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Overview of Tax Issues for Expats in Italy

Submitted: March 2014

The Italian tax year runs from the 1 January to the 31 December.

Tax Residence

If you work in Italy for less than 183 days, you will generally be considered non-resident and taxed on Italian source income only. If you stay longer than 183 days you will generally be considered resident and you will become liable for tax on your worldwide earnings. There are some circumstances where you may be considered resident even if you are in Italy for less than 183 days in a year. For more details see: Taxation - Employment Taxation for Expats in Italy.

Employment/Business Taxes

If you are a resident there is a deduction of income tax made by your employer from your wages or salary each time you are paid. They will also deduct social security contributions. If you have more than one source of income, or are self-employed, you may have to pay advance tax twice a year; based on the previous year’s earnings. The tax rates are progressive, and the marginal (highest) tax rate is 43%. Personal allowances are given in the form of tax credits. You may have to fill in a tax return after the end of the year to calculate the final amount of tax payable. If you are self-employed, you will pay income tax based on the profits of your business after deduction of costs. A withholding tax will be deducted by your contractees prior to making payment, this is treated as an advance payment of tax. For more details see: Taxation - Employment Taxation for Expats in Italy.

If you come to Italy to set up in business and start a company, you will be liable to corporation income tax on the profits from your trade or business. The general rate of corporation income tax is 27.5%. New companies must complete a complex registration process; which is the case of expats is usually undertaken by agents on their behalf. Companies must pay advance corporate tax twice times a year; this is based on the previous year’s profits. After the end of the year a tax return must be produced by the end of the ninth month after the end of the fiscal year. For more details see: Taxation - Business Taxation for Expats in Italy.

Other taxes

For individual residents in Italy, investment income in the form of interest is exempt from withholding tax. The same applies to certain non-resident individuals, depending on which country they are resident in. For other forms of residents a final withholding tax is charged.

For residents and non-residents, dividend income is generally subject to withholding taxes of 20%. There are some exceptions. Rental income from Italian property, and capital gains are treated as ordinary income and taxed at marginal rates. For more details see: Taxation - Investment Taxation for Expats in Italy.

Tax treaties

Italy has signed tax treaties with over 90 countries worldwide. Any withholding taxes payable in Italy on dividends, interest and royalties, paid to taxpayers in other countries with tax treaties in place (or non-residents in Italy), can be significantly reduced. The treaties also mean that the amount of withholding tax charged by the originating country is reduced on money flowing into Italy. The amount that can be charged under a treaty is often reduced to between 10% and 15%. For more details see: Taxation – Tax Treaty Considerations for Expats in Italy.

 

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