COPY LINK

For members

MONEY

KEY POINTS: The tax changes in Italy to know about in 2023

From a proposed 'flat tax' to VAT, Italy is planning a raft of changes that you should be aware of as part of longer-term reforms. Here's a quick overview.

Published: 15 March 2023 17:10 CET
Updated: 17 March 2023 09:45 CET

KEY POINTS: The tax changes in Italy to know about in 2023

Photo by ANDREAS SOLARO / AFP

The Italian government is preparing a set of major reforms to the tax system by 2027, and the first changes set to come in to force over the next two years were announced on Thursday, March 16th.

The existing tax system in Italy, which has been in place since 1971, is often criticised for being overly complex and for placing too high a tax burden on employees and businesses – one of the factors regularly blamed for Italy’s longstanding problem with sluggish economic growth.

Economy Minister Giancarlo Giorgetti has said the planned reforms will reduce this tax burden “gradually” and make investment and commercial activity in Italy “more appealing”.

Few details of the reforms were immediately given on Thursday, but here’s a look at what we know so far about the initial changes coming in 2023 and how they could affect you.

‘Flat tax’ and income tax changes

The government has confirmed it is planning changes to the way the amount of personal income tax you have to pay is calculated, and that it will push ahead with longer-term plans to bring in a so-called flat tax, which was one of the flagship promises made by the coalition of right-wing parties which took power following September’s general elections.

The coming reforms will initially reduce the number of income tax (Irpef) brackets from four to three, with the ultimate goal of a single tax rate for everyone by 2027 – when the current government’s term in office is set to end.

Irpef (Imposta sui Redditi delle Persone Fisiche) is the main income tax in Italy and applies to all employees, many self-employed workers (regular partita Iva holders, but not those on the flat tax rate) and pensioners.

This tax is the cornerstone of Italy’s fiscal system. It injected just shy of 206 billion euros into state coffers in 2022, accounting for around 38 percent of the country’s total tax revenue last year (544.5 billion euros).

The first reforms came in 2021, when the number of income tax brackets was cut from five to four to create the current system:

Current tax brackets:

	Income (annual)	Irpef rate
First bracket	Up to 15,000 euros	23 percent (aliquota)
Second bracket	Between 15,000 and 28,000 euros	25 percent
Third bracket	Between 28,000 and 50,000 euros	35 percent
Fourth bracket	Over 50,000 euros	43 percent

The coming change will reduce the number of tax brackets down to three by merging the second and third tiers into a single one.

The reforms are expected to set the three bands at 23 percent, 33 percent and 43 percent initially, and government officials have said that a more costly option under consideration would lower the second band to 27 percent.

No further details were immediately given on Thursday, and the draft outline approved by Italy’s cabinet still needs the green light from parliament and then implementation by the finance ministry.

This change means people who are currently in the second bracket will see their Irpef payments increase by two or three percent, whereas those who are now in the third bracket will benefit from a seven- or eight-percent cut.

VAT cuts

The government has also said it is looking at cuts to VAT (known as IVA in Italian) on various products – and reports suggest it could scrap it altogether on at least some essential goods.

Italy applies a standard 22-percent VAT rate to most consumer goods, and lower rates to essential items (for instance, 4 percent on bread). This can be surprising to people from countries where VAT is usually zero-rated on basic foodstuffs.

With the new tax bill, the government plans to lower rates on all consumer goods which households purchase regularly: so-called shopping cart goods.

The government is also reportedly considering scrapping VAT on at least some essential purchases, though this was not announced on Thursday and no further details have emerged yet.

Italian consumer group Codacons estimates that scrapping the tax on essential items would save the average household up to 300 euros a year.

Photo by ANDREAS SOLARO / AFP

Lower corporation tax

Meloni’s government said it plans to cut corporation tax from the current rate of 24 percent to 15 for companies that create jobs and make investments in “innovation” – a move that was initially welcomed by business groups, who said they’re waiting for more details to come.

Tax ‘bonus’ cuts

The changes have not been costed yet, but the plan to bring in a flat tax is expected to cost the treasury around 10 billion euros.

The government says plans to recoup this sum partly by curbing many of the financial incentives currently available to Italian taxpayers.

Italy has a mind-boggling array of tax rebates and other incentives in place – over 600 in total – which collectively cost the state 165 billion euros a year.

The 2023 tax reform is expected to cut the amounts available through these incentives, and will also mean fewer people are eligible to claim.

The government has already begun to curb some of Italy’s most popular – and costly – tax rebate schemes as of the beginning of this year; namely the building bonuses providing generous state-funded discounts on renovation work. This includes the so-called superbonus 110, which was initially cut back in January before being made almost completely unavailable in February.

