| Italy Income Tax Rate Italian residents are subject to two principal taxes in Italy, namely IRPEF (Personal Income Tax) and IRAP (a regional tax on 'productive activity exercised'). Italy personal income tax is progressive, rising to a top rate of 43% for income exceeding EUR 75,000. See 2009 tax table below:
Italy Personal Income Tax Rates 2009
23% EUR 0 - 15,000
27% EUR 15,001-28,000
38% EUR 28,001-55,00
41% EUR 55,001-75,000
43% EUR 75,001 and over
In addition to the income tax table for 2009 above, a regional city tax may range from 0.9% to 1.4%, depending on the region in which the individual lives; and an additional city tax rate may range from 0% to 0.8%, depending on the municipality of the taxpayer.
IRAP is principally applied to self-employed individuals and is a regional tax. Under IRAP self employed individuals are subject to a tax rate of 4.25% (although this may be increased by up to 1% by individual regions) applied to 'productive activity exercised' (broadly defined as the difference between compensation received and directly related business expenses).
Individuals benefit from tax credits or allowances which depend upon their taxable income and are increased in respect of dependent relatives. In addition, credits are given in respect of certain expenses (e.g. mortgage interest payments for Italian properties) and the credit is calculated as 19% of the expense.
Italy Corporate Tax RateItaly Corporation Tax (IRES) rate for 2009 is 27.5% plus IRAP (generally 3.9%), which makes the corporate tax rate 31.4%.
A corporation is resident for tax purposes if its legal seat, place of effective management or main business activity is in Italy for the greater part (at least 183 days - 184 days in leap years) of the tax year.
Resident companies are taxed on worldwide income and nonresident companies are taxed only on Italian-source income.
Capital gains are generally treated as ordinary income and taxed at the 27.5% corporate income tax rate.
Italy Value Added Tax (VAT) ratesThe standard VAT rate in Italy is 20%, with reduced rates of 4% and 10%.
Wealth TaxesThere are no wealth taxes in Italy.
Tax on Property Rental IncomeIncome from property forms part of an individual's income when calculating IRPEF and is based on cadastral income. The maintenance expenses of a let dwelling are permitted as a deduction at a flat rate of 15% of gross rental income for tax purposes.
Inheritance and Gift TaxFrom October 2006 inheritance and gift taxes were reintroduced in Italy. Inheritance tax is paid, in respect of worldwide assets, by heirs or legatees on the net amount inherited by each recipient from the estate of any deceased person who is considered to be a resident of Italy. The amount payable depends on the heir's relationship to the deceased and ranges between 4% and 8%. Some exemptions, up to a maximum of €1,000.000, are granted to immediate relatives and to brothers and sisters.
Property TaxesA city tax on property ('ICI') is raised against any individual who owns or has the right of usage of a property. The tax rate depends upon the municipality in which the property is situated and is in the range of 0.4% to 0.7% per annum of the taxable value of the property. A tax credit is given in respect of the principal primary residence of the taxpayer.
Taxation of Expatriates Living in ItalyExpatriates living in Italy will be classified as Resident or Non-Resident. An individual is considered resident if:
- for a period of 183 days they are registered with the registry office of the Population Registry (Anagrafe), or
- for a period of 183 days has their principal place of business or residence in Italy
- for a period of 183 days has his centre of vital interest (i.e. his family) in Italy
When moving to the country an individual needs to register with the Population Registry and in turn cancel their name from the registry on leaving.
If an individual is resident in Italy for a part year then any tax credits or allowances are pro-rated based upon the period of time the individual is resident in the country during the year.
In the case where part of a resident's income is generated overseas, the greater part of foreign income taxes paid can be credited against Italian tax if paid in accordance with tax treaties stipulated by Italy.
Italy has tax treaties with most developed countries.
With regard to self employed individuals living in Italy the taxation basis is different compared to employed individuals. Self employed persons are subject to a 'regional tax on productive activities' (IRAP). Broadly the tax rate, typically 4.25%, is applied to the value of net production resulting from the business pursued within the relevant region. Such tax is required to be paid in advance based upon the previous year's tax return, with the final tax bill for the year being reconciled once the relevant tax return has been filed.
Italy has been implementing a series of tax reforms with the aim of simplifying the fiscal system within the country.
Taxation of Non-Residents Living in ItalyThe taxation basis for expatriates living in Italy but who are not classified as residents is different to the residents' basis detailed previously. Non-residents are only taxed on income and gains arising in Italy, compared to worldwide income and gains for residents. A non-resident does not qualify for the same range of tax credits in respect of expenses, although they do receive relief in respect of mortgage interest payments related to Italian properties.
Certain types of investment income realised by non-resident individuals are subject to a final withholding tax. Interest on Italian bonds and similar, and interest from debenture loans issued by banks and listed companies are no longer subject to a withholding tax if received by non-resident individuals who are resident of a State with whom Italy has signed a double taxation treaty providing the exchange of information.
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