Italy
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Francesco Buzzegoli
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Claudio Quartana
A. Income tax
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Who is liable. 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.
An individual is considered resident for income tax purposes if, for the greater part of the tax year, considering also part of days, he or she satisfies any of the following conditions:
• His or her habitual abode is in Italy.
• His or her domicile is located in Italy. Domicile is the place where the individual’s personal and family relationships mainly develop.
• He or she is physically present in Italy.
Moreover, unless it can be proved otherwise, individuals are also presumed to be resident if they are enrolled for most of the year in the Office of Records of the Resident Population in Italy (Anagrafe Popolazione Residente).
Italian citizens who move their residence for tax purposes to countries considered to be tax havens are deemed to be tax resident in Italy in all cases, unless they provide specific evidence of their nonresident status.
Income subject to tax. Taxable income for personal income tax purposes consists of income from the following categories:
• Income from employment
• Income from self-employment
• Business income
• Income from real estate
• Income from capital (primarily, dividends and interest)
• Miscellaneous income, including capital gains
Each category, including miscellaneous income, is defined by law. If income falls under a category not specifically mentioned in the law, further investigation is needed to determine the tax treatment. Uncategorized income may not be automatically aggregated with miscellaneous income.
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. For certain benefits in kind, the Italian tax code provides specific rules for determining the applicable tax value. All compensation received in connection with employment is considered employment income, even if the compensation is paid by a third party (for example, the legal employer’s parent company).
Employment income also includes income known as “income deriving from a collaboration,” unless the activity is performed by an individual who is registered for value-added tax (VAT) purposes, and income derived by directors, auditors and contractors.
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. Employment income is also subject to social security contributions (see Section C). The same rules apply to the determination of the tax base for both income taxes and social security contributions.
• He or she was a non-Italian tax resident for the five years before the change in residency status and qualifies as an executive or highly specialized employee, as defined by specific law provisions, or has graduated with at least a bachelor’s degree and has been studying or working abroad at least 24 months before moving to Italy and was a non-Italian tax resident in the two tax years preceding the transfer.
• He or she qualifies as an Italian tax resident for the following two years.
• He or she works mainly in Italy under an employment contract with an Italian tax resident employer or with a company of the same group.
If all the conditions listed in the preceding paragraph are met, the Italian-source taxable employment income of the employee who qualifies for this special tax regime is reduced to 50% of the total amount for the tax year in which the employee changes residency and for the following four years.
The impatriate tax regime also applies to income that is considered as assimilated to employment income according to the Italian tax law and to self-employment income (lavoro autonomo).
The 2021 Budget Law introduced the possibility to extend after the fifth year the application of the above impatriate tax regime up to five additional years for Italian individuals who were enrolled with the (Register of Italian population residing abroad [AIRE]) or for EU citizens who transferred their residency to Italy before 30 April 2019 and were beneficiaries as of 31 December 2019 of the impatriate tax regime. The option for the extension can be exercised provided that some conditions are met and that payment is made by the deadline of an amount equal to 10% or 5% of the income on which the impatriate regime exemption was applied in the fifth tax year. The percentage of the amount due for the application of the extension and applicable percentage of exemption depends on the meeting of specific conditions (such as the number of minor children and ownership of a real estate in Italy). Employees also have to file a specific request to their Italian employer by the deadline to apply for the extension through the Italian payroll.
Employees who transferred their residency from 30 April 2019 to 31 December 2023 are eligible to benefit from the special tax regime, provided that they meet the following conditions:
• The taxpayers qualify as non-tax resident in Italy for at least two years (instead of the previous five years) prior to the transfer to Italy.
• The taxpayers commit to be Italian tax residents for the following two years and to work mainly in the Italian territory.
If all the abovementioned conditions are met, from the 2020 tax year, the Italian-source taxable employment income of the employee who qualifies for this special tax regime is reduced to 30% of the total amount for the tax year in which the employee becomes Italian tax resident and for the following four years. Under a different measure, a 90% reduction applies to taxpayers who transfer their residency to certain regions of southern Italy.
In addition, special extensions of the regime up to an additional five years, with an exemption of 50% of the Italian taxable employment income, are provided for the following:
• Taxpayers with at least one underage child or a dependent child
• Taxpayers who become owners of a housing unit in Italy after their transfer to Italy or in the 12 months preceding their transfer to Italy
Alternatively, a special extension of the regime up to an additional five years, with an exemption of 90% of the Italian taxable employment income, is provided if the taxpayers have more than three underage children or dependent children.
This impatriate tax regime also applies to income that is considered as assimilated to employment income according to the Italian tax law, to self-employment income (lavoro autonomo) and to business income (reddito d’impresa).
