Expatriate tax - Italy

Non-EU nationals are required to apply for a work permit and report to the police in his or her place of residence in Italy. Similarly, their spouses and children are required to ask for relevant visas.

Where the expatriate is an EU, EEA or a Swiss national the above is not required. An EU national that intends to reside and to work in Italy for more than 90 days must register at the Anagrafe, the Register of the Italian Resident Population.

The tax year in Italy is the calendar year (January-December).

The annual tax declaration is done via the ordinary tax return form 'Modello Redditi Persone Fisiche' or via the simplified tax return 'Modello 730'. The Income tax return (Modello Redditi PF) for the year concerned must be filed electronically by November 30 of the following year (e.g. tax return for FY2023 is due by November 30, 2024). Married individuals cannot file joint returns except for the simplified tax return (Modello 730).
Income tax are due by June 30 (or by July 31 with a surcharge of 0.4%) for income earned in the previous calendar year. Advance payment for the current year are due as well: these are equal to 100% of the previous year’s tax liability and are paid in two instalments (40% by the end of June with the balance for the previous year and the remaining 60% by November 30).
Most Italian employees working in Italy pay their tax through payroll withholding and are not required to file a tax return (exceptions apply). However, inbounds assigned to Italy may have a more complicated tax position and may be required to file an Italian tax return even if their taxes are being paid by their domestic employer.

Income tax rates and bands for State tax (IRPEF) are the following for FY2023:

On top of State tax, Additional Regional Tax (ranging between 0.7% and 3.33%) and Additional Municipal Tax (ranging between 0% and 0.9%) are due. 

It should be noted that the Italian Legislator is currently reviewing the tax bands and rates, therefore those might be different to those hereby reported.

Sample income tax calculation (2019/20)

Individuals’ taxation in Italy is determined by their tax residency status.

Italian tax resident individuals are subject to income taxes on their worldwide income. In this case, the taxable income is computed by adding all of the income worldwide produced, then deducting personal allowances and credits. Ordinary Income is included in the taxable base and subject to progressive tax rates.

Non-Italian tax resident are subject to tax in Italy only on income produced in Italy.

The Italian Tax Code provides that an individual is considered as a tax resident in Italy if at least one of the following conditions is met for more than 183 days in a calendar year:

• the individual is registered in the Record of Resident Population in Italy (Anagrafe)
• the individual’s habitual abode is in Italy
• the centre of the individual’s interest is located in Italy.

The above-mentioned definition contained in the Italian Tax Code reflects an indicative definition of fiscal residence/non-residence in Italy, nonetheless, each case must be determined on its own facts and circumstances. Indeed, the Italian tax authorities, in their interpretation of the residency rules, usually look at a number of factors in making a determination (acquisition of a dwelling, moving one’s family, establishing social and economic ties, etc.).

Employment income includes; salary, wages, bonuses, commissions, gratuities, allowances, shares, gifts and in general, any compensations received in connections with the employment relationship (paid in cash or in-kind).

Furthermore, any amount received in consideration of or on termination of employment qualifies as employment income and is subject to tax in Italy.

A general rule provides the taxation of the remuneration for any work performed in Italy. An individual that is considered as a non-tax resident is taxed only on employment income deriving from services performed in Italy and pensions paid by the State or by an Italian resident entity.

In this regard, the regulation of the double taxation agreements between Italy and other countries may apply accordingly.

Benefits in kind are subject to tax in Italy and valuated for tax purposes as the ‘normal value’ as defined from the law. According to the law, 'normal value' is defined, for listed stocks, as the average value of the last 30 days of quotation. When not listed, the specific value should be considered.

Under specific conditions, some benefits are partially or totally exempted from taxation and Social security contributions.

The Italian tax law grants different special tax regimes addressed to inbound individuals meeting certain conditions. Each special tax regime provided by the Italian tax law grants different benefits to the taxpayer.

