject and below you can find the basic taxes charged for the income of a natural person: 
 
  • 23% for an annual income with a value of maximum EUR 15,000;
  • 27% for amounts ranging between EUR 15,000 and EUR 28,000 per year;
  • 38% for an yearly income ranging between EUR 28,000 and EUR 55,000;
  • 41% for an income with a value of minimum EUR 55,000 and maximum EUR 75,000;
  • 43% for any income with a value of at least EUR 75,000 per year.
 
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 taxes such as the personal income tax, applied at a progressive rate, as mentioned above, and the social security. 
 
It is also required to pay the accident insurance, applicable for employees working in fields of activities which are considered of potential risk and the 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.
 
Besides the taxes in Italy charged specifically for local and foreign workforce working in local businesses, the personal income tax system takes into consideration other types of taxes as well. In Italy, the taxation of individuals is done on a national level, regional level and municipal level. 
 
Persons who carry their activity in the financial sector should know that the Italian tax system imposes a specific type of tax on the salaries of persons who benefit from variable compensations (which can take the form of bonuses or incentives). The variable compensation is charged with a tax rate of 10%. 
 
However, this tax is applicable only as long as the variable compensation is paid to the manager or to an executive working in the financial sector, which can mean working in a bank, in a financial institution or in other legal entities related to this field of activity; our team of lawyers in Italy can present more details on how this tax is charged. 
 

VAT rates in Italy 

 
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 country also charges a VAT rate of only 5%, which is applied for certain categories of food products, specific social services and passenger transportation. At the same time, the transportation at the level of the European Union (EU) and international transportation is exempted from VAT
 
Although the Italian legislation has stipulated the increase of the VAT since 2018, this tax measure did not enter into force. For instance, the 2019 Budget Law stipulated that the VAT should be increased starting with 1st of January 2020, but the measure was delayed and, recently, a new proposed VAT increase was withdrawn by the Italian government, which wanted to increase the VAT to 25% starting with 1st of January 2021. 
 
The legislation which regulates the increase of the taxes in Italy (the VAT in this case) was created with the purpose of reducing the budget deficit to the standards imposed by the EU. The measures were not introduced in the end due to the fact that the local authorities have found other options that did not include the rise of the level of taxes in Italy
 

What are the corporate taxes in Italy? 

 
Those who have a business in Italy are legally required to pay taxes, as companies are set up for the purpose of developing a commercial activity that will generate an income. As such, any person starting a company here must be aware of the taxes that must be paid. The main tax charged to local businesses is the corporate income tax, imposed at the standard rate of 24%.
 
Companies in Italy are also liable to paying the regional production tax, which is charged at the rate of 3.9%. In Italy, various corporate reorganizations, such as mergers or other restructurings, can be charged with a substitutive tax; our law firm in Italy can provide legal advice to those involved in this procedure and who are liable to the payment of the tax
 
The substitutive tax is charged on a progressive base, calculating the value of the assets that arise from corporate restructurings and there are three main thresholds, as follows: assets with a value of maximum EUR 5 million are charged with a tax rate of 12%, assets with a value of EUR 5 million – EUR 10 million are charged with 14% and assets with a value above EUR 10 million are imposed with a higher rate, of 16%. 
 
Those involved in shipping activities can pay the tonnage tax. This type of tax can be applied to Italian resident companies carrying shipping operations, but also to foreign companies that operate in Italy through a permanent establishment. Still, a company can apply for the tonnage tax regime in given situations. 
 
For instance, the ships owned by the company must have a tonnage of at least 100 net tons. They must also be used only for specific activities, such as: the transportation of goods or passengers, towing and salvage. However, businessmen must know that other types of shipping operations can be developed when applying for the tonnage tax regime, and our team of Italian lawyers can present what other activities qualify for this. 
 
The tonnage tax is charged on a progressive basis, depending on the ship’s net tonnage. It must be noted that the Italian shipping industry has been the beneficiary of various regulations with regards to the taxation of companies operating in this field. Several tax measures were taken over the years by the Italian government and approved by the European Commission, which had the policy of creating a uniform tax system throughout the EU member states. 
 
A company in Italy is also charged with the capital gains tax, which is imposed at the rate of 24%, but companies can benefit from an exemption of 95% on the amount due in given situations. If you need to find our more information on the taxes in Italy, our Italian law firm can offer consultancy services and legal representation.  
 

Taxes for foreigners in Italy 

 
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 generated at a global level. This is calculated based on the current taxes in Italy
 
We can also put you in touch with our partners if you need financial services for your company.
 
Foreign citizens who incorporated 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 and 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 team of Italian lawyers.