Income tax rate | Businessman analyzing data

INCOME TAX RATE IN ITALY: 2020 GUIDE FOR FOREIGNERS

The main income tax rate in Italy, is the personal income tax called IRPEF, which stands for “imposta sui redditi delle persone fisiche”.
It is divided into three levels (national, regional and municipal) and it varies according to the time you spend in Italy, your income, and where your revenues come from.
Keep in mind: if you are a foreigner living in Italy for less than 6 months in a year (183 days to be accurate) then you are liable only for the income earned in Italy (see the section below “What can be considered as income generated in Italy?”); on the other hand, if you live permanently in Italy all your worldwide income may be subject to IRPEF.
In the first case, to avoid double taxation, we suggest also to check out the list of bilateral agreements regarding income tax rate, between Italy and your home country.
Following these agreements, you will avoid paying taxes both to your homeland and Italy.
Income tax rate | Businessman analyzing data

​National, Regional and Municipal Income tax

  1. National Income Tax

The national income tax is the main one, and it ranges from 23% to 43% of your taxable income.
Income taxes in Italy are progressive meaning that taxes will increase more than proportional to your income.
1. If your income is less than 15,000€ you will pay only 23% of IRPEF.
2. If your income is more than 15K and less than 28k you will only pay 27% of IRPEF.
3. If your income is more than 28,001 and less than 55,000 you will pay 38% of IRPEF.
4. If your income is more 55k and 75k you will pay 41% of IRPEF.
5. If your income is over 75k you will pay 43% of IRPEF.
All the data summed up in the table below.

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The good news is that the income tax rate has been reduced in the last decades, as shown by the graph attached below.
2. Regional Income tax
In addition to the national income tax, there are also the regional ones, that varies from 0,9% to 1,4% of your income depending on the region.
3. Municipal Income Tax
The Municipal tax depends on the municipality in which you are resident. It varies between 0,1 and 0,8% of your income.

What can be considered as income generated in Italy?

As stated above, if you live in Italy for less than 6 months, you will be liable only for the income earned in the country. There could be many cases:

  1. Business income from a resident company in Italy
  2. Pension sourced from Italy
  3. Income coming from Italian patent or trademark. In this case it should be paid by the Italian state or Italian residents. 
  4. Italian financial income and capital gains
  5. Income from an Italian employment contract, or freelancer’s activity (check out our article regarding freelancer taxes in Italy)

Is my pension taxed?

If you are a foreigner living and resident in Italy, your pension, in the majority of the cases, is not taxable in Italy, because of the double taxation treaty with your home country.

​However, if you have Italian citizenship or you are planning to apply, then you might be subject to Italian taxation.

When should you pay these taxes?

As for many other taxes in Italy, the term to pay IRPEF is fixed on the 30th of June. You can also pay during the month of July, but you will need to pay a 0,4% surcharge.

Paying taxes as an employee in Italy
If you are employed in Italy, you do not have other sources of income, and you do not claim any tax deductible item, you should not worry about filing your tax return.

Income tax is withheld monthly by your employer in your payslip.
Income tax rate in Italy | Old man checking income return form

Other taxes to consider

  1. Wealth tax on properties owned out of Italy

If you have real estate possession outside Italy you should pay a tax equivalent to the percentage of the property you own, and its size. The tax is called IVIE (Imposta sul valore degli immobili situati all’estero) and it is 0,76% of the cadastral value of the property, but it can vary according to the type of property (luxury or normal) and its destination of usage (commercial, residential, agricultural…).

2. Wealth tax on financial investments owned out of Italy
Also, this wealth tax is proportionate to the percentage owned and the size of the asset. This is called IVAFE, which stands for “Imposta sul valore delle attività finanziarie detenute all’estero”. In general, this is 0,2% of the value of the asset.

Both IVAFE and IVIE must be paid in two installments: 30th of June and 30th of November.

Are there breaks?

Like many Italian taxes there are many Breaks and tax deductible items to claim against IRPEF.

  1. For instance, if you earn less than 8K per year as a regular employee this tax is not due.
  2. If you are 75 or younger, and you earn 7500 € per year you should not pay IRPEF. 
  3. If you are 75 or older, and you earn 7750 € per year you should not pay it as well.

In addition to this, family dependents will attract tax breaks, reducing IRPEF payable.
Furthermore, from 2019 Italy has also introduced a new tax exemption to attract retired people in Italy, which will guarantee you a 7% flat tax on any foreign income.
With this and many more improvements, taxation in Italy is trying to become more modern and appealing to foreigners.

Final considerations

Do not panic. Once you figure out what is your fiscal position, it is fairly easy to calculate how many taxes you should pay and the approximate amount.
Furthermore, there may be many exemptions and deductions you have not considered or there might be conflicts between the Italian tax system and your home country one..
To be sure, we strongly suggest you check out your numbers with an international accountant in Italy, to be 100% law compliant. ​

In addition, check out our video below, about essential tips and suggestions to pay taxes in Italy.
Want to read more? Check out also our articles about filing your taxes in Italy, or airbnb taxes in Italy, or our guide for retiring in Italy.

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