Special tax regime for inbound

The special tax regime provides for the application of ordinary tax rates (IRPEF) on 30% on the employment income produced in Italy (reduced to 10% under certain circumstances). The special tax regime is applicable for five years 

The requirements to qualify for the special tax regime are:

• The individual should have qualified as non-tax resident of Italy for the two years preceding the arrival in Italy
• The individual should commit to live and work in Italy for at least two years, qualifying as tax resident of Italy according to art. 2 of the Italian tax law (TUIR)
• The individual should work predominantly in Italy (ie 183 days per year at least).

Should an individual fail to meet the residency requirement, the regime would be inapplicable, thus the individual may be requested to pay taxes on 100% of the income earned in previous year. Penalties on unpaid taxes may apply.

It must be noted that the Italian legislator is currently reviewing the special tax regime for inbound. The modifications are expected to have a vary significant impact in terms of requirements, duration and exemption rate.

Special tax regime for high net worth individuals (HNWI)

The special tax regime provides that foreign income is subject to a substitutive tax, amounting to €100,000 per year. The law provision on HNWI is applicable to any individual who meets both the following requirements:

• They become an ordinary tax resident of Italy according to the Italian tax law, as explained above
• They have not (or ever) been a tax resident of Italy during nine tax years over the previous ten.

Further to the payment of substitutive taxation of foreign income and investments, the law also provides:

• for the exemption from disclosure obligations relating to foreign investments (so-called RW Form)
• from the payment of wealth taxes (IVIE and IVAFE)
• from the payment of inheritance or donation taxes on assets held abroad which would be due in case of tax residency of the deceased or of the donor.

The tax regime applies for 15 consecutive years.

The income produced in Italy, under the application of the special tax regime for HNWI, is subject to ordinary taxation.

Exceptions to the substitutive tax are capital gains realised during the first five years under the new tax regime, on foreign investments and deriving from the sale of qualified shareholdings. These are not subject to the flat tax but rather to the ordinary Italian taxation.

Special tax regime for retired people

Retired individuals moving tax residency to specific regions of the South of Italy could benefit from the substitutive taxation of foreign-sourced income (including pensions) at a 7% flat tax rate, calculated on foreign-sourced income and investments.

The special tax regime is applicable to retired individuals meeting any of the following requirements:

• they receive a foreign-sourced pension
• the individual qualified as a non-tax resident of Italy for the five tax years preceding the arrival to Italy
• the individual moves and registers with the Anagrafe of one of the Municipality of Southern Italy. The law provides the list of the Regions where the individual should transfer the residency and specifies that the municipalities should have no more than 20,000 resident individuals
• the last country of residence of the pensioner must have entered into an administrative cooperation arrangement with Italy.

If the retired individual fails one or more of the conditions above, taxation will occur at the ordinary rates applicable to different incomes.

The tax regime grants the exemption from the disclosure of investments held abroad and from the payment of wealth taxes on assets held abroad (IVIE and IVAFE). On the contrary, the tax regime does not grant the exemption from inheritance and gift tax.

Italian Tax Law provides a tax credit for taxes paid abroad on the income subject to double taxation. Relief can be obtained once the foreign taxes can be considered as definitively paid (no reimbursement is available and no further payments are due for the same tax year).

Individual tax reductions are provided for costs with a particular social relevance such as those paid for health reasons, for interests on house mortgages, or for education. The main ones are:

• mandatory social security contribution paid by the individual
• pension funds and life insurance premiums within specific limits.

In general, capital gains or losses are equal to the difference between the sales proceeds and the purchase costs. Capital gains produced since 1 January 2018 are fully subject to tax.

Flat tax of 26% usually applies when the capital related to investments held in black-list countries are subject to progressive taxation (IRPEF).

If losses exceed gains, the difference can be carried forward up to five years against future gains; however, these losses cannot be deducted against other sources of income in the relevant year.

