Italy: Living There - Tax Issues

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INDIVIDUAL TAXATION

Residents in Italy are taxed on their worldwide income. An individual is resident in Italy if he is registered in the Civil Registry or has established his principal centre of business or has his habitual abode in Italy. Married couples may be taxed separately depending on the conditions set on the marriage contract.

INCOME TAX

Income is taxed at progressive rates. Taxable income is generally an aggregate of all kinds of income, less income generating expenses and allowed deductions and allowances. A regional surtax is also imposed on income, ranging from 0.9% to 1.4%, along with a municipal surtax and a provincial surtax, determined by each municipality and province at an aggregate up to 0.8%.

Allowances, Deductions and Credits

Residents in Italy may avail of tax credits and deductions. Among them are tax credits for family circumstances, which can be deducted from the tax due, rather than the taxable income. The amounts of the deductions, however, are based on the amount of income earned and are computed using certain formulas.

For each child in the taxpayer’s care, a credit of €800 is given, which is increased by €900 in case of children under three years of age and by €220 in the case of children with disabilities. In the case that there are more than three children, the amount is increased by €200 for each child after the first. Again, this allowance is still to be factored into a formula, to determine the actual allowance that the taxpayer receives. The actual allowance is obtained by multiplying the amounts that the taxpayer is entitled to by the following formula: (€95,000 – total income) / €95,000. The amount of €95,000 is increased by €15,000 for each child after the first.

For each dependent relative, the allowance is €750 x [(€80,000 – total income)/€80,000]. Allowances for dependants are only applicable if the dependant does not have an aggregate income exceeding €2,840.51 before deductions.

For taxpayers with income from employment or pensions, a tax credit is granted, which varies according to the level of aggregate income of the taxpayer. Again, a formula is used to compute for the actual amount of the credit.

A tax credit is also granted for taxpayers earning income from self-employment or miscellaneous income. This credit cannot be added to the credit for income from employment.

A tax credit for medical, surgical, dental and other related expenses is granted. This credit is limited to 19% of the expenses for the amount exceeding €129.11.

For charity contributions, a 19% tax credit can be availed on the following:

• Charitable gifts in favor of the state, public entities or institutions, legally recognized non-profit foundations and associations which conduct and promote research, study or documentation of cultural and artistic value;
• Charitable gifts not exceeding 2% of reported income in favor of public entities, institutions, legally recognized non-profit foundations, and associations which are engaged solely in the field of entertainment for purposes of realization of new structures, renovation or expansion of existing structures, as well as production in various sectors of entertainment;
• Contributions up to €2,065.83 to other qualifying charities.

A tax credit of 19% is granted for eligible mortgage interest payments made to a resident of the European Union or to an Italian permanent establishment of a non-EU resident.

A tax credit of 19% is also granted for expenses, up to €1,000 per year, paid to real estate intermediaries.

For certain expenses incurred in the refurbishment of real estate, a tax credit is also granted. The expenses in respect of which the credit is available are limited to €36,000 per property. The credit is equal to 36% of the expenses incurred. The credit must be spread over a period of either 5 or 10 years.

Periodic payments made to a spouse, excluding maintenance payments for children, as a result of legal or actual separation, dissolution or annulment of a marriage or termination of its civil effects, are fully deductible.

Social security and welfare contributions paid in accordance with the law or voluntarily paid to the mandatory pension plan are fully deductible. Payments made to qualified Italian and EU pension plans are deductible up to €5,164.57.

A tax credit not exceeding 19% of the following expenses is also granted:

• Expenses for secondary and university education, but not more than the tuition fees;
• Funeral expenses incurred as a result of the death of relatives, not exceeding €1,549.37 for each relative;
• Premiums for whole life and/or accident insurance, and social security payments when not required by law, but not more than €1,291.14;
• Individuals renting their main dwelling are entitled to a tax credit of €495.80 if the total taxable income does not exceed €15,494 or €247.90 if the total taxable income exceeds €15,494 but not €30,987.

Capital Gains

Gains from the sale of real estate property are not taxable if the property was held for more than five years. If the property was held for less than five years, the gains are taxed as income. Taxable capital gains are computed as selling price less acquisition costs and related expenses. Gains from the sale of a primary residence are not taxable.

Italy - more data and information

• Lawyers (attorneys) with property law practices in Italy

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