EXPLAINED: Are any of Italy’s building ‘bonuses’ still available?

Ministers have not yet released any details as to which other incentives may be affected by planned cuts.

Property taxes simplified

The taxes paid when buying property in Italy are notoriously hefty, with experts often advising buyers to budget around an additional ten percent of the purchase price in order to pay the various taxes and charges involved.

While there’s no sign that these costs will be lowered anytime soon, some of them are set to be streamlined: the upcoming bill will merge stamp duties (imposte di bollo) and cadastral taxes (imposte catastali) into a single fixed-rate fee which ministers hope will somewhat simplify the process of buying a home.

The Local will report further details of the upcoming tax changes once they become available.

Member comments

Become a Member to leave a comment.

With income declarations now open in Italy, there are several details of the Italian tax system that you need to know, especially if this is the first time you file.

From deadlines to rules on foreign income and assets to second homes, here is our guide to the 2024 tax season.

2024 tax deadlines

Late spring is generally the busiest time of year for Italian taxpayers as that’s when the window to file the yearly income tax declaration (or dichiarazione dei redditi) opens.

Barring some rare filing exemptions, anyone who’s considered an Italian resident for tax purposes (or fiscal resident) is required to file income taxes in Italy.

But even if you’re not an Italian tax resident, you may still have to file and pay Italian taxes on any income generated in Italy.

Depending on your personal tax situation and income source, you’ll have to file one of two forms, whose official deadlines for this year you can find HERE. The window to file either form is open as of May 20th.

It is strongly advisable to keep the main income tax dates in mind as the Italian taxman shows little in the way of leniency when it comes to late filing and failure to file.

Besides income tax deadlines, there are two other dates you need to be mindful of if you own property in Italy. The first instalment of Italy’s tax on second homes IMU (Imposta Municipale Unica) is due by June 16th, whereas the second instalment is due by December 16th. You can find these and other key tax dates for 2024 in our calendar.

First-timers

If this is your first time declaring tax in Italy, your first task will be to request a codice fiscale (a personal identification number similar to an American Social Security number or a British National Insurance number) if you don’t already have one. Find a guide to doing that HERE.

The 2024 income tax declaration covers the 2023 tax year, which runs from January 1st 2023 to December 31st 2023. As a result, if you moved to Italy after January 1st 2024, you will not have to complete the declaration until next year.

On the other hand, IMU payments are always relative to the year when you make the payments – in this case 2024.

Online v paper

Most people in Italy file their tax declarations and make payments using the personal profile area (area riservata) of the Italian tax office (Agenzia delle Entrate) website.

This is also where taxpayers can find a pre-compiled version of tax return form 730 (or modulo 730) – which is the income tax declaration form generally used by employees and retirees in Italy.

Though most tax declarations can be filed online, there are provisions for people who don’t have internet access or are not comfortable completing tasks online. In this case, you can visit or call your local tax office and request paper versions of the forms, which you can then submit at the same office or, in some cases, at local post offices.

Income tax brackets

Italy’s income tax Irpef applies to employees, many self-employed workers (regular partita Iva holders, but not those on the flat tax rate) and pensioners.

The Italian government cut the number of available tax brackets from four to three last December, but the change only applies to income generated from January 1st 2024.

This means that your 2023 income will be taxed based on the four-bracket system below:

Up to 15,000 euros: 23 percent
Between 15,001 and 28,000 euros: 25 percent
Between 28,001 euros and 50,000 euros: 35 percent
Over 50,000 euros: 43 percent

Like income taxes in many other countries, Italy’s Irpef is a progressive tax, meaning that you only pay the higher rate on the portion of your income that is over the relevant threshold (for instance, 43 percent on the portion of income exceeding 50,000 euros).

Foreign income

It’s not unusual for foreigners in Italy to have some or all of their income coming from outside Italy – whether that is a pension paid from an overseas country, remote working for a non-Italian company or rental income from a property outside of Italy.

If you’re an Italian tax resident, you’ll be required to declare your global income – that is income generated not just in Italy but anywhere in the world.

It’s important to note though that declaring your foreign income does not necessarily mean you will have to pay tax on it.

Italy has dual taxation agreements with most countries, including the UK and US, meaning that if you have already paid tax on your income in another country, you won’t be taxed on it again – though you’ll still have to tell the Italian taxman about it.

Foreign assets and bank accounts

Italian tax residents who hold financial assets abroad – this includes real estate, financial investments, unit trusts, and even foreign bank accounts – are required to declare them by completing the foreign assets section of their yearly tax return form (section W of form 730 and section RW of form Redditi PF).

Depending on the types of assets you own abroad, you may have to pay Italy’s tax on foreign real estate (IVIE) and/or a tax on foreign financial activities (IVAFE).

It’s worