Taxes in Italy: A Guide For Individuals and Companies

Taxes in Italy can be complicated, but understanding the basics is crucial if you live, work, or plan to move there. Italy’s tax system is made up of several main types of taxes: personal income tax, which applies to wages, pensions, and investments; regional and municipal taxes that add extra charges depending on where you live; and taxes on property and business activities. Each tax has its rules and rates, and understanding them can help you better manage your finances while living in Italy.

This guide will explain how taxes in Italy work, who pays them, and what rates apply. It will also examine special tax rules for foreigners and how to become a tax resident in Italy through different residence programs.

• Who pays taxes in Italy?
• Taxes for Individuals in Italy
• Corporate Taxes in Italy
• Property Taxes In Italy
• Import and Export Taxes in Italy
• Taxes for Foreigners in Italy
• How to Become a Tax Resident in Italy

Who pays taxes in Italy?

Italy’s tax residents pay taxes on their worldwide income, which includes income from Italy and other countries.

A tax resident in Italy is a person who meets one of three criteria:

1. They spend more than 183 days in Italy during the tax year.
2. They have their primary residence in Italy.
3. Their center of business or economic interests is located in Italy.

Non-residents are only taxed on their income generated within Italy, namely from employment, financial investments, and real estate.

Taxes for Individuals in Italy

Individual taxation in Italy works under a progressive income tax system, meaning that as a person’s income increases, the rate at which they are taxed increases.This system is designed to ensure that those with higher earnings contribute a larger proportion of their income in taxes than those with lower earnings. However, taxes in Italy are pretty high, with about 41.5% of the country’s total income (GDP) going to taxes.

Personal income tax

Personal income tax in Italy, known as IRPEF, is the main tax individuals pay. It applies to income from employment, self-employment, pensions, and investments, with rates ranging from 23% to 43%. Residents are taxed on worldwide income, while non-residents pay tax only on income earned in Italy. In addition to IRPEF, there are also regional and municipal taxes, which vary based on your place of residence.

Regional taxes range from 1.23% to 3.33% and are set by each of Italy’s 20 regions. Municipal taxes vary from 0% to 0.9%, with some municipalities using rates similar to the national tax brackets. You must separately report income from rent, work, business, and investments. You can get tax deductions for medical costs, mortgage interest, and supporting family members.

Social security contributions

Social security contributions are mandatory payments made by employees and employers to fund the country’s welfare system, including pensions, healthcare, unemployment benefits, and other social services. Employees contribute around 9.19% of their gross salary, with employers contributing approximately 30%. Self-employed individuals pay between 24% and 33%, depending on their specific pension fund affiliation.

Capital Gains Tax

Capital gains tax is applied to profits from selling assets like stocks, bonds, and real estate. A flat tax rate of 26% is applied on the capital gain for financial assets, such as shares and bonds. Regarding real estate, capital gains are generally taxed at the same 26% rate. However, there are exemptions:

• The capital gain is exempt from taxation if the property has been owned for over five years.
• If the property has served as the seller’s primary residence for most of the ownership period, even if owned for less than five years, the capital gain is also exempt.

Inheritance and gift taxes

Inheritance and gift taxes are determined by the relationship between the donor or deceased and the recipient and the value of the assets transferred. Spouses and direct descendants, such as children, benefit from a 4% tax rate, with a €1 million exemption per beneficiary. Siblings are taxed at 6%, with a €100,000 exemption. Other relatives and non-relatives face up to 8% tax rates, without exemptions.

Taxes for individuals overview

Corporate Taxes in Italy

Italy charges corporate taxes based on two key components: the national corporate income tax (IRES) and the regional production tax (IRAP.

Business Income Tax (IRES)

The corporate income tax, or IRES (Imposta sul Reddito delle Società), is a flat-rate tax of 24% that is imposed on business income earned by companies operating within the country. This tax applies to various corporate entities, including joint-stock companies (SpA), limited liability companies (Srl), and cooperative societies. IRES is considered a direct tax because it directly affects the taxpayer’s income when it is produced. It is calculated based on the company’s worldwide income, with specific inclusions and deductions outlined by Italian tax law.

Regional Production Tax (IRAP)

In addition to IRES, companies are subject to IRAP, also known as Imposta Regionale sulle Attività Produttive, a tax on the net value of production. The standard IRAP rate is 3.9%, but regional authorities can adjust this rate by up to ±0.92%, leading to variations across different regions. IRAP is calculated based on production value, which is determined by subtracting certain costs, such as raw materials and external services, from revenues.

