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EXPLAINED: The rules and deadlines for filing Italian taxes in 2021

From an upcoming deadline to special tax breaks, here's what you need to know about filing taxes in Italy.

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Know the taxes you need to pay in Italy and when. Photo by Ibrahim Boran on Unsplash

Who has to file tax returns in 2021?

Residents and non-residents in Italy alike have to file a tax return, but the rules are different for each group.

Those who are resident in Italy – which includes people who live in Italy more than 183 days per year, making it their primary residence – are taxed on worldwide income.

This means you have to take into account earnings you make from everywhere. Even if you generate an income from another country, you pay taxes to Italy and this is true regardless of your citizenship.

Non-residents on the other hand, such as those who have a second home in Italy, only pay taxes on income made in Italy. Find out more about the taxes second-home owners need to pay here.

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Not everyone has to file taxes, however. This includes people who receive employment income from a single employer, those who make an income taxed at source such as money gained from dividends, people who earn an income of 8,000 euros or less from employment and people who receive a retirement income of 7,500 euros or less.

When are the deadlines for filing this year?

The final deadline for filing your taxes is approaching – they are due November 30th.

The Italian tax year is the same as the calendar year, running from January 1st to December 31st. For the 2021 tax season, the tax return regards income and expenses incurred during 2020.

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Photo: Van Tay Media on Unsplash

You must file your tax form online via the dedicated website of Italy’s tax office (Agenzie delle Entrate). If you’d prefer a professional to take care of it, your accountant can do this for you.

You’ll need some form of electronic ID credentials such as your SPID or CIE.

Which Italian tax form should I use?

There are two different tax forms – one is known as the 730 and the other is the ‘Redditi‘ (revenue).

Everyone can file taxes using the latter within the upcoming final 30th November deadline.

However, the more simplified 730 form can only be used by those employed by a company (and therefore not self-employed) – it’s generally processed faster but has an earlier deadline of 30th September.

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The Redditi tax form is broken down into sections, based on the type of income earned, including a section for foreign assets, which would incur a type of tax called ‘wealth tax’.

If you have any assets or income that can’t be included in the shorter 730 form, you must complete the Redditi to adhere to Italy’s income reporting requirements.

What taxes can I expect to pay?

There are three main taxes you need to pay on income in Italy. Everyone is subject to personal income tax called ‘Irpef’, which starts at 23 percent of earnings for the lowest income bracket and rises cumulatively to 43 percent as a wage increases.

You pay tax on each income bracket you pass through. So if you earn over 15,000 euros for example, you pay 23 percent on income earned up to this threshold (making it 3,450 euros).

Anything over that you start to pay 27 percent tax and so on according to your salary.

Photo: Kelly SikkemaUnsplash

There are also regional taxes which vary from under 1 percent to over 3 percent and you’ll also need to pay municipal income tax rates, which varies according to where your fiscal residence is.

You’ll also need to take social security contributions into account, which is around 9 percent for employees of a company as employers pay the major share (around 30 percent).

The rate is much higher for self-employed workers, coming to around 25 – 29 percent of gross income.

One exception is for those who are eligible for Italy’s flat tax rate or ‘regime forfettario’ for new freelancers, which can slash income tax to between five and 15 percent. Find out more about this here.

What happens if I miss the deadline?

The best approach is to never miss Italy’s tax deadlines, as there are fines and sanctions in place for those who do.

You could be fined anywhere between 250 euros to over 1000 euros for not filing taxes on time. If your tax return lands you in a tax liability, you could be issued with a further fine ranging from 120 percent to 240 percent of each tax liability.

READ ALSO: Working remotely from Italy: What are the rules for foreigners?

If you have foreign assets and were late with your tax return, you will face a fine of between 3 and 15 percent of the asset value. Double that if your asset is held in a black-listed country or jurisdiction, such as the Cayman islands, Oman or the Seychelles.

Tax breaks for new residents to Italy

There are hefty tax discounts available for some people who move to Italy and make it their primary residence, which is worth bearing in mind ahead of filling out your tax form.

Essentially, there’s a discount on taxes for new residents for a period of up to five years.

To be eligible, you need to be either employed or self-employed in Italy and not have had residence in Italy in the previous two years.

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You can take advantage of a 70 percent tax exemption on your income, meaning that if you make 100,000 euros per year, only 30,000 euros is taxable.