Inheritance and gift taxes apply in Italy with the following tax rates:

• 4% if the heir is the spouse or a direct relative in law (exemption threshold applies up to €1,000,000 for each heir)
• 6% if the heir is a relative in law within the fourth degree, a direct collateral relative in law or a collateral relative in law within the third degree (exemption threshold applies up to €1,000,00 for each heir)
• 8% in the other cases (no exemption threshold applies)

in addition to the allowances of €100,000 and €1,000,000, there is a further allowance, equal to €1,500,000, for transfers made to persons with disabilities, recognized as seriously unable under the law n. 104 of 1992

Inheritance and donation tax do not apply in case of ‘family agreements’ and in case of transfers of businesses where the counterparts are members of the same family, including the transfers of participations implying the acquisition of a controlling interest in the company. The exemption applies only if the business’ activity is carried on during the five years following the transfer

When immovable properties located in Italy are inherited or given as a gift, cadastral and mortgage taxes apply; the applicable tax rate is usually 9% for registration tax, 2% for cadastral tax and 1% for mortgage tax. Discounted rates are applicable in case the property qualifies as the primary house of the heir/receiver.

Dividends and interest income are taxable in Italy on a cash basis (ie when received).

• Dividends are usually subject to a 26% flat tax (some exceptions may apply when the individual receives dividends from his business activity).
• Dividends from companies’ residence in tax havens are generally subject to progressive taxation.
• Interest received by resident and paid by non-resident entities are subject to a 26% final flat tax.
• Interests derived from a bank or postal accounts paid to a non-resident are exempts from tax.
• Interests paid by Governmental bonds (Italian or foreign) are subject to a 12.5% flat tax.
• Royalties generated in Italy and received by resident taxpayers are subject to tax at the ordinary rates.
• Royalties produced in Italy and received by a non-resident individual are subject to a 30% withholding tax. The withholding may be applied at a lower rate if so provided for in any double taxation agreement between Italy and the recipient’s residence state.

Additional Regional and Municipal Income Taxes are due by the individual. The tax rates vary depending on where the individual is a resident on 31 December. The additional regional tax rates range from 0.7% to 3.33%. The additional municipal tax rates range from 0% to 0.9%.

Property tax

Municipal tax on properties (IMU - TASI was included into the IMU rates) may apply. The taxable base is the cadastral value and the tax rate ranges from 0.4% for the principal abode to 1.14% jointly considered. Each municipality can decide whether to increase or decrease the standard rates.

Flat tax on Rental income

Income derived from real estate is taxed at ordinary rates. The taxpayer can opt for a substitutive flat tax of 21%, which could be decreased by up to 10% if certain conditions are met.

Individuals employed in Italy are required to contribute to the National Institute for Social Security fund (INPS) or to other mandatory funds provided for in a specific industry. 

Social security contributions (SSC) are calculated on the gross salary of the employee. Social security at employee charge ranges between 9% and 10%, while social security at employer charge ranges from 27% to 30% depending on the employee’s level and on the employers’ industry (e.g.: trade, credit, manufacture, transport, etc.). 

Contributions to complementary pension funds may be due as well, depending on the employer’s industry and employee’s qualification. 

Employees with no record of SSC before 31 December 1995 will pay SSC on a gross income up to a certain maximum (for 2023 it was 113,520€ however the amount is revised each year by the Ministry of Labour); individuals with a record of SSC before 31 December 1995 are requested to pay SSC on full employment income.

Different rates could be applied for SSC due to self-employment and executive levels.

Expatriates may qualify for exemption from SSC if they are eligible to opt for SSC in their state with which Italy has a social security agreement. Usually, this requires the filing of a certificate of coverage with the Italian authorities.

Stock options are subject to income tax at exercise on the excess of the normal value (as defined under Italian law) of the shares received over the price paid by the employee. The income generated from stock options is considered employment income.

Law provides that all stock options which are taxable as employment income at exercise are exempt from Italian SSC.

Starting from 2012 Italy introduced a wealth tax on financial investments held abroad (IVAFE) by individuals who are tax residents in Italy. The tax base is the value of the financial assets at the end of the year or at any other intermediate date when dismissed during the year.

The tax rate is 0.2% on a yearly basis.

Bank accounts held outside of Italy are charged a stamp duty of €34.20 (on yearly basis) for accounts with an average balance higher than €5,000.

Italian law provides a tax on real estate held abroad (IVIE) by Italian tax residents. The tax base is equal to the purchasing costs or, if absent, to the market value. Specific rules apply to real estate located within the EU. The rate is in general equal to 0.76%.

Should the tax amount be lower than €200, no payment is due. Tax credit for foreign wealth or property taxes can be obtained.