Taxes in Italy
A list and description of the main taxes in Italy.
The Italian tax system is quite complex, and to understand its specifics, we advise to take the help of experts in tax – Commercialista.
Taxpayers in Italy are legal entities and individuals. Italian residents pay
taxes
to the state treasury from all types of income (including foreign income), non-residents – only from the profits they receive in the country.
Types of Classification of Income of Individuals
All private income, depending on the source of its origin, is divided into five main categories:
- real estate and land property;
- capital;
- entrepreneurship;
work for hire,
freelance
;
- other sources of income.
Classification of taxes
In Italy, as in other European countries, taxes are divided into direct (collected by the state directly from the income or property of the taxpayer) and indirect (taxes on goods and services, set in the form of a surcharge on the price or tariff, paid by customers when buying goods and receiving services).
The main types of direct taxes in Italy:
- IRPEF (imposta sul reddito delle persone fisiche) – income tax for individuals, which is levied on the income of individuals resident and non-resident, the analogue of the Russian personal income tax;
- IRES (imposta sul reddito delle società) is an income tax in Italy for companies;
- IRAP (imposta regionalale sulle attività produttive) is a regional tax on productive activities of enterprises;
IMU (imposta municipale unica) is a single municipal tax levied on the owners of
immovable property
(the government plans to abolish this tax soon).
The main types of indirect taxes in Italy:
| Step | Income, euros | Tax rate |
|---|---|---|
| 1° | 0 – 15.000 | 23% |
| 2° | 15.001 – 28.000 | 27% |
| 3° | 28.001 – 55.000 | 38% |
| 4° | 55.001 – 75.000 | 41% |
| 5° | more than 75,000 | 43% |
IVA (imposta sul valore aggiunto) – value added tax, VAT;- l’imposta di registro – a tax on the registration of certain legal acts with the Internal Revenue Service;
- l’imposta di bollo (stamp duty) is a tax levied on certain documents;
- l’imposta di successione e donazione – tax on inheritances, gifts, etc.
Business in Italy is subject to corporate income tax of 24%, capital gains tax, regional tax on productive activities. There is also the concept of “tax losses”: if a firm has had tax losses, especially in the first 3 years of activity, these losses can be added to the firm’s expenses for the next 5 years.
There is a tax break for taxpayers introduced by the government on the budget of 2020 (
Italian
. The regime dei minimi), made some changes in Art. 9 of the “Budget Law.”
it’s
applies to sole proprietors and owners of
of
medium-sized, small trading enterprises with an income of up to 65,000 euros per year.
Tax relief
– is a tax method that exempts from paying certain taxes (or provides relief, discounts, tax credits) by conducting a special procedure for calculating and paying taxes.
This regime was introduced in Italy in 2014 and is reserved for individual entrepreneurs providing professional services (lawyers, engineers, architects, doctors, etc.) who earn up to 15 thousand euros per year, and for owners of commercial enterprises with an annual income of up to 40 thousand euros.
In fact, Article 9 of the Budget Act of 2015 provided for a number of requirements and conditions that greatly limited the individual entrepreneur’s ability to receive preferential tax relief. Among these conditions was an income threshold, calculated on the basis of profitability ratios, which was set below 15,000 euros for professionals providing private services and below 40,000 euros for commercial business owners.
As of January 1, 2019, new income limits have been established: a single limit equal to
65,000 euros
(total income received in the previous tax year).
Preferential tax treatment allows you to pay taxes under a special scheme: charging a single tax of 15% (5% for those who open a start-up).
Categories of taxpayers who may receive a tax exemption
ю
Amendments and changes were made to the law in 2019.
Access to preferential tax treatment is possible for entrepreneurs who fall under certain conditions.
With a flat rate IP, if in the previous year:
- They did not have income in excess of the limits set by the Budget Act.
- IEs have not incurred expenses of more than €5,000 in gross ancillary labor for employees, even if the latter were hired temporarily for a single/unique project;
- If the gross value of the annual depreciation costs at the end of the year did not exceed 20,000 euros.
In 2020, these conditions have been abolished.
Article 1 of the 2020 Budget Act again changed the access conditions and barriers to switching to a flat rate regime.
The following is provided:
- An income limit of 65,000 euros, regardless of the type of activity carried out, as long as they have not exceeded this threshold in the previous year 2019 (on handouts)
- Limit on expenses incurred for the remuneration of employees, permanent or auxiliary: 20,000 euros gross
Clarification:
- In the case of entrepreneurial activity with two different ATECO codes (OKVED), the income limit is determined by summing up the income received from the different activities.
Income limit – 65,000 euros for all activities
Employee costs – 20,000 euros gross
Capital Assets – Repealed as of 2019.
The benefit cannot be used from 2020:
- Individual entrepreneurs working under special regimes of value added tax withholding or under preferential schemes with a fixed rate to determine income;
- Non-resident subjects of Italy, with the exception of those who reside in a Member State of the European Union and produce in Italy at least 75% of their income;
- Businesses that lease buildings, building lots, new vehicles.
- Self-employed professionals who simultaneously participate in business partnerships or associations.
- In addition, the Budget Act of 2020 provides a prohibition on preferential tax treatment for entrepreneurs who are paid by entities from which they were employed in the previous two years.
Preferential tax treatment for VAT
Taxpayers are entitled to the benefit only those who meet the following requirements and conditions with respect to value added tax:
- Do not use the VAT refund procedure for domestic transactions;
- The leasing/sale of manufactured goods in the national territory is governed under Article 41 par. 2-bis bill 331 of August 30, 1993;
- The purchase of products in the national territory is regulated under Section 38, Clause 5 of Bill 331 of August 30, 1993, as amended by Act 427 of October 29, 1997;
- The provision of services received from non-residents is regulated by the same articles and by Presidential Decree No. 633 of 1972;
- Imports and exports of products are regulated by Presidential Decree No. 633 of 1972.
For all of the above transactions, taxpayers are not entitled to a refund of VAT paid or payable.
Taxpayers subject to the preferential tax regime, except in the cases mentioned above, are exempt from paying VAT and all other value added tax obligations, except for the obligations to number and retain invoices and customs payments, certification fees and retention of documentation related to these operations.
The transition from ordinary to preferential or vice versa tax treatment begins respectively with the end of the calendar year of ordinary/ferential tax treatment.
Those who enjoy the flat-rate taxation regime are exempt from the proper performance of the obligations under the value-added tax legislation.
The main characteristics of preferential tax treatment in terms of VAT are:
- prohibition on VAT refunds: VAT should not be charged as a refund on invoices, receipts or tax receipts issued during the application of the flat-rate scheme
- a prohibition on the use of the right to deduct VAT paid, due or accrued on purchases;
- exemption from registration of issued invoices;
- exemption from issuing invoices;
- exemption from record keeping and documentation (with some exceptions);
- VAT exemption;
- exemption from completing the VAT return;
- exemption from the obligation to report VAT-related transactions;
- exemption from the obligation to report transactions conducted in relation to operators located in blacklisted countries.
Income and revenue limit useful for accessing preferential taxation in Italy
To qualify for the preferential tax treatment, the income received must not exceed the limits specified for each ATECO code that defines the activity performed.
| Industry group | ATECO 2007 activity code | Income threshold | Profitability ratio |
|---|
| Food and beverage industry | (10-11) | 65.000 | 40% |