Income tax in Italy
Taxation Researcher | January 30, 2022
Residents in Italy are taxed on their worldwide income. Married couples may be taxed separately depending on the conditions set on the marriage contract.
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.
Income is classified according to the following categories: (1) income from immovable property, (2) income from capital, (3) income from employment, (4) professional income, (5) business income, and (6) miscellaneous income, including capital gains.
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.
|TAXABLE INCOME, €|
|Up to €15,000||23%|
|€15,001 - €28,000||27% on band over €15,000|
|€28,001 - €55,000||38% on band over €28,000|
|€55,001 - €75,000||41% on band over €55,000|
|Over €75,000||43% on all income over €75,000|
|Source: Global Property Guide|
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.
Taxable rental income is generally computed as rental income less a lump-sum deduction of 30% for repair and maintenance expenses. Taxable rental income cannot be less than 70% of the gross income. The normal income tax rates are then applied to the computed taxable rental income.
Individuals may be taxed at a flat rate of 21% on their income from leasing property in Italy. The property owner must register and comply with local tax rules, in order to qualify for this scheme.
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.
Local Property Tax (imposta municipal unica, IMU)
Local property tax is levied on Italian properties and are payable by the property owners. The tax is levied on the estimated or cadastral value of a property, which is increased by 5%. The resulting value is then multiplied by a number of coefficients based on the property type. The coefficient for apartments and residential buildings is 106. Then the local property tax rate is levied on the tax base, and the applicable tax rate ranges from 0.40% to 0.76%, depending on the property location. The tax rate in Florence is 0.40%.
Corporate income and capital gains are taxable in Italy at the corporate income tax rate of 24%. Operating costs and income-generating expenses are deductible when computing the taxable income.