There are even greater tax breaks on offer if you move to the south of Italy, with the exemption increased to 90 percent. Where living costs are lower and only 10 percent of your earnings are taxable, that’s an alluring prospect to new professionals.

The scheme is extended for a further five years if you have a dependent child or you buy any residential property in Italy.

To find out whether you may be eligible, speak to an accountant or your local agenzie delle entrate (tax office).

People sit at a table during a job interview

There are different steps for the employed and self-employed when it comes to taxes in Italy. Photo: Nick Morrison on Unsplash

When do self-employed workers pay their taxes?

Self-employed workers are subject to the same income tax brackets as the employed, but they can pay their taxes slightly differently.

Compared to those employed by a company who pay income tax at source, the self-employed can pay their taxes in June or spread them out over six months in instalments.

READ ALSO: ‘Smart working’? Here’s what you need to know about going self-employed in Italy

They must meet the November 30th deadline for filing taxes, but it’s always recommended to do it earlier to avoid potential penalties.

What about income earned from outside Italy?

Depending on where the income from abroad is earned from, you’ll need to check any double taxation treaties in place between Italy and the country you’re generating income from.

Regardless of where income is generated, however, you can deduct any extra tax paid abroad from the limits set in Italy.

If the tax paid is higher in the other country, you don’t have to pay anything in Italy. If it’s the contrary, you’ll have to pay the difference in accordance with Italy’s tax rates.

Even if it turns out you don’t have to pay any extra taxes to Italy, you still have to file a tax return and disclose your foreign income.

If you have any foreign assets, such as residential and commercial properties, bank accounts, shares owned in private or public companies, vehicles such as a boat, investments, insurance, pensions and cryptocurrency, you need to declare these.

Only residents in Italy must disclose foreign-held assets, however. Again, any taxes paid abroad can be used as credit to offset taxes in Italy in accordance with double taxation agreements.

Are there any tax deductible items I can claim for?

There are plenty of items and schemes that can be deducted in your tax return. This can include health expenses, kindergarten fees, holiday tax credit and a whole raft of Italy’s building bonuses.

The 110 percent IRPEF deduction, better known as the ‘superbonus‘, can be filed for work carried out to upgrade a property’s energy efficiency rating or to reduce seismic risk.

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This is a good way to offset income taxes while benefitting from government-funded renovation work. In addition, Italy’s latest Budget Law 2022 plans to extend the scheme into 2023 for certain categories of property.

In the 730 form for 2021, there’s also a 90 percent deduction for the facade bonus (set to drop to 60 percent in 2022) and a 30 percent personal income tax deduction to finance measures to contain and manage the Covid-19 epidemic emergency.

Please note that The Local cannot advise on personal tax questions. For further guidance, contact your accountant (commercialista) or your local tax office (agenzie delle entrate).

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MONEY

How to get a discount on the cost of solar panels for your Italian property

Solar panels are an understandably popular choice in Italy, and if you're thinking of installing them on your own home there's funding available to help lower the cost. Here's what you need to know.

How to get a discount on the cost of solar panels for your Italian property

As utility bills rise, more home and business owners in Italy are looking at installing solar panels as a possible way to reduce costs in the long term.

Solar panels are already hugely popular in Italy, with the nation ranking top worldwide for solar-powered electricity consumption.

READ ALSO: Who can claim a discount on energy bills in Italy?

And no wonder: it’s a solid bet in a country where there is sunshine in abundance. But what about the costs of installation?

The good news is that there’s financial help available from Italy’s national government aimed at encouraging uptake of solar energy, as well as other incentives from regional authorities in many parts of the country.

It’s in the government’s interest to incentivise solar power, as Italy has vowed to transition to greener energy with its National Integrated Plan for Energy and Climate (Piano Nazionale Integrato per l’Energia e il Clima 2030 or PNIEC).

So how could this benefit you? Here’s a look at what you can claim at both a national and a regional level.

Regional funding for installing solar panels

As well as the national government subsidies available for covering the cost of solar panel installation, some regions have introduced their own bonuses or discount schemes.

The sunny southern region of Puglia and the wealthy northern region of Lombardy have seen the highest number of residential photovoltaic systems installed, according to market research.

it’s not surprising, then, that these two regions’ governments are offering cash incentives to help cover the cost of installing solar panels.