VAT

The Imposta sul Valore Aggiunto (IVA) is Italy’s version of Value-Added Tax. The standard VAT rate is 22%, applicable to most goods and services. Reduced rates include:

• 10% for certain goods and services, such as water supplies, passenger transport, and hotel accommodations.
• 5% for specific health services and social services.
• 4% for basic foodstuffs and medical equipment for disabled persons.

VAT is collected at each stage of the supply chain and is ultimately borne by the final consumer.

Property Taxes In Italy

Property taxes in Italy involve various charges that depend on whether you’re buying, owning, or selling real estate.

Buying property

When buying property in Italy, the taxes you pay depend on the property’s type, use, and whether you’re buying from a private seller or a company. If you buy from a private individual, the Registration Tax (Imposta di Registro) is 2% of the property’s cadastral value for a primary residence (with a minimum of €1,000) and 9% for a second home. There are also fixed fees: mortgage tax (Imposta Ipotecaria) and cadaversal tax (Imposta Catastale), each of which is about €50. 

If purchasing from a company and the sale is subject to VAT, the Value-Added Tax (IVA) applies: 4% for a primary residence, 10% for a second home, and 22% for luxury properties. In this case, the registration, mortgage, and cadastral taxes are fixed at €200 each.

Owning property

As a property owner in Italy, you’re subject to annual taxes. The Municipal Property Tax (IMU) applies to second homes and luxury properties, with rates typically ranging from 0.4% to 1.06% of the property’s cadastral value, adjusted by a coefficient. Primary residences are generally exempt unless classified as luxury.

Another tax is the Waste Collection Tax (TARI), which covers waste management services. TARI is calculated based on the property’s size and the number of occupants, with rates set by the local municipality. IMU is paid in two installments: 50% by 16 June and the remaining 50% by 16 December each year.

Selling property

Capital Gains Tax may apply when selling property in Italy if you sell within five years of purchase and the property wasn’t your primary residence. The tax is calculated on the profit made from the sale and can be taxed at a flat rate of 26% or according to progressive income tax rates, depending on the circumstances. However, if you’ve owned the property for more than five years, or if it was your primary residence for most of the ownership period, you’re typically exempt from capital gains tax.

IMU multipliers by property category

Here’s a comprehensive table detailing the coefficients (moltiplicatori) used in Italy to calculate the Municipal Property Tax (IMU) based on property categories and acquisition years.

Import and Export Taxes in Italy

As a member of the European Union (EU), Italy follows the EU’s Common Customs Tariff, which applies standardized duties on imports from non-EU countries. Customs duties in Italy are calculated based on the CIF value (Cost, Insurance, and Freight) of goods, with rates ranging from 0% to 17%, depending on the product type, and an average rate of about 4.2%.

In addition to customs duties, import VAT is charged at the point of entry. Additional taxes may include excise duties on products like alcohol, tobacco, and fuel, and anti-dumping duties on goods considered to be imported at unfairly low prices. Exports from Italy to non-EU countries are generally exempt from VAT and customs duties, which makes them competitive in global markets.

Taxes for Foreigners in Italy

As a foreigner and an Italian tax resident, you must declare your foreign financial assets and pay taxes on your worldwide income.

This is what counts as a foreign financial asset:

• Bank accounts
• Real estate owned outside of Italy
• other foreign financial assets.

On the other hand, non-residents only pay taxes on income generated within Italy.

Remember, foreigners must also pay social security contributions based on their earnings. Social security contributions are separate from the income tax system.

Depending on the nature of their employment, expats may also have access to specific tax treaties between Italy and their home countries, which can mitigate their overall tax burden.

Foreigners living in Italy have to file an annual tax return and declare all their sources of income. The Italian tax authorities provide resources and guidance for expats.

Tax regimes for foreigners in Italy

Italy’s flat tax regime offers special tax incentives suitable for high-earning individuals, retirees, and working people.

Do you need a Tax Identification Number in Italy?

Yes, you need a Tax Identification Number (Codice Fiscale) in Italy for most financial, legal, and administrative activities. It’s a personal code similar to a Social Security Number and is required for:

• Working or doing business
• Opening a bank account
• Signing a rental or property contract
• Accessing healthcare or social services
• Filing taxes or receiving income

You can get a Codice Fiscale in Italy by visiting any Agenzia delle Entrate office with your passport (or ID if you’re an EU citizen) and, if needed, your visa or residence permit. If you’re applying from abroad, go to the Italian consulate in your country with a valid ID and a reason for the request, such as buying property or applying for a visa. It’s free, and you usually receive the number immediately or soon after.