For individuals who transfer their residency in Italy after 31 December 2023, the conditions for being eligible for the impatriate regime are changed to the following:
• The taxpayers must qualify as nontax residents in Italy for at least three years (instead of the previous two years) prior to the transfer to Italy.
• The taxpayers commit to be Italian tax residents for the following four years (instead of the two years as previously provided) and to work mainly in the Italian territory.
• The taxpayers must hold a high-level qualification or specialization as defined by the law.
For employees transferring their residency to Italy to work for the same employer or with an entity of the same corporate group, the minimum period of nonresidency requirement prior to the relocation to Italy is increased to the following:
• Six years, if workers have not been previously employed in Italy by the same employer or by an entity of the same corporate group
• Seven years, if the workers, prior to their transfer abroad, have been employed in Italy by the same employer or by an entity of the same corporate group.
Entities are deemed to belong to the same corporate group if they are connected by a relationship of direct or indirect control as defined by the Italian Civil Code or are directly or indirectly controlled by the same third entity.
If the abovementioned conditions are satisfied, the Italian-source employment income of the employee who qualifies for this special tax regime is subject to tax in the limit of 50% of its total amount, within a cap of EUR600,000 per year. The exemption from taxation is increased to 60% if one of the following conditions is met.
• The employee relocates to Italy with a dependent child.
• There is the the birth of a child or the adoption of a minor during the period of application of the inpatriate regime. In such case, the increased reduction applies from the tax year in which the event occurred and for the remaining duration of the regime.
The impatriate regime is applicable starting from the first year in which the taxpayer becomes a tax resident of Italy and for the following four years.
This impatriate tax regime also applies to self-employment income derived from the exercise of arts and professions in Italy.
If taxpayers do not qualify as tax residents of Italy for four consecutive years from their transfer to Italy, they will lose the possibility to benefit from the impatriate regime and will be required to retroactively pay the additional taxes on the exempted portion of the income for all involved years, plus interest.
Starting from 2017, a resident regime for high net worth individuals allows taxpayers who have not qualified as Italian tax resident for at least nine of the past 10 years to opt for a flat tax of EUR100,000 on their foreign-source income, regardless of the actual amount of income and its remittance to Italy. The same favorable tax regime may also be applied to their family members if they also meet the required conditions; in this case, the flat tax equals EUR25,000 for each family member. For taxpayers who transferred their residency in Italy after 10 August 2024, the flat tax on foreign-source income is increased to EUR200,000.
To have certainty of this tax regime application, it is advisable to file for an advance ruling with the tax authority (not mandatory), supported by a specific checklist and documentation regarding the previous years’ tax resident status.
The Italian tax authority has confirmed that the regime for resident high net worth individuals and the impatriate tax regime are not cumulative.
Directors’ fees. For 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 (see Self-employment income).
Nonresident 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. As mentioned in Employment income , income from a collaboration is treated as employment income, unless the activity is performed by an individual who is registered for VAT purposes.
Residents are subject to tax on worldwide self-employment income at the rates described in Rates; a 20% withholding tax applies to income derived from Italian sources. Nonresidents are subject to tax on income from self-employment derived from services performed in Italy. Nonresidents 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. Self-employment income is determined according
to the cash-basis principle. Effective from 2017, the impatriate tax regime mentioned above with respect to inbound employees applies to self-employed individuals who transfer their tax residency status to Italy provided that the required conditions are met.
Professional income is subject to VAT and to regional tax (IRAP) at a statutory rate of 3.9%. Such rate may vary depending on the region of Italy in which the activity is performed (see Business income) and may be exempted if certain conditions are met. Bookkeeping is required.
Professionals taxable as self-employed individuals who meet certain specific conditions and who have total gross earnings lower than EUR85,000 per year can benefit from a special tax regime, which provides for the application of a 15% substitutive tax (or 5% for a limited time period if some specific conditions are met) on taxable income, instead of ordinary progressive tax rates. The tax base is determined according to specific profitability rates approved by the Italian tax authorities, and these taxpayers are also subject to a special (simplified) VAT and bookkeeping regime.
Real estate income. Under certain circumstances, income from unrented real estate located in Italy may be subject to personal income tax. The related tax base equals 50% of a notional income called “cadastral value.” Rental income derived from real property is taxed as ordinary income (see Rates). Rental income derived from rented real estate located in Italy may be subject to a fixed tax rate (cedolare secca) of 10% or 21%, if specific conditions are met.
Effective from 1 June 2017, Italian legislation for short-term rentals gives landlords the option to apply a flat 21% tax to rentals no longer than 30 days, provided that some conditions are met. Starting from 2024, this fixed tax rate is increased to 26%. However, it remains possible to opt for the 21% tax, but only on one property at the taxpayer’s discretion.
Italian tax residents must report income from real estate located outside Italy in their Italian tax return, unless otherwise provided in an applicable double tax treaty.
