Taxes In Italy
Considering a move to Italy? one of the first items on your agenda should be to familiarize yourself with the Italian taxes system you’ll face as an expat.
Whether you plan to work, retire or operate a business in Italy, taxes in Italy compared to US taxes have some important differences.
We’ll try to cover the basics of the Italian tax system and the most important taxes that you’ll need to be aware of as an expat living in the country.
Taxes in Italy for Expats
Your tax situation in Italy will depend on your residency status in the country.
For those who only work in Italy and do not spend the entire year there, the state assesses taxes only on that income that is earned inside Italy.
On the other hand, if you live in the country for more than 183 days in the year and own a business centered on Italy, you will need to pay Italian taxes on your entire worldwide income.
The IRS requires all Americans who earn more than $10,000 to file a tax return, regardless of where in the world they live and work.
Types of Taxes In Italy
General Income Tax
In Italy income tax is known by its Italian acronym IRPEF. This individual tax will be the main tax most foreign residents of Italy will have to pay. For large incomes, the IRPEF can reach to almost 50 percent. The Italy tax rate structure is as follows:
- Incomes up to $36,000: 23 percent
- Incomes from $36,001 to $39,300: 33 percent
- Incomes from $39,301 and $119,200: 39 percent
- Incomes of $119,201 and over: 45 percent
Different regional and local authorities will also asses income taxes, which can range from 0.1 to 1.4 percent.
Real Estate Taxes
If you own property in Italy, you will have to pay taxes on it. Rates range from 0.4 to 0.7 percent of the property’s assess value. This is determined according to a number of factors, including the category, location and condition of the property.
Sales Taxes
Expats who have traveled to Italy in the past will likely already be familiar with this tax, the VAT or IVA. The national government sets this tax in Italy, so it is the same in all regions. The current rate is 20%, and the VAT is already factored in to bills and prices for goods.
Inheritance Tax
Inheritance tax rates vary depending on the relationship between the donor and beneficiary.
For spouses or relatives in a direct line, it’s 4% on the value of assets exceeding 1 million euros ($1,055,190); for siblings, it’s 6% on the value of assets exceeding 100,000 euros ($105,500).
Corporate and Capital Gains Taxes
Capital gains taxes vary depending on the type of gain. For the sale of real estate, the gain is taxed at progressive rates or at a flat tax of 26%. And, if the home is a principal residence or was owned for more than five years, its sale is exempt from capital gains tax.
Filing Your Taxes
If you’re obliged to pay taxes on your Italian income, you’ll need to file an annual return. For many employees, your employer will often file for you. However, the self-employed or those with other taxable income will have to file for themselves.
- You must file your taxes between May 1 and June 30 either by paper or online.
- You must pay 40% of any taxes owed by May 31 and the remainder by Nov. 30
Extensions are usually not possible and penalties for late payment can be very severe, especially after the first 30 days. If you’re owed a tax refund Italy may take as long as a year to send it.
Exemptions
A number of exemptions are available to Italian taxpayers. These include contributions to charity, alimony, medical expenses, interest on real estate loans, tuition expenses and more.
For American expats in Italy, there are also a number of other options, including the Foreign Earned Income Exclusion and the Foreign Tax Credit. To take advantage of these options you must also file in the United States, even if you weren’t otherwise required to do so.
Ups and Downs of Taxes in Italy
Regional income tax ranges from 1.23% to 3.33% depending on which region you live in. Municipal income ranges from 0% to 0.9% (according to municipality).
Italy made changes to its property tax laws with the Italian Budget Law 2020. Now, the basic rate for a principal residence is 0.5%, but the municipality may increase or decrease this.
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