Paying 2017-2018 income tax in Italy? Read this.
Tax isn’t much fun. It’s often complicated, and can be even more of a challenge if you’re an expat, or have to travel a lot for work. Figuring out your tax liabilities can be even harder if you’re a cross-border commuter, a non-resident foreigner living in a different country for a short while, or a freelance or remote worker. However, it’s your responsibility to understand what rules apply to your personal situation - and getting it wrong can prove a costly hassle.
If you’re moving to Italy, or already live and work there, you might be liable to pay tax under the Italian system. This overview of the Italian income tax system is a great starting point, to help you understand what your duties might be.
However, tax is a complex legal area. If you think you might need to pay tax on some or all of your income in Italy, get professional advice to make sure you pay the right amount.
What income is taxable in Italy?
Before we start, it’s worth noting that the Italian tax system is pretty complex. So much so that most people who need to file a return, have help in doing so, from a tax consultant known as a commercialista. If you’re self-employed or have income from multiple sources, it’s worth doing the same.
Income tax in Italy is called imposta sui redditi delle personne fisiche (IRPEF). Income such as wages, bonus payments, and other discretionary payments from your employer like stock options, can all be subject to some sort of tax - but the tax approach varies according to the type of payment, and the job you do. If you work in the financial sector, for example, then your bonus payments could be subject to additional taxes, while some productivity bonuses are taxed less heavily.
Other sources of income, like property and investment gains, can also be taxed. If you’re unfamiliar with the Italian income tax system, taking professional advice is essential.
(Source, December 2017)
Who has to pay income tax in Italy?
How you’re taxed depends on your personal circumstances. In basic terms, you’ll be classified as either:
- A resident taxpayer
- A non-resident taxpayer
Resident taxpayers spend the majority of their time living in Italy - so over half the year. You might qualify for non-resident status if you spend less than half the tax year in Italy.
There are some tax breaks on offer in limited circumstances to expats who come to Italy to work, usually for fixed, exec level assignments of at least 2 years. This is a relatively new development, but could mean that expats in this situation are entitled to lower tax rates as a sweetener and to compensate for the cost of moving. If this is your situation it’s certainly worth taking specialist advice to understand if the rules apply to you
(Source, 7 December 2017)
Resident income tax
In Italy, the tax year is the same as the calendar year - 1 January through to 31 December. Several things are taken into consideration when it comes to deciding if you’re a resident or not for tax purposes. Firstly there’s residency - if you live in Italy for a consecutive 183 days during the tax year then you’re almost certainly a tax resident. However, even if you don’t stay for the whole 6 months, or if your stay isn’t continuous, you could be judged to be a resident if your main personal and economic ties are in Italy. If you’re registered at the Municipal Registry - Comune - then you’re probably considered to be a resident for tax purposes as this suggests that Italy is your main home.
If you’re a resident taxpayer you have to pay tax on any income you make anywhere in the world, to Italian authorities.
(Source, 7 December 2017)
Non-resident income tax
If you don’t live in Italy for 6 months of the tax year and can show your main personal and economic ties aren't in Italy you might be deemed to have non-resident tax status. This means you pay tax in Italy only on the relevant income you’ve earned in Italy.
(Source, 7 December 2017)
In what instances do Italian residents working abroad need to pay income tax?
If you’re an Italian resident, but working abroad, then your tax liabilities will depend to an extent on how long you’re away from Italy, and what your intentions are.
If you’re away for less than 6 months then you’ll certainly still be classed as an Italian tax resident. However, if your main business and personal interests in Italy, then you’re likely to be judged to be a tax resident there, even if you're away for longer than this.
As a tax resident, you’ll have to pay tax on your worldwide income to Italy. If the country you’re working in wants you to pay taxes to them too, then you’ll need to rely on double taxation treaties to make sure you don’t end up paying too much. More on this later.
What are the income tax rates in Italy in 2017-2018?