Real estate is also subject to the tax on Italian real estate (IMU; see Section B).
Business income. Business income consists of income derived from the commercial or industrial activities (entrepreneurial activities) described in the Civil Code.
Taxable business income consists of profits disclosed in the financial statements, adjusted for exemptions, disallowed expenses, special deductions and losses carried forward. Business income is determined using the accrual method.
Taxable business income is subject to personal income tax at the ordinary rates described in Rates. In addition, business income is subject to IRAP, a regional tax on productive activities. IRAP is levied at an ordinary rate of 3.9%. Such rate may further vary depending on the region of Italy in which the activity is performed and on the kind of activity performed and the income
may be exempted if certain conditions are met. The tax base is the amount of net production income derived from activities carried out in Italy. Net production income is calculated by adding to taxable business income certain costs that are not deductible for IRAP purposes.
Effective from 2020, the impatriate tax regime mentioned above with respect to inbound employees applies to business income produced by self-employed individuals who transferred their tax residency status to Italy by 31 December 2023, provided that the required conditions are met.
Self-employed individuals who meet some specific conditions and who have total gross business income lower than EUR85,000 per year can benefit from a special tax regime, which provides for the application of a 15% substitutive tax (or 5% for a limited time period if some specific conditions are met) on the taxable income, instead of ordinary progressive tax rates. The tax base is determined according to specific profitability rates approved by the Italian tax authorities, and these taxpayers are also subject to a special (simplified) VAT and bookkeeping regime.
Nonresidents are subject to tax on business income from a permanent establishment in Italy.
Investment income. Starting from 2018, dividends derived from qualified and nonqualified participations that are paid to Italian tax residents by resident and nonresident entities are subject to a separate final withholding tax of 26%.
For listed companies, a nonqualified participation is a participation representing no more than 2% of the voting rights in the ordinary shareholders’ meeting and representing no more than 5% of the issued capital. For unlisted companies, a nonqualified participation is a participation representing no more than 20% of the voting rights in the ordinary shareholders’ meeting and representing no more than 25% of the issued capital.
Dividends received by an Italian tax resident individual deriving (directly or indirectly) from an unlisted company liable in the foreign country (other than EU and European Economic Area [EEA] countries) to a nominal tax rate lower than half of the Italian rate are generally taxed as ordinary income. Dividends received through Italian resident intermediaries by an Italian tax resident individual that are derived from a listed company resident in these countries are subject to a 26% substitute tax.
Dividends paid by Italian resident entities are subject to a 26% withholding tax. Tax treaties may provide for a lower tax rate for dividends paid to nonresidents.
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 at the rates described in Rates or taxed separately at a rate of 26%.
Interest paid to nonresidents 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 nonresidents is exempt from tax.
However, the foreign tax credit cannot exceed the net income tax due from the taxpayer.
Other deductions. In addition to deductible expenses specifically allowed, other expenses may be deducted from aggregate income for personal tax, depending on the category of income.
Rates. The income tax rates applicable to individuals are described below.
Personal income tax. The following are the rates of the personal income tax (imposta sul reddito delle persone fisiche, or IRPEF).
Additional regional tax. For 2024, additional regional ordinary tax rates may range from 0.7% to 3.63% on taxable income as calculated for income tax purposes.
Additional municipal tax. An additional municipal tax applies at rates up to 1.2% on taxable income as calculated for income tax purposes.
Additional income tax on variable remuneration earned by employees working in the financial sector. Additional income tax of 10% is imposed on employees and collaborators (selfemployed individuals who are not registered for VAT purposes) working in the financial sector on their variable remuneration (which may be represented by cash bonuses, stock options or shares) exceeding the yearly fixed remuneration.
Nonresidents. Nonresidents are taxed on Italian-source income at the rates described above.
B. Other taxes
Tax on real estate held abroad by Italian tax resident individuals. A tax on real estate held abroad for Italian tax resident individuals (imposta sul valore degli immobili situati all’estero, or IVIE) took effect in 2012. The standard tax rate is 1.06% from the 2024 tax year onward. However, a 0.4% rate may apply if particular circumstances exist. The tax base is the purchase cost or, only for EU and EEA countries, the cadastral value (if applicable) used to calculate and pay the local wealth tax. The taxpayer may be entitled to a credit for wealth tax paid abroad on the properties. IVIE is calculated and paid through the Italian tax return filing process.
Tax on financial assets held abroad. A tax on financial assets held abroad by Italian tax resident individuals (imposta sul valore delle attività finanziarie detenute all’estero, or IVAFE) took effect in 2012. The tax rate is 0.20% from 2014 onward. The tax base is generally the market value of the financial asset at the end of the year. In the case of double taxation, it may be possible to deduct the wealth tax paid in the country where the financial asset is held.
