Home to more than 60 million people, Italy is the third‐most populous state in the European Union. Renowned for its rich cultural heritage, the country is celebrated worldwide for its excellent art, fashion and cuisine.
When World War II ended, a defeated Italy saw its economy suffer. But in recent decades, the country has developed into one of Europe’s powerhouses, becoming the third-largest economy in the European Union (EU).
Success breeds success, with the result that more and more investors and entrepreneurs are becoming interested in learning how to benefit from tax reduction options in this European jurisdiction.
Swapping your primary residence to become an Italian tax resident might seem – might even be – a great idea, but this can be an overwhelming process. What exactly are the taxes in Italy? How do they break down and what kind of property taxes does Italy expect foreigners to pay? The Italian tax system can be confusing, to say the least.
Which is where we come in. Nomad Capitalist’s team of experts is located all over the globe and can help you make the best choices for yourself and your family. We are all about ‘going where you’re treated best,’ which could mean moving somewhere that meets your business and personal growth needs while offering you the most opportunities and a high quality of life.
Italian Tax Benefits
Italy is more of a tax-friendly jurisdiction than you might think. A flat tax regime allows foreigners to live in Italy and pay a fixed amount of tax regardless of how much foreign income they have.
This program is for new tax residents in Italy. You can move there, become a resident and then apply to pay €100,000 per year as your entire tax obligation. This only applies to your non-Italian sourced income – any income from an Italian source will still be taxed.
By moving your tax residence to Italy, your foreign income becomes subject to a substitute tax – not the regular Italian income tax that applies to everyone else.
You can include family members in your application for the flat-tax regime. They don’t need to be dependent on you either, which means they can include the following:
- a spouse or common-law partner
- adopted and natural children
- foster and natural parents
- in-laws
- siblings.
This expat tax regime applies to both employees and the self-employed. To qualify, you need to meet several requirements, including not having been a tax resident of Italy for at least nine out of the preceding ten financial years.
There’s a different incentive for newcomers who haven’t lived in Italy for the previous two years. This incentive only taxes 30% of their worldwide income, which would then be taxed at Italy’s normal rates. That means an effective tax rate of only 13% for any worldwide income.
You can enjoy further tax benefits by relocating to southern regions like Abruzzo, Basilicata, Calabria, Campania, Molise, Sardinia or Sicily. Here, tax is only applied to 10% of your foreign income, with the remaining 90% exempt.
This special flat tax regime lasts for 15 years.
When relocating to Italy, you can also enjoy tax benefits if you buy real estate there. Property tax is only 2%–9% of the purchase price.
If you buy an additional property, such as a holiday home, the property tax increases to 9% of the property value.
Flat-rate taxpayers are exempt from gift and inheritance taxes for assets held abroad. You can also benefit from not paying tax on the value of properties owned abroad.
Italian companies are subject to a 24% corporate tax rate. However, incorporating in Italy comes with additional taxes on dividends, interest and royalties.
Don’t feel deterred by all these technicalities. If you want to establish tax residence in Italy, Nomad Capitalist can help you achieve your goal.
Italian Tax Requirements
Flat Tax in Italy
According to Article 2 of the Italian Income Tax Code, you must spend 183 days in Italy per calendar year to qualify for the flat tax.
To be eligible for the flat tax as a foreigner, you must have lived outside of Italy for at least the past nine years. The flat tax is the main tax-friendly option at your disposal if you want to spend significant time in the country and establish it as your primary residence.
Expect to pay a flat tax of €100,000 plus a further €25,000 for each additional family member with an independent income. These are one-off annual commitments that correspond with the Italian fiscal year, which starts on January 1.
To qualify, you’ll need to register at your local Italian town hall. Proof of a local address is essential and can include a purchase deed or rental agreement showing that you are domiciled in Italy.
Italian standard income tax rates are generally progressive, ranging from 23% to 43%, depending on how much you earn. So, by paying a flat rate, you’ll make substantial savings.
The following types of income fall within the remit of the regime:
- Income from self-employment generated from activities carried out abroad
- Income from business activities carried out abroad through a permanent establishment
- Income from employment carried out abroad
- Income from a property that the new resident owns abroad
- Interest from bank accounts paid by non-residents
- Capital gains generated by the new resident following the sale of unqualified shareholdings in foreign companies.
The substitute tax does not apply, however, to capital gains resulting from the sale of companies and non-resident entities during the first five tax years of the 15-year period. You’ll need to pay capital gains tax in this instance. If you don’t maintain Italian tax residency for at least two years, prepare to be hit with additional taxes, interest and penalties.
Corporate Tax
Corporate income tax is known as IRES (imposta sul reddito sulle società) and is taxed at 24%.