Italy has a progressive tax system, so a progressively higher tax rate is applied based on how much you earn.
If you’re employed in Italy, your employer will deduct money from your wages every month under the pay as you earn (PAYE) tax system. In most cases, there’s no need to submit a tax declaration if you’re paying tax in this way. A declaration would only be necessary if you’re earning additional relevant income, from a source other than your main job.
The most up to date rates available for Italy are as follows:
| Income range | Italy income tax rate (%) 2017 |
|---|---|
| up to €15,000 | 23% |
| €15,001 - €28,000 | 27% |
| €28,001 - €55,000 | 38% |
| €55,001 - €75,000 | 41% |
| over €75,001 | 43% |
Aside from income tax, there are several other taxes you might be liable for. These include a regional tax of up to 3.33% and a municipal tax of 0.01% - 0.9%. Because each region can set their own levels within a range which is agreed nationally, you’ll have to check the rates which apply in your area.
If you receive bonus payments, productivity bonuses, stock options or other types of extra payments from work, these can also be taxed. However, the way they’re taxed varies, based on the job you do, so your employer or a commercialista should tell you what rules apply based on the type of payment.
(Source 1, Source 2, 7 December 2017)
What are the tax exemptions in Italy?
Tax is applied to taxable income only. This sounds simple enough. You start with your total income, and, to work out your taxable income, you remove any relevant deductions, exemptions or allowances. However, as with all things related to tax, it’s quite complicated. It’s certainly worth getting professional advice if you’re unfamiliar with the Italian tax regime.
There are tax allowances in place which means that a proportion of your income won’t be taxed - but these vary depending on your circumstances. You might get an extra allowance if you have children for example, or if you’re in a couple and only one partner works.
Then there are exemptions, which can be claimed through a tax return. Here are some of the exemptions - in Italian oneri deducibili -** that you might need to know about.
You might also be eligible for other tax breaks depending on your personal situation. To be eligible for any of these allowances you have to include them on your tax declaration.
Social Payments
Mandatory social security payments are deducted from your income for tax purposes. If you’re paying voluntary social security or welfare contributions, even outside of Italy, these might also be tax deductible, depending on the situation.
Insurance payments
You can deduct payments made for certain types of insurance, for instance medical insurance, from your taxable income. This is subject to an annual cap.
Other deductible items
You can remove the costs of some other items, like business expenses, from your taxable income, as long as you have original receipts on hand. Make sure you understand the details when you complete your tax return.
(Source, 7 December 2017)
What are the tax penalties in Italy?
Your tax is due on 30 June every year - and going even a day over this will mean you’re subject to late payment surcharges. So it’s worth getting it right, and getting it in on time, the first time.
(Source, December 2017)
What sort of double taxation agreements are there with Italy?
It’s possible for someone to be liable to pay tax in 2 countries. If you’re a cross-border commuter, for example, both the country in which you work and the country in which you live, might believe you owe tax, depending on how they decide residency. Similarly, if you relocate part way through a tax year - both the country you move from and the country you move to, could have a claim on taxes from you.
Take some professional advice if this is the situation - but you don’t have to panic. To make sure that people don’t actually need to pay double the amount of tax due, many countries have what’s known as double taxation agreements. These help to ensure that you only pay tax once on your earnings.
