Italian Tax Laws and Regulations
Italian Tax Laws
Dealing with tax, payroll, and employment regulations for your staff from overseas is a tricky process. Italy is no exception, with fines, sanctions and other penalties applying for not complying with the complex and many-layered aspects of taxation.
Global expansion is a great way to grow your business and Italy offers many appealing opportunities. However, the tax laws can be complex and require time-consuming research. By using our PEO service we will take care of the complicated legwork so that you can focus on your business goals in Italy.
Overview of Taxes in Italy
- Individual Income Tax – Progressive
- VAT – 22%
- Corporate Income Tax – 24% (income tax), 3.9% (regional production tax)
- Employer & Employee Social Security Contributions – 29-32% (Employer), 10% (Employee)
- Capital Gains and/or Withholding Taxes – 26% (yields on loans and securities)
Italy Individual Tax – Single, Married
In Italy, the individual’s ability to pay income tax depends both on their residency status, as well as the source of their income. All Italian residents are taxed on their worldwide income, regardless of their nationality, whilst non-residents are only taxed on their Italian-sourced income.
Income Tax in Italy is progressive, based on the amount of income that the individual receives. This applies for both residents and non-residents. For income in 2021, those rates are:
- EUR 0 – 15,000: 23%
- EUR 15,001 – 28,000: 27%
- EUR 28,001 – 55,000: 38%
- EUR 55,001 – 75,000: 41%
- EUR 75,001 +: 43%
In Italy, there are two types of income tax returns that can be done, which depend on specific tax rules:
- Mod. 730 (Modello 730) – this is a simplified tax return, which only applies for incomes subject to ordinary taxation, and taxpayers must meet the following conditions in order to qualify for this return type:
– the individual must be an Italian tax resident in the year of filing this return, as well as the previous one
– the individual has a withholding agent (or employer) in Italy in the period of the filing of the Italian income tax return
– the individual does not have a VAT number
For this type of tax return, the taxpayer is not obliged to prepare any calculation – the balance is withheld by the employer or refunded to the employee in their pay slip. For this type, married couples can file jointly.
The Mod. 730 must be submitted to the Italian Revenue Agency by the 30th of September, via electronic filing.
- Dichiarazione dei Redditi – this tax return type is applicable in cases where the Mod. 730 is not applicable. The individual must then file this tax return through self-assessment.
This tax return type must be filed by the 30th of November via electronic filing. Married couples cannot file this tax return type jointly.
On employment income, the Italian employer acts as a “withholding tax agent” and must effectively withhold both income tax on the basis of the progressive income tax rates, as well as social security benefits.
The employer is also obliged to issue an annual employment certification or Model CU, within or before the 31st of March of the following year. This certificate must certify the individual’s taxable income as well as the withholding taxes done for them during the fiscal year.
If foreign individuals have no employment relationship with an Italian company, they are then obliged to declare their tax income through the second tax return type, Dichiarazione dei Redditi or the ‘self-assessment’ method.
Other income taxes
Individuals are also subject to two other types of income taxes that an individual must compensate:
- Regional income tax – this tax depends on the individual’s region of residence in Italy, and ranges from 1.23% – 3.33%.
- Municipal income tax – this tax depends on the individual’s municipality of residence in Italy, and ranges from 0% – 0.8%. Municipalities also have the option to establish progressive tax rates that apply to the national income bracket.