Public and private entities that are resident in Italy, including consortia, trusts, undertakings for collective investment and non-profit organisations, are all liable, as are companies and other legal entities, including trusts, that are not tax-resident in Italy but source income from within the country.
There’s also a regional production tax, known as IRAP (imposta regionale sulle attività produttive). IRAP tax is around 3.9%, but higher IRAP rates apply to banks and financial institutions (4.65%) and insurance companies (5.90%). Regional authorities can raise or lower the rates within a limit of 0.92%.
Italy’s standard VAT, or IVA (imposta sul valore aggiuntorate) is 22%. Reduced rates include 4% for listed food, drinks, and agricultural products or 10% for electric power supplies for documented uses and listed drugs. Specific supplies of goods and services are exempt from VAT, such as education, insurance services, specific financial services and the supply and leasing of some immovable property.
Property Tax in Italy
Italian real estate tax is calculated by fiscal value – the value recorded in the land registry. The fiscal value is usually significantly lower than the value recorded in the purchase deed or the transaction value. Residential property taxes can be based on the fiscal or transaction value.
Buying property in Italy triggers a mortgage tax known as imposta ipotecaria. This is charged at a flat €50 if you purchase property from a private seller, while buying from a registered company increases this mortgage tax to €200. You pay the same amount of land registry tax (imposta catastale). Both these land registry and mortgage taxes are Italy’s main sales taxes.
Purchasing property in Italy also incurs a registration tax: stamp duty is charged at a flat fee of €200 plus 10% VAT when buying from a VAT-registered company. The VAT increases to 22% if you are purchasing a luxury property. Registration tax is known as imposta di registro in Italian.
There’s even a waste collection tax.
Resident homeowners are exempt from the twice-yearly IMU (imposta municipale sugli immobili) tax paid on property ownership. The IMU tax considers fiscal value along with several factors, which means the rate varies from region to region.
Taxes in Italy: FAQs
As a new tax resident of Italy under the flat-tax scheme, instead of being taxed on your worldwide income, you pay a flat amount of €100,000. Any income you generate in Italy is taxed at standard rates.
Ordinarily, with rates ranging from 23% to 43%, taxation of an individual’s income in Italy is progressive, so the more you earn, the more you pay. However, the lump sum or flat tax regime allows you to reduce your tax by paying an annual amount of €100,000.
Yes. Non-residents will pay personal income tax on earnings generated in Italy. However, they are not obligated to declare their worldwide income to the Italian tax authorities.
If you are a non-resident private individual buying property in Italy from a private seller, you will pay up to 9% of the fiscal value as a property tax. Then, there is an annual property tax that ranges from 0.4% to 0.7% of fiscal value, depending on location and property type.
Although it can vary depending on several factors, personal income tax can rise as high as 43%. The standard rate of Italian corporate tax is 24% but a local tax (IRAP), generally 3.9%, increases the effective corporate tax rate to 27.9%.
To apply, you need to make an official enquiry with the Italian tax authorities and submit the required documents. Following this, the next step is to apply for a visa in an Italian embassy in your place of residence. Only on becoming a tax resident of Italy are you eligible for the flat tax regime.
Save on Taxes in Italy
Italy generally runs a progressive tax system with rates ranging between 23% and 43% on personal income tax. Corporate income tax is fixed at 24%, though there are add-ons, such as a 3.9% regional production tax.
The lump-sum regime means paying a flat annual tax of €100,000 plus €25,000 for every eligible family member, which also reduces capital gains tax.
Buying property in Italy also creates tax obligations for both the buyer and seller. The tax payable will be between 2% and 9% of the property’s value.
Both the property’s fiscal and transaction values are used to calculate sales taxes. Expect to pay registration tax or stamp duty and waste collection taxation. Owning luxury properties can increase the rates. Property owners must also pay IMU tax unless it’s a primary residence.
With the chance to reduce taxation thanks to a lump-sum regime, living in Italy is an attractive option for those who can justify paying a flat tax of €100,000. In other words, you must have enough worldwide income and assets to make it viable.
For investors, entrepreneurs, skilled workers and freelancers who want to enjoy all the benefits of Italian residence, the flat-tax regime makes sense from both a financial and lifestyle perspective. But be aware that the winds of change are gathering strength. Portugal scrapped its Non-Habitual Residents scheme and the mood music emanating from Italy suggests that this particular tax incentive may be headed for the rocks.
So, if you want to take advantage of lower taxes in Italy, be prepared to act now and, as always, make sure you plan your move properly.
If you are considering a move to Italy and have questions, get in touch, and the Nomad Capitalist team will find the best solution for you.