Tax Avoidance and Evasion in Italy

Tax avoidance and evasion are significant concerns within the tax system in Italy, impacting the nation’s economy and public services. In 2022, Italy’s VAT compliance gap was estimated at €16.3 billion, which represents 10.6% of the total VAT liability. This shows how much revenue is lost due to uncollected taxes. To address these issues, Italy has introduced initiatives such as digital tools for better tax tracking, increased international cooperation, and stricter enforcement against tax fraud. The government has also taken legal action against companies suspected of evading taxes. These efforts aim to create a fairer Italy tax system and guarantee everyone contributes their share of Italian taxes.

How to Become a Tax Resident in Italy

Italy offers residency options that can lead to tax residency if applicants choose to live in the country. There is the Golden Visa, which is ideal for investors interested in innovation, the Digital Nomad Visa for remote workers, and the Elective Residency Visa for retirees.

Italy Golden Visa

The Italian Golden Visa, also called the Investor Visa for Italy, lets non-EU citizens get legal residence in Italy by making a big financial investment in the country. The investment options include:

• €250,000 in an innovative startup based and operating in Italy.
• €500,000 in shares of a limited company based and actively operating in Italy. The company must have already filed at least one balance sheet.
• €2 million in Italian government bonds. These bonds must have at least two years of maturity left and pay regular interest.
• Donate €1 million to support a public-interest project in areas like culture, education, scientific research, immigration, or heritage preservation.

Italy Digital Nomad Visa

The Italy Digital Nomad Visa allows non-EU/EEA residents to live in Italy while working remotely for companies based outside of Italy. Applicants must have at least six months of experience, be highly skilled (as freelancers or remote workers), and show a three-year university degree, a government-licensed profession, or high professional qualifications. They also need a job contract or business agreement with clients outside Italy for at least one year and must earn at least €28,000 annually.

Italy Elective Residency Visa

The Italy Elective Residency Visa, also called the Retirement Visa, allows people to live in Italy with enough money to support themselves without working. To apply, you must prove you have a steady income from sources like retirement benefits, rents, real estate, or business activities, not a job. You cannot work in Italy or your home country while holding this visa. This visa is ideal for those looking to retire in Italy and have an annual income of at least €32,000.

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Frequently Asked Questions About Taxes in Italy

Who is considered a tax resident in Italy?

Tax residents in Italy are individuals who spend at least 183 days in the country during the tax year or have their primary residence in Italy.

Do foreigners pay taxes in Italy?

Foreigners pay taxes in Italy if they earn income in the country or reside there. Tax rates differ based on the kind of income. Employment income is usually taxed at a flat rate of 30%, while rental income from real estate is taxed at a flat rate of 26%.

What is the capital gains tax rate in Italy?

The capital gains tax rate on financial investments in Italy is 26 percent. This also applies to real estate sold within five years of buying it. However, it doesn’t apply if you sell your property after five years.

What is the property tax in Italy?

Property taxes (IMU) are levied on real estate. This changes depending on the location and property type. Principal residences (such as your home) are exempt from property tax unless classified as luxury properties.

Are there any tax treaties with other countries?

Yes, there are tax treaties with other countries. Italy has entered into tax treaties with various countries. This prevents double taxation and simplifies cross-border trade and investment.

How do taxes in Italy work?

Italy uses a progressive income tax system, with personal income tax rates ranging from 23% to 43%. Residents are taxed on worldwide income, while non-residents are taxed only on Italian-source income. Additional regional and municipal taxes also apply. Corporate tax is generally 24%, plus a local production tax (IRAP) of around 3.9%.

Is there a wealth tax in Italy?

Yes, Italy has a wealth tax called IVAFE and IVIE. IVAFE applies to financial assets held abroad, while IVIE is charged on the value of real estate properties owned outside Italy. The rates are generally low but must be declared in your tax return

How much is IMU (municipal property tax) in Italy?

IMU (municipal property tax) in Italy usually ranges from 0.46% to 1.06% of the property’s value, set by each municipality. The standard rate is 0.76%. It generally does not apply to main homes unless they are luxury properties.

Are there any exemptions for the Italy wealth tax?

Yes, Italy’s wealth taxes, IVIE (on foreign real estate) and IVAFE (on foreign financial assets), offer certain exemptions. For instance, IVIE is not due if the tax payable is less than €200. Additionally, if the property is used as a main residence, a reduced rate of 0.4% applies. IVAFE is exempt from foreign bank accounts with an average annual balance below €5,000. Moreover, Italy’s special tax regimes, such as the flat-tax regime for new residents, can exempt individuals from these wealth taxes on foreign assets