Depending on the type of system you opt for, you could expect to pay between around €5,000 and €13,000 for installation, design, labour and paperwork.

To contribute to this initial outlay, the local authority in Puglia has created a pot to help homeowners on lower incomes move towards renewable energy.

READ ALSO: What you need to know about installing solar panels on your home in Italy

Newly introduced in 2022, the so-called Reddito energetico (energy income) offers households with an annual income below €20,000 a bonus of up to €8,500 for installing photovoltaic, solar thermal or micro-wind systems in their homes.

The bonus is intended for residents who have citizenship of an EU country or, if you are a citizen of a non-EU country, you can still claim the bonus if you have been resident for at least one year in a municipality in Puglia.

The €20,000 annual income refers to a household’s ISEE – an indicator of household wealth calculated based on earnings and other factors.

A worker fixes solar panels. (Photo by Ina FASSBENDER / AFP)

For this particular scheme, if you claim this bonus from the authorities in Puglia, it precludes you from also claiming funds at national level concurrently – such as through the popular superbonus 110 home renovation fund (see below for more on this).

Although there are other government bonuses, such as the renovation bonus (bonus ristrutturazione) that offers a much higher maximum total expenditure of €96,000, it can only be claimed as a 50 percent tax deduction spread over 10 years in your tax return.

For lower income families in Puglia, this may not be as cost effective as the grant from the regional authorities, which may equate to more money towards the cost and supply of solar panels.

For more information and to apply for Puglia’s renewable energy bonus, see here.

Lombardy is also stumping up funds to continue the solar power momentum experienced in the region.

While the coffers for private properties are currently closed, the region has made funds available for those with small and medium-sized businesses – again, in a move designed to lessen the impact of rising energy costs.

Business owners can claim a 30 percent grant for the installation of solar panels. There are more funds available to cover the cost of consultancy during the process too.

For more details on applying for this energy bonus in Lombardy, see here.

Other regions have also taken the initiative with encouraging more homes and businesses to change to solar-powered energy.

The region of Tuscany is offering an incentive on installing solar panels to residents in the form of tax deductions spread out over several years.

Works permitted include installing winter and summer air conditioning and hot water systems using renewable sources. This covers heat pumps, solar panels or high-efficiency biomass boilers.

For further details and information on how to apply, see here.

Each region may have its own solar panel bonus, either in the form of grants or tax deductions, available to private residents and/or businesses.

Check your regional government’s website to find out what may be currently on offer.

Solar panels are an increasingly popular option for those renovating homes in Italy. Photo by Jeremy Bezanger on Unsplash

National subsidies for installing solar panels

If your region isn’t offering any cash incentive to install solar panels on your property, there are government funds available, which cover all 20 regions.

The authorities introduced and extended a package of building bonuses in order to galvanise the construction industry following the economic downturn caused by the pandemic.

While there is no single, separate package of incentives for installing solar panels in 2022, you can take advantage of other government bonuses that include the cost of solar panel installation and supply.

As noted, you could use the renovation bonus (bonus ristrutturazione), which amounts to a 50 percent tax deduction spread over 10 years in your tax return – or through the superbonus 110, a scheme that promises homeowners a tax deduction of up to 110% on expenses related to property renovation and making energy efficiency measures.

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The property must make at least a double jump in energy class or reach the highest efficiency rating when accessing these bonuses.

There’s a substantial amount of funds on offer to install your solar panels.

Using the renovation bonus, there is a maximum total expenditure of €96,000 (per single housing, including condominiums). Remember this amounts to a 50 percent tax deduction, so the maximum saving you would make is €48,000.

The renovation bonus has been extended until 2024 and, where solar panel installation is concerned, you can claim for the costs of labour, design, surveys and inspections, as well as VAT and stamp duty.

You must tell Italy’s energy and technology authority, ENEA, that you’ve done the works within 90 days in order to access the state aid for solar panel installation.

If you choose to use the superbonus route to claim funds for your solar panels, however, you can spread out the tax deduction costs over five years. Alternatively, you can apply for it as a discount on the invoice (sconto in fattura) or through the transfer of credit (cessione del credito).

The limit when using this bonus is €48,000, which can now be accessed for a while longer as the government extended the deadline for single family homes.

See HERE for details on how to claim it.

See more in The Local’s Italian property section.

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