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Italian Taxes & Tax Advantages For Expats Explained

If you live in Italy as a non-resident, you’re only taxed on income earned in Italy. However, if you’re an Italian resident, spend more than 183 days a year in Italy, and your “centre 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. 

If you stay in Italy fewer than 183 days a year, 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 are also required to 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 centre 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% to 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 – 27%

€28,000 – €55,000 – 38%

€55,000 – 75,000 – 41%

€75,000 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. 

Is there a tax-free allowance in Italy?

No, there is no personal allowance below which you don’t have to pay income tax. 

There are allowances for dependant family members (dependant partner and/or children). Also, tax credits can be granted on mortgage interests, educational expenses and medical bills. 

Italian tax relief for expat workers

Recently, Italy introduced a massive expat tax relief known as “Decree of Growth”, a bill seeking to help workers regardless of skill level willing to relocate to Italy.

Under this law, during the first five years of employment in Italy, only 30% of your income is taxable, leaving 70% of your gross income as yours to keep.

This bill increases the untaxed income bracket to 90% if you seek to relocate to southern Italy or the islands of Sicily or Sardinia, which are southern islands under the Italian domain.

Furthermore, house ownership/mortgage or dependent children will extend this grant for an extra five years, with taxable income remaining at 50% for those extra five years. However, if three or more children are dependent on you, the five-year extra grant will stay at 90%.

Does Italy tax retirement income?

Yes, as a tax resident in Italy you pay tax on your world-wide 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 in a municipality with a population 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 9 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 5 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 in Italy. This favourable tax regime can be enjoyed for a maximum of fifteen years, and you may revoke it at any time.
  • You have not been a tax resident for 9 of the previous 10 years prior to 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 are 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:

Tom

Wednesday 12th of October 2022

Hi,

For a UK citizen, does this tax 'write-down' of 70%/90% apply post Brexit?

I am considering moving to Italy for a new job, and want to make sure that this would apply to me? I have lived in the UK for 4 years prior (never lived in Italy before)

Also, assuming I qualify for the 70% tax exemption, is the 30% tax charged according to the progressive scale or does it get charged at the highest rate when consider gross salary pre-tax exemption?

Thanks

Paolo

Wednesday 12th of October 2022

Actually the benefit is applied and AFTER that you start paying your 23 to 43 per cent taxes. So you start from the lowest (fair enough right?). EU or extra EU citizenship, to date, does not effect the benefit application. Requirements mostly deal with other personal information (employment, tax residency) Best wishes for your big move!

Jens Raabe

Tuesday 20th of September 2022

HI, thanks so much for providing this overview.The expat tax regulations have become increasingly interesting to me and I would like to ask for some more guidance, especially with regards to taxation in Germany, my current country of residence. May I ask you to connect me with your points of contacts for further exchange of thoughts, pls. Have a great day, Jens.

Ola Degteva (Editor)

Tuesday 20th of September 2022

Hi Jens, could you be more specific as to what exactly you are looking for? Do you need professional advice on taxation in Germany?

Rikard

Thursday 15th of September 2022

Thank you very much for an excellent guide. Just a question to see if I understood it correctly.

If I as an EU citizen move from abroad to Southern Italy (Sicily) with a salary of 80 000 Euro/year. Then my taxes will be (80 000 EUR x 10%) x 43% = 3 440 Euro/year during 5 years?

Then if I decide to buy a house or get three kids after those 5 years. For 5 additional years the taxes will be (80 000 EUR x 50%) x 43% = 17 300 Euro/year.

Sounds almost too good to be true with the untaxed income bracket, so just want to be sure I grasped everything.

Kind regards, Rikard

Paolo Rigo

Thursday 15th of September 2022

@Rikard, it IS too good AND it IS true. It's called ' regime impatriati ', but the application is not that straightforward. Also the progressive brackets go from 23 to 43 per cent, so it's not a flat 43. How does it sound?

Caron Broadbent

Wednesday 7th of September 2022

Hello Do you have someone who can give advice on UK / Italy taxation for individuals who have do not understand what their tax situation is and also give an idea of the cost of such a consultation? Thank you

Paolo Rigo

Wednesday 7th of September 2022

@Caron Broadbent, this is Paolo Rigo, CEO of Studio Rigo. We actually have a YouTube channel with almost 100 videos about taxes and Expats' dual taxation issues. Also we offer a first intro call free of charge. Plus we host live Q&As and free webinars just to educate people. You can contact us studiorigo@gmail.com

Diane Graham

Tuesday 23rd of August 2022

I do not understand what you are saying about taxes. I have enough income from Social Security to retire in Italy -- but not if I have to pay 23% of it in taxes. Don't understand who the 7% tax applies to. Social Security is not taxed in the US. It is not a pension. Please explain.

Studio Rigo

Wednesday 24th of August 2022

Hi Diane, this is Paolo Rigo from Studio Rigo. I'm an International Tax Advisor. The 23 per cent is the lowest rate in Italy, the 7 per cent is an alternative tax to the progressive rates. It's basically a choice you can make, only if you're moving to a Souther >20k Comune and you're retired from work. Your pension could be taxed anyway, depending on the type of pension and the tax treaty application.