Canada and Quebec North Macedonia Yugoslavia
Cape Verde San Marino (former) (c) Channel Islands (a) Tunisia
(a) The Channel Islands consist of Alderney, Guernsey, Herm, Jersey and Jethou. (b) This agreement entered into force starting from 1 April 2024.
(c) This treaty applies to Montenegro and Serbia.
Most of Italy’s totalization agreements allow an employee temporarily seconded abroad to remain covered under the social security scheme in the employee’s home country for a two-year period that may be extended to five years or more. The agreement with the United States does not provide a time limit. Italy’s totalization agreements with the United States and a few other countries do not cover all the mandatory social security contributions payable in Italy. As a result, US and other foreign companies must pay minor contributions in Italy.
Countries without a totalization agreement with Italy. Under Italian Law Decree No. 398/1987, if an Italian citizen is hired in a non-EU country without a totalization agreement with Italy, the legal employer and the employee are obliged to pay social security contributions based on a notional remuneration established on annual basis by the Italian government, according to the role of the employee and the business sector of the company. A specific contribution rate applies in this specific case. The application of these provisions is also extended to European workers and non-European workers who hold a residency permit and an employment contract in Italy.
If an employee is assigned to Italy from a country without a totalization agreement with Italy, the legal employer and the employee are obliged to pay social security contributions in Italy through the registration of the employer with the authorities (the INPS and the National Institute for Insurance against Accidents at Work [Istituto Nazionale per l’Assicurazione contro gli Infortuni sul Lavoro, or INAIL]) for social security purposes.
D. Tax filing and payment procedures
In Italy, the tax year is the calendar year. Income tax returns for the preceding year must be filed by 30 September (ordinary deadline). Married persons may be required to file their own tax returns separately (not jointly).
A failure to make a filing is subject to a penalty ranging from EUR250 to EUR1,000 (if no income tax is due) or of 120% of the tax due with a minimum of EUR 250, plus interest (if a tax liability arises).
If the tax return is filed within up to 90 days after the due date, under a special procedure to reduce penalties called ravvedimento operoso, the ordinary penalties mentioned above may be reduced to EUR25.
If the omitted tax return is filed after 90 days from the due date but within the statute of limitations for tax assessment and, in any case, prior to the taxpayer’s formal knowledge of any access, inspections, verifications or the commencement of any tax audit activity, a penalty of 75% is applied to the amount of taxes due. If no taxes are due, a penalty ranging from EUR250 to EUR1,000 is imposed.
However, their stay in the whole Schengen area cannot exceed 90 days within any 180-day period.
G. Visas for employment
EU, EEA and Swiss nationals do not need permits to work in Italy. An EU, EEA or Swiss national who intends to reside and work in Italy must enroll with the Office of Records of the Resident Population in Italy if his or her stay exceeds 90 days.
Non-EU nationals must enter Italy with a National Type D Visa if they intend to carry out professional activities. In this context, a professional activity is intended as “work” and differs from travel to Italy under a “business” status. In particular, if a foreign worker comes to Italy to perform work activities, he or she needs a National Type D Visa even if the duration of the stay does not exceed 90 days. Determining whether an activity falls within the “professional/work” category or “business” category typically requires a case-by-case assessment.
The type of permit and visa required, as well as the procedures to obtain the immigration clearances, differ depending on the nature of the work to be performed (for example, as a self-employed worker or a subordinate worker).
The procedure for obtaining an employment visa for a foreign national is initiated by the prospective Italian employer (or the Italian entity for which the employee is assigned to work), which must first submit an application to the Italian Immigration Office (Sportello Unico per l’Immigrazione) for a Work Permit (Nulla Osta al Lavoro). The approval and issuance of such authorization usually takes up to three months (90 days) from filing the request. Italian Work Permits are typically issued subject to the availability of the quotas, which are released on a yearly basis by the Ministry of Internal Affairs. However, some immigration permits are exempted from this numerical limitation.
Workers who can be exempted from the entry-quota limit and for whom a Work Permit can be requested any time during the year are primarily the following:
• Highly specialized employees to be hired by Italian companies (Blue Card Permit)
• Executives, highly skilled workers or trainees in the framework of an Intra-Company Transfer (ICT) (for example, ICT Permit)
• Highly skilled workers assigned to an Italian company in accordance with a Service Agreement in place between the foreign employer and the Italian host (for example, Service Agreement Permit or Van der Elst procedure)
Other categories of workers, such as translators and interpreters, university lecturers, trainees and health care assistants, can apply for a Work Permit out of the quota limit. Each situation needs to be assessed on a case-by-case basis.
As soon as the Immigration Office issues the Work Permit, the document is automatically sent to the competent Italian consulate abroad. The employee is then allowed to request the employment visa at the Italian consulate in his or her last country of residence.