Income tax in Italy is levied on both residents and non-residents who earn income in the country. The Italian tax system is based on the principle of territoriality, which means that tax is generally only paid on income earned within the country. For residents, income tax is levied on their worldwide income, while for non-residents, tax is generally only paid on income earned in Italy.
Corporate tax vs income tax in Italy
Corporate tax is a separate tax that is paid by companies on their profits. In Italy, the corporate tax rate is 24%, which is lower than the top income tax rate for individuals. However, it is important to note that companies are subject to additional taxes and charges, such as the regional production tax and the social security contributions for employees. Furthermore, individuals who receive income from dividends paid by Italian companies are subject to a separate tax on those dividends, which is currently 26%.
Income from employment
For employees, income tax is withheld from their salary by the employer, with rates ranging from 23% to 43% depending on the level of income. Self-employed individuals, on the other hand, are responsible for paying their own income tax, with rates ranging from 15% to 43% depending on their level of income. In addition to income tax, both employees and self-employed individuals may be subject to social security contributions.
Income from self-employment
In addition to income from employment, self-employment income is also subject to taxation in Italy. Self-employed individuals, including freelancers and sole proprietors, are required to pay income tax on their net profits. The tax rate for self-employment income can vary depending on the amount of income earned, with rates ranging from 23% to 43%. Self-employed individuals are also required to pay social security contributions, which are calculated based on their income and can range from 24% to 33%. Self-employed individuals may also be eligible for deductions and tax credits for expenses related to their business activities. It is important for self-employed individuals to keep detailed records of their income and expenses to ensure accurate tax reporting and compliance with Italian tax laws.
Income from real estate investments
Income from real estate investments is subject to taxation in Italy, including rental income from real estate. For residents, rental income is generally taxed at progressive rates ranging from 23% to 43%. Non-residents who earn rental income from real estate in Italy are subject to a flat rate of 26% tax. This is different from the property tax in Italy, known as the IMU (Imposta Municipale Unica). It is an annual tax on the ownership of real estate. The tax rate varies depending on the location and the intended use of the property. Property tax is typically paid by the property owner, whether they are residents or non-residents.
For further information regarding real estate investments, please visit our dedicated page.
Capital gains
Capital gains realized by individuals upon the sale of financial assets are generally taxed at a flat rate of 26%, which includes both income from financial assets and capital gains upon the sale of such assets. However, some financial assets such as Italian government bonds and bonds issued by foreign states providing for exchange of information are taxed at a lower rate of 12.5%. Capital gains realized upon the sale of real estate, either owned for more than five years or inherited, are generally exempt from income tax.
Wealth tax and inheritance and gift tax
Italy does not currently have a wealth tax, although there have been discussions in recent years about introducing such a tax. Inheritance and gift tax in Italy is levied on both residents and non-residents, with rates ranging from 4% to 8% depending on the degree of relationship between the parties involved and the value of the assets transferred.
Income tax for non-residents
Income tax for non-residents, including foreigners who do not reside in Italy, is based on their Italian-source income. The tax rates vary depending on the type of income earned, with employment income generally taxed at a flat rate of 30% and rental income from real estate taxed at a flat rate of 26%. Capital gains realized by non-residents are also taxed at a flat rate of 26%. Non-residents may also be subject to social security contributions, depending on the nature of their work in Italy. However, there is a special tax regime known as the “Res Non Dom” (non-domiciled residents) for those who become tax resident in Italy but have been resident abroad for at least 9 of the previous 10 years. Under this regime, the taxpayer is taxed only on their Italian-source income, at a fixed amount of €100,000 per year for a maximum of 15 years.
Income tax in italy for foreigners
Foreigners who are resident in Italy are subject to the same income tax laws as Italian citizens. This means that they must pay taxes on all income earned in Italy, including employment income, self-employment income, real estate investments, capital gains, wealth tax, and inheritance and gift tax. However, for non-resident foreigners who earn income in Italy, the tax treatment is different. Non-residents are subject to a withholding tax, which is deducted from their gross income at the time it is paid. The rate of withholding tax can vary depending on the type of income, with rates ranging from 12.5% to 30%.
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In conclusion, understanding the income tax implications for residents and non-residents in Italy is crucial for individuals to manage their finances effectively. If you need legal advice or assistance regarding any of the topics discussed, please do not hesitate to contact us. Our team of experienced professionals is here to help you navigate the complexities of Italian tax law.
