If you live in Italy as a non-resident, you’re only taxed on income earned in Italy.
However, if you’re an Italian tax resident, spend more than 183 days a year in Italy, have been registered with the Anagrafe for more than 6 months, and your “center of economic interest” (i.e., your business and investments) is in Italy, your worldwide income is subject to Italian taxes.
Italian tax residency rules
To become a tax resident in Italy, you have to live in the country for a minimum of 183 days a year and/or register to the Anagrafe for more than six months.
If you stay in Italy fewer than 183 days a year and you’re not registered with the Anagrafe, you are considered a non-resident.
When you move to Italy, you must register with the Record of the Italian Resident Population in your local municipality. When you move out of the country, you must de-register there. This allows you and the authorities to keep an exact record of the time you stayed in the country.
If you fail to either register or deregister, factors such as your domicile (the center of your vital interests) and your permanent abode might be considered in order to determine your tax residency.
Residents are taxed on their worldwide income, and non-residents on income earned in Italy only.
Taxes in Italy for non-residents
If you’re a non-resident for tax purposes in Italy, you will only be taxed on income earned in Italy.
However, should you spend six months or more (183 days) in the country, you are considered a resident and would be taxed as such. This also applies if a non-resident’s central interest (domicile) is in Italy.
Taxes in Italy for residents
Residents in Italy pay income tax.
Italian tax rates, or Imposta sul Reddito delle persone Fisiche, range between 23% and 43%, with the lowest rate on income under €15,000 and the highest rate on income over €75,000.
Italian income tax rates:
- Income between 0 and €15,000 – 23%
- €15,000 – €28,000 – 25%
- €28,000 – €50,000 – 35%
- €50,000 and over – 43%
Regional tax ranges from 0.9% to 1.4%, and a minor, local tax ranges from 0.1% to 0.8% of gross income.
Tax-free allowance in Italy
There is no threshold below which you don’t have to pay income tax.
There are allowances for dependent family members (dependent partners and/or children). Also, tax credits can be granted on mortgage interest, educational expenses, and medical bills.
Tax deductions
There are ways to reduce your income tax using tax deductions primarily associated with:
- Dependent expenses
- Rental payments
- Mortgage payments
- Medical expenses
- Education expenses
- Personal income tax credits based on dependents
To qualify for tax deductions related to dependents, you must:
- Hold Italian or European citizenship or residency
- Pay income tax in Italy
- Maintain a base in Italy for at least two years
- Possess an employment contract for at least the next six months
In 2022, the maximum annual tax credits for dependents in Italy are €800 for a spouse and €750 for any other dependents, such as adult children, siblings, or parents.
Italian tax relief for expat workers
Recently, Italy introduced a New Inpatriate Tax Regime, a bill seeking to help skilled workers willing to relocate to Italy.
The Decree offers a new simplified system for professionals and business owners moving to Italy (known as reshoring). It provides a 50% to 60% tax exemption on income up to a maximum of EUR 600,000 from business and related professional activities previously done in a non-EU country that have been moved to Italy.
Essentially, the tax exemption is reduced to 50 or 60% of income for new arrivals from January 2024. The worker needs to prove no tax residency in Italy for the three years preceding the transfer. They have to declare they will stay tax resident in Italy for at least four consecutive tax years or be required to pay back the tax savings when they leave.
Does Italy tax retirement income?
Yes, as a tax resident in Italy, you pay tax on your worldwide retirement income. However, expat retirees can benefit from Italy’s quite generous flat-rate tax offer as long as they qualify.
Italian flat-rate tax for expat retirees
Italy offers a 7% flat tax incentive for retirees moving to Southern Italy.
To qualify, you must officially transfer your tax residency to a municipality with a population of less than 20,000 that’s located in a region of Southern Italy (Sicily, Calabria, Sardinia, Campania, Basilicata, Abruzzo, Molise, and Puglia).
Under this regime, pensioners with a foreign-sourced income are taxed at a flat rate of 7% for the first nine years of residency.
