Tax System In Italy: How It Works

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Ah, the Italian tax system—a complicated dance where everyone’s leading but no one knows the steps.

If you’re an expat trying to pirouette through Italy’s taxing tax system, we’re here to help.

Consider this your choreography guide, making your fiscal journey smoother than a scoop of Italian gelato.

Individual Income Taxes In Italy

Tax System In Italy 1

Before starting work in Italy, it is important that you understand what the individual income tax is and who is obligated to pay it.

Your income tax depends on the time you have been in Italy, whether you are considered a citizen or not. Tax brackets in Italy are as follows:

Taxable income bracket Total tax on income below bracketTax rate on income in bracket
From EURTo EUREURPercent
015,000023%
15,00128,0003,45027%
28,00155,0006,96038%
55,00175,00017,22041%
75,001over25,42043%

What Is Income Tax?

Tax System In Italy 2

In Italy, income tax is known as imposta sul reddito delle persone fisiche. The tax is directly applied to earnings which come from employment, pensions or investment plans.

The Italians follow a progressive tax system, meaning the more you earn, the more tax you’ll have to pay.

In case of being employed, the employer deducts the tax from your salary and submits it to the Italian Revenue Agency, which oversees tax in italy. If you’re a freelancer, the individual must pay freelance taxes via the annual tax return.

When Did Income Tax Start?

During the 19nth century, the first modern tax was imposed in Italy. After that, tax was primarily used to fund wars during world war 1 and 2.

Post war, tax was mainly used in the economic growth and country’s reconstruction and later on various tax reforms took place in Italy which gave birth to different types of taxes.

What Is The Tax Rate In Italy 2023?

Since Italy uses a progressive tax system, the tax is directly related to the individual’s personal income.

The lowest wage income tax is applicable on €15,000 or lower. The highest rate of tax 43% is charged when the individual’s personal income exceeds €50,001.

How Much Will I Make After Taxes?

To calculate your earnings after giving tax, you’ll need to find out your monthly salary and calculate the amount that will be deducted for income tax based on which income bracket you fall in.

Alternatively, you can also head on to any search engine and find out your earnings via the income tax calculator.

Italy Tax Classes

Tax System In Italy 3

The tax that the individual will be obligated to pay depends on which tax class they fall in. The primary tax classes in Italy are:

Unmarried

Single taxpayers (Celibataire or Ledeca). The individuals who are not married and don’t have any children dependent on them.

Married (Coniugati)

Couples who are married and opt for joint tax returns. The Italian government allows a couple to split their incomes which leads to them having to pay less tax.

Separated Or Divorced Taxpayers (Separati e Divorziati)

Individuals who, by law, are separated or divorced.

Head Of Household (Capofamiglia)

This category includes people who aren’t married but have children or other family members dependent on them for financial support. This class is subjected to certain benefits.

Widows/Widowers (Vedova or Vedovo)

Individuals who have lost a spouse and did not remarry. 

Non-Resident

Taxpayers, individuals who are not residents of Italy but still earn income fall into this bracket.

Italy offers special tax packages to people of age, individuals who have retired, specific professionals etc. These packages have certain requirements and can result in tax advantages.

Income Tax Declaration

Tax System In Italy 4

To declare their incomes, the taxpayers in Italy can use one of two models, either the Modello Redditi PF (Tax on Physical Persons) or Modello 730, which is a simplified tax return.

While filing under the Modello 730, individual must meet certain requirements:

  • The individual must be a resident the year of filing the Modello 730 and the year before that as well. 
  • During the filing period for the income tax returns, the individual must be associated with a withholding agent in Italy.
  • The individual must have no VAT number.

The primary advantage of using this model is that you are not obligated to do any calculations. It is the employers job to calculate all tax returns of their employees and report the balance which results from the tax returns.

The other method, Modello Redditi PF, requires the individual to handle everything on their own and calculate all their earnings and tax returns by themselves, with the help of a professional accountant.

This tax return must be submitted to the Italian tax authorities by 30th november if you’re filing electronically.

The employers must also submit copies of their annual employment certification so that their taxable income can be deduced. This is applicable to foreign citizens as well as residents of Italy.

Other Taxes

Apart from income tax, there are several other types of taxes which exist in Italy, some of which include property tax, Vehicle tax, solidarity tax etc.

Church Tax In Italy

The Church tax amounts to 0.8% of an individual’s total income and it is up to them who the recipient of their tax contribution will be.

Solidarity Tax In Italy 

Starting from 1st January 2023, Italy introduced an equivalent to the solidarity tax under the name “New Contribution”

According to the “New Contribution”, the individual is obligated to pay a certain amount to the government for development of certain projects, mainly related to power production, electricity etc.

How Much Is VAT In Italy?

The standard VAT rate in Italy is 22%, which is applied to most goods and services.

The first reduced VAT of 10% applies to water supplies, hotels etc. The second reduced VAT rate of 5% is applied to certain foods and social services and the super reduced VAT rate of 4% applies to medical equipment, newspapers, books etc.

Seconded Employees In Italy

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Many individuals who move to Italy for work do so as seconded employees, either at their own will or in other cases if they’re on the request of their employer.

The person receives his/her income from their home country and is obligated to fulfil tax requirements of his/her home country as well.

They don’t need to pay taxes in Italy for a certain period of time, which usually lasts anywhere between 2-5 years.

Conclusion

And there you have it—the intricacies of Italy’s tax system unraveled, as neatly as spaghetti on a fork.

Now you can approach tax season with the confidence of a Venetian gondolier navigating the canals.

Fiscal Freedom!

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