U.S. Income Tax Return Preparation and Advice for American Citizen Living in Italy
Personal Income Tax
Resident individuals are subject to a personal income tax, named IRPEF, on their worldwide income.
Individuals carrying on a business or profession and/or partnerships are liable to IRAP which is not deductible from IRPEF. Non-resident individuals are subject to tax only on their Italian source income.
Individuals are considered resident in Italy if they are registered in the official register of population; their principal place of business and interests is located in Italy; or if they remain in Italy for more than six months in any calendar year.
Progressive rates for IRPEF are as follows:
|Taxable Income (EUR)||Tax Rate|
|Up to 15,000||23%|
|15,001 – 28,000||27%|
|28,001 – 55,000||38%|
|55,001 – 75,000||41%|
In addition to the above progressive rates, a regional surcharge (variable rate from 0.9% to 1.4%) is payable and an additional municipal tax could be charged and fixed locally.
The tax period in Italy is the calendar year and tax is due over two advance payments made during the tax year with the balance due by 16th June of the following year. The tax return must be filed annually by the end of July if transmitted electronically. IRPEF is withheld at source from employees’ salaries and wages. The payment of taxes on account and settlement operates under a similar system as for companies.
There is no wealth tax in Italy. Gift and inheritance tax has come back into force with a range of tax rates and taxable bases.
Other taxes on individuals:
Capital duty: A negligible registration tax is levied on contributions of cash in exchange of shares. Contribution of other assets may trigger registration tax at various rates.
Stamp dutyis levied on legal and banking transactions at varying rates.
Real property tax: Property owners, whether or not resident, are liable for property tax (ICI) on buildings and land owned for their own use or as investments. Each local authority sets their rates, which apply at 0.04%-0.07% of the taxable value of the property.
Inheritance taxwas reintroduced in 2007. The taxable amount is generally represented by the value of the assets and rights inherited. Rates are 4%, 6% or 8% based on the proximity between the deceased and the beneficiaries, and exemptions up to EUR 1 million may apply on bequests to close relatives.
Individuals working in Italy are generally subject to social security contributions. Rates vary according to the sector of activity and the employee’s job title.
Social security in respect of the state pension fund borne by the employee is generally equal to 9.19%, plus 1% over EUR 40,765 up to a cap of EUR 88,669 for employees who started contributing to an obligatory social security scheme after 1 January 1996. For those who started contributing before that date, contributions are calculated on the total amount of employment income received.
Italy Corporate Tax
The corporate tax (IRES) rate in Italy is 27.5%, plus IRAP of 3.9% (or 4.9%) or an additional 5.5% corporate income tax charge. Please read below.
As a rule, corporate income tax (named IRES from 2004) is payable by all resident companies on income from any source, whether earned in Italy or abroad. Non-resident companies are subject to IRES only on income earned in Italy. Both resident and non-resident companies are subject to regional income tax (IRAP), but only on income arising in Italy. The corporate income tax rate (IRES) is 27.50%. Companies involved in trade and manufacturing are also subject to a regional tax on productive activities (IRAP) at the rate of 3.90% although regional authorities may increase or decrease the standard rate by up to one percentage point. It is envisaged that IRAP will be gradually eliminated in the near future.
An additional 5.5% corporate income tax charge (IRES – i.e. IRES 27.5% + 5.5%) is levied on companies (i) having revenues higher than EUR 25 million in the relevant fiscal period, and (ii) carrying on their activities in one of the following fields:
– research and exploitation of hydrocarbon
– oil refining, production and sale of petrol, gasoline, gas, lubricating oil, liquefied gas of petrol and natural gas
– production and sale of electricity.
Company tax returns, which cover both IRES and IRAP, must be filed within nine months of the statutory year end by electronic transmission. An advance tax payment is payable by the 16th day of the sixth month of the accounting period equal to approximately 40% of the previous year’s income tax liability. A second advance payment of about 60% is due by the end of the 11th month of the company’s financial year, i.e. 30 November. Any remaining amount would be due by the 16th day of the sixth month after the end of the period.
For income tax purposes the company can chose either a calendar or a fiscal year. For VAT and withholding tax, the calendar year always applies.
Article by Ines Zemelman, EA
Founder of Taxes for Expats