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.

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.

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.

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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).

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.

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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).