You will also be exempt from tax on property and financial assets, provided that you haven’t been a tax resident in the past five years and come from a country that has a Tax Information Exchange Agreement, Double Taxation Agreement, or Foreign Account Tax Compliance Agreement with Italy.
Fortunately, the UK, USA, Canada, and most other countries are valid.
Italian Non-Dom Tax
In 2017, Italy introduced a special tax regime for higher net-worth foreigners willing to relocate to Italy.
This regime allows Italian non-domiciled residents to pay a flat rate of €100,000 per year on all foreign income for a maximum of fifteen years.
You are entitled to this benefit if:
- You have transferred your tax residence to Italy. This favorable tax regime can be enjoyed for a maximum of fifteen years, and you may revoke it anytime.
- You have not been a tax resident for 9 of the previous ten years before the introduction or application of the bill.
- Italian Tax Authorities formally approve your request.
Income from certain countries may not be valid for the entitlement of these grants. Any income from these countries is subject to standard Italian taxation up to 43%.
The annual flat tax will replace the income tax and local and wealth taxes.
Finally, you may extend these benefits to family members for an additional €25k per person per year. Laws that define “family members” are extremely vague and, therefore, are not limited to spouses or children.
Property taxes in Italy
When buying a property in Italy, you will have to pay 2% - 9% of the cadastral value of the house.
If you are a tax resident and the property will be your main residence, you will pay 2%. Non-residents or second-home buyers, however, will pay 9%.
Whether you are a resident or non-resident, the tax will never be less than €1000 regardless of the value of the property.
Land registry tax: €50-200 depending on whether you are buying from a private seller or a company.
VAT: you pay no VAT if buying from a private seller. If buying from a company, you might pay from 4% to 22% in VAT. For a main residence, it is 4%. For a second home - 10%, and for a luxury home - 22%.
IMU or Italian regular property tax: you don’t pay this tax if you are a resident in Italy and the house is your main residence and not classified as luxury. Otherwise, you pay this tax. The calculations are complicated and vary from municipality to municipality, so it’s best to consult an accountant.
How taxes are filed in Italy
Taxes are filed electronically in Italy, but there are two different tax returns depending on your situation.
Tax residents that have lived in the country for two consecutive years and work for any IT Employer are usually entitled to use the 730 form, a simplified form that comes with most of your details already completed.
It is downloadable from the Italian Tax Authority Website. It is not obligatory to declare changes to your income when using this form unless significant events have happened, such as the purchasing of a house.
Seek the help of an accountant when filing your taxes in Italy.
A 730 form can also be used by tax residents who are not employed at the time of tax day. The filing deadline is the 23rd of July, so keep in mind that you must declare your unemployment by the end of the tax season, December.
The second form is Modello Redditi, which will include employment income, tax withheld, capital gains, foreign income, and other sources of income of the resident.
You must file this by the 30th of November of the current year for the previous year. So, for example, if your income in 2020 was €40,000 a year, then in 2021, you will have to declare your income as €40,000, regardless of any increase or decrease in the current year.
The Modello Redditi is preferred by people who hold non-Italian investments, bank accounts, or non-Italian payrolls.
Taxes in Italy - summary
Regardless of whether you currently have employment interests in Italy or not, it’s vital that you have a firm grasp of the taxation system. Once you know your position regarding residency and your source of income, it’s not too difficult to understand.
Of course, if you’re unsure or need any clarifications, the best thing you can do is speak to an Italian accountant.
They will be able to answer questions specifically relating to your situation and will likely be able to help you with your tax returns too. It shouldn’t be a challenge to find an accountant that speaks English, particularly in larger towns and cities.
You might find useful:
- Living In Italy – The Expats’ Essential Guide
- The Best Places To Live In Italy For Expats
- Didn’t find what you were looking for or need further advice? Comment with your question below, and we will do our best to help.
Helpful external links:
- The tax regime for new high-net-worth residents - The Revenue Agency. You can also find tax return forms and information on various taxes for businesses and individuals.