Italy has double taxation agreements with the following countries:
| Italy double taxation agreements | |
|---|---|
| Armenia | Macedonia |
| Austria | Malawi |
| Azerbaijan | Malaysia |
| Albania | Mexico |
| Algeria | Mauritius |
| Argentina | Malta |
| Australia | Mongolia |
| Bahrain | Morocco |
| Bangladesh | Mozambique |
| Brazil | Moldova |
| Belarus | New Zealand |
| Belgium | Netherlands |
| Bulgaria | Norway |
| Congo | Oman |
| Cyprus | Pakistan |
| Croatia | Poland |
| Canada | Portugal |
| Czech Republic | Philippines |
| China | Portugal |
| Denmark | Qatar |
| Ecuador | România |
| Ethiopia | Russia |
| Egypt | Saudi Arabia |
| Estonia | Singapore |
| Finland | Slovenia |
| France | Slovakia |
| Germany | Syria |
| Ghana | Senegal |
| Georgia | San Marino |
| Greece | South Africa |
| Hong Kong | Spain |
| Hungary | Sri Lanka |
| Israel | Sweden |
| Indonesia | Switzerland |
| Ireland | Trinidad and Tobago |
| Iceland | Tanzania |
| India | Turkey |
| Italy | Tunisia |
| Ivory Coast | Thailand |
| Japan | Uganda |
| Jordan | Ukraine |
| Kuwait | UAE |
| Kazakhstan | UK |
| Korea (South) | USA |
| Libya | Uzbekistan |
| Lithuania | Venezuela |
| Latvia | Vietnam |
| Luxembourg | Zambia |
(Source, 7 December 2017)
Should I file a tax return?
If you’re employed, your employer will deduct the tax and social security contributions due on your annual salary. You don’t generally have to submit a tax declaration unless you have additional income outside of your job.
If you’re self-employed you have to file a tax return online every year by 2 October.
(Source, 7 December 2017)
How do I pay income tax in Italy?
Usually you must submit your income tax return online in Italy, and make your payment electronically too. In some circumstances you’re able to submit your declaration using a paper from, but this is discouraged - and the deadlines are significantly earlier. You can get an intermediary, like an accountant to file your return for you, if you like.
Paying income taxes online
You need to file your declaration and pay your tax return online. You can do this by registering at the Italian tax authorities and following the instructions on the screen. It’s possible to give power of attorney to a commercialista who will then make sure the declaration is done properly. If it’s your first experience of the Italian tax system, this is a smart move.
If you’re an expat paying taxes in Italy, you could have to do so using a bank account held in a different country or currency. In that case, you’ll need to take into consideration any charges that will be added to the transfer you make to pay your taxes. This can add a hefty sum to your tax bill.
And it’s not just the upfront charges which could cost you more than you think, but the rates used when converting your cash from a different currency to euros. Banks and money exchange services - especially those which claim to offer fee-free exchange - often don’t give customers the real, mid-market rate, which you’d find on Google. Instead, to make sure they make a profit, they mark up the rate by 4-5%. They keep the difference, and you end up out of pocket.
If you find you have to pay taxes to the Italian authorities, a great alternative is to use Wise. Wise works differently to banks. It’s a new way of doing things, so you can get your money transferred quickly and safely, using the real exchange rate, and just a small, upfront fee.
There’s no magic and no nasty surprises. It’s actually pretty simple. Wise doesn’t use the over-priced SWIFT system when they move your money. This brings down the costs of making international transfers, and the savings are passed on to the customer.
Depending on your situation, you might be able to pay your taxes directly using a Wise transfer. Alternatively, if you don’t already have a bank account in Italy, you could transfer the payment to a friend or family member who does, to bring down the costs.
If you often have to move your money between different currencies, it’s also worth considering getting a Wise borderless multi-currency account. This new type of account lets you hold your money in any one of dozens of different currencies and then convert between them whenever you need to. It’s simple to use and can save you money. You get the real exchange rate every time, and there’s only a small transparent fee for changing your money.
Taxes are often pretty hard work. But they’re even more complicated if you’re an expatriate working abroad, a cross-border commuter, or if you juggle life between different countries. It’s your responsibility to know what you have to pay - and to which authorities. Getting it wrong can be an expensive mistake, so it’s well worth doing a bit of research in advance, to make sure you’re clear on your options and duties.
Whatever taxes you wind up paying, you don’t want to be out of pocket because of unfair fees levied on converting your currency. Wisemight be able to help you save money on cross-border transactions. See if you can get a better deal from Wise if you find yourself needing to pay your taxes abroad.
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