Taxes for Expats in Italy

    Your complete guide to expat tax in Italy:

    Tax rates

    2017 income tax rates

    Taxable Income Band EUR National Income Tax Rates
    1 - 15,000 23%
    15,001 - 28,000 27%
    28,001 - 55,000 38%
    55,001 - 75,000 41%
    75,001 + 43%

     

    The above are the rates of the personal income tax or IRPEF.

    Regional income tax depends on the region of residence. Beginning in FY 2011, the regional income tax rate ranges from 1.23% to 3.33%.

    Municipal income tax depends on the municipality of residence. Beginning in FY 2011, the municipal income tax rate ranges from 0% to 0.8%. Municipalities can establish progressive tax rates applicable to the national income bracket.

    A solidarity tax at a rate of 3% used to be imposed on income in excess of EUR300,000, but is not in force as of 2017.

    Who pays

    Who pays tax in Italy?

    Expat tax residents of Italy are subject to tax on their worldwide income. Individuals who are not tax resident in Italy are subject to tax on their Italian-source income only.

    Tax resident individuals are liable to the Italian personal (or national) income taxes on their income wherever produced (under the so called ‘worldwide principle’). Therefore, tax residents are also subject to taxation on foreign incomes (e.g. deriving from real estate owned outside of Italy, foreign dividends and interest, foreign compensation and director’s fees, and other foreign income).

    Tax resident individuals are subject also to “wealth tax’ on real estate and on financial investments owned outside of Italy.

    Tax residents individuals are obliged to declare all the foreign investments (financial and not) for Monitoring purposes trough the Italian Tax return.

    The 2017 Italian Financial bill has introduced a New tax regime for neo domiciled individuals who move their tax residence to Italy since the FY 2017.

    New tax regime for neo domiciled individuals

    Individuals who migrate their tax residency from abroad to Italy are allowed to opt for their non-Italian sourced income to be taxed in Italy through the application of a flat substitutive tax, at a fixed amount of 100,000 Euros (hereinafter the ‘non-domiciled tax regime’.)

    The mentioned tax regime could substitute:

    • the income tax on foreign investments (foreign interests, dividends and capital gains) with the exception of capital gains on qualified participation earned in the first five years and
    • the wealth tax on real estate and financial investments owned out of Italy
    • financial monitoring obligations trough the Italian tax return (it means that the individual is not obliged to declare his foreign investments into the Italian tax return).In such a case, each family member could be subject to a flat forfeiture substitutive tax on non-Italian sourced income at a lower fixed amount of 25,000 Euros.
    • In order to be eligible for this tax regime it is necessary to opt through the Italian tax return; in any case, it is advisable to apply a ruling before the Italian tax authorities.
    • To elect such treatment, the individual must meet several requirements, including previous non-Italian tax residency for at least nine years over ten fiscal years preceding the transfer.

    The mentioned tax regime is not cumulated with the New tax regime for inbound employees.

    How it works

    How is income taxed in Italy?

    Expatriate tax advice on employment income - Employment income is income derived from work performed for an employer. It includes any compensation, either in cash or in kind, received during a tax period in connection with employment, including any payments received as shares, as acts of generosity or as reimbursement for expenses incurred in the production of the income. Benefits in kind are valued for tax purposes at the “normal value,” as defined by the Italian tax code.

    An Italian employer, which qualifies as a withholding tax agent, must withhold income taxes monthly from payments of gross employment income, including benefits in kind.

    Non-residents are subject to tax on income from employment derived from services performed in Italy and pensions paid by the state or by Italian residents.

    A special tax regime applies to expat employees who meet all of the following conditions:

    • The expat is resident for tax purposes in Italy.
    • The employment activity is rendered in a continuous and exclusive manner outside Italy for more than 183 days in a 12-month period.
    • The expat employee's assignment outside Italy is regulated by an employment contract or by another written agreement signed by the parties.

    Directors' fees – For expat tax purposes, directors' fees are treated as employment income, subject to progressive income tax rates and withholding tax. This tax treatment does not apply if the services are performed by a professional individual who is registered for VAT purposes.

    Non-resident directors are subject to a final withholding tax at a rate of 30% on directors' fees received.

    Self-employment income - Self-employment income consists of income from a profession, including accounting, law and medicine. Income from a collaboration is treated as employment income, unless the activity is performed by an individual who is registered for VAT purposes.

    Expat residents are subject to tax on worldwide self-employment income. A 20% withholding tax applies to income derived from Italian sources.

    Non-residents are subject to tax on income derived from services performed in Italy. Non-residents are subject to a final withholding tax of 30% on self-employment income.

    For professionals, taxable self-employment income consists of the difference between compensation received during a tax period and related expenses incurred during the same period, subject to certain limits.

    Professional income is subject to VAT and to regional tax (IRAP) at a rate of 3.9%. Such rate may vary depending on the region of Italy in which the activity is performed. Bookkeeping is required under expat tax rules.

    Business income - Business income consists of income derived from the commercial or industrial activities (entrepreneurial activities) described in the Civil Code. If this could apply, expat tax preparation is advised in conjunction with a professional tax adviser.

    Investment income - 49.72% (40% for earnings yielded before 1 January 2008) of dividends derived from qualified participations that are received by expat tax residents from resident and non-resident entities is taxed as ordinary income. Dividends derived from non-qualified participations that are paid to Italian tax residents by resident and non-resident entities are subject to a separate final withholding tax of 26%. The tax base for dividends on non-qualified participations that are paid by non-resident entities is net of foreign taxes.

    One hundred percent of the dividends received by an Italian tax resident individual that are derived from an unlisted company resident in a tax haven (as defined by Italian authorities) is taxed as ordinary income. Non-qualified dividends received by an Italian tax resident individual that are derived from a listed company resident in a tax haven (as defined by Italian authorities) are subject to a 26% substitute tax.

    Dividends paid by Italian resident entities are subject to a 26% withholding tax. According to expat tax rules, tax treaties may provide a lower tax rate for dividends paid to non-residents.

    Italian-source interest paid to residents is subject to a final withholding tax at a rate of 26%. Consequently, such interest is not aggregated with other taxable income. Foreign-source interest may be included with other income and taxed as ordinary income or taxed separately at a rate of 26%.

    Interest paid to non-resident expats is subject to a final withholding tax of 26%; tax treaties may provide for a lower tax rate. Interest derived from bank and postal accounts that is paid to non-residents is exempt from tax.

    DTAs

    Taxes for expats in Italy: Double tax relief and tax treaties

    A tax credit for taxes paid abroad on foreign-source income is available; however, it is limited to the portion of Italian tax due based on the ratio of foreign-source income to total income. Italy has entered into double tax treaties with 94 countries.

    Residency

    Expat tax advice on residency

    An expat is considered resident for income tax purposes if, for the greater part of the tax year, they satisfy any of the following conditions:

    • Their habitual abode is in Italy.
    • The centre of their vital interests is located in Italy.
    • They are registered at the Office of Records of the Resident Population in Italy.
    IHT

    Do I have to pay inheritance and gift tax?

    Inheritance and gift taxes apply to residents and non-residents. The tax base is related to the value of the assets. The rates depend upon the relationship between the donor and the donee.

    Other mortgage and cadastral expat taxes apply requiring expert expat tax advice for individual cases.

    To prevent double taxation of estates, Italy has entered into estate tax treaties with certain countries. In the absence of a treaty, a tax credit may be available for foreign taxes paid on assets located abroad.

    Finally on this point, do not assume that just because you've expatriated to live in Italy that your estate will not be liable to inheritance tax (IHT) in your old home nation, or any nation where you hold assets.  For example, those domiciled in Britain remain liable for IHT on their worldwide estate.

    If you are concerned about mitigating your IHT liability, we'd like to offer you a free initial consultation to determine whether we can help you.

    CGT

    Do I have to pay capital gains tax?

    Securities — tax advice for resident expats: The taxation of capital gains from the sale of securities not related to business activities varies according to whether the transaction involves a qualified percentage of the company's shares.

    If the transaction involves a qualified percentage of the company's shares, the ordinary rates are applied to 49.72% (40% if the sale of securities occurred before 1 January 2009) of the gain. The ordinary rates are applied to 100% of the gain if the shares sold relate to qualified shares of a company residing in an expat tax haven (as defined by the Italian authorities).

    If the transaction involves a non-qualified percentage of the company's shares or non-qualified shares of a listed or unlisted company residing in a tax haven, it is advisable to seek professional expatriate tax advice

    Securities — tax advice for non-resident expats - Capital gains derived by non-residents from the sale of securities (including shares representing capital and other similar interests, convertible obligations, stock options and similar rights) not related to business activities are subject to the tax treatment applicable to residents if the securities are issued by an Italian entity. However, capital gains or losses arising from non-qualified shares issued by Italian companies listed on the stock exchange are not subject to Italian tax.

    If the taxpayer's losses exceed gains, the difference may be carried forward up to a maximum of 4 years against future capital gains.

    State pension

    Do expats get a state pension?

    Italian expat tax law provides for a comprehensive system of social insurance.

    In general, social security contributions are payable at varying percentages of gross remuneration, depending on the employee's qualification level and the employer's activity sector.

    Expat employees' social security contributions range from approximately 9% to 10% of their gross remuneration. The employers' part of the contributions ranges from approximately 27% to 32%.

    Employees with no record of social security contributions before 1 January 1996 are subject to pension contributions on gross income up to a maximum of EUR100,324 for 2015.

    Self-employed individuals, directors and consultants must enrol with the INPS, unless other specific expat tax rules apply.

    In addition, foreign citizens, such as non-resident directors, must enrol with the INPS. This requires professional advice in consideration of expatriate tax returns.

    Real estate tax

    Taxes for expats on real estate and financial assets

    A tax on real estate held abroad for Italian tax resident individuals (IVIE) took effect in 2012. The standard tax rate is 0.76%. However a rate of 0.4% applies if the real estate abroad is the tax payer's principal abode. The taxpayer is entitled to a credit for wealth tax paid abroad on the properties.

    The expat tax on Italian real estate (IMU) is partly due to the state and partly due to the municipality where the real estate is located. The standard tax rates are 0.4% for real estate used as principal abode and 0.76% for other real estate. Each municipality can decide whether to increase or decrease the standard rates. However, the increase or decrease cannot exceed 0.2% for the principal abode and 0.3% for other real estate.

    A tax on financial assets held abroad by expat tax resident individuals (IVAFE) took effect in 2012 influencing tax advice for expats. The tax rate is 0.20% from 2014 onwards. In the case of double taxation, it is possible to deduct the wealth tax paid in the country where the financial asset is held.

    Finally...

    We believe the above information is accurate, however tax rates and rules can change, and we are NOT tax experts.  Therefore, please do not rely exclusively on the information to determine your liability for tax.

    Speak to a local tax expert for personalised advice, or consult an international taxation consultancy.

    If you'd like our help to source someone to assist you, please get in touch and we will do all we can to help.

    Relax, and join the 10,000 other international investors who have made the smart decision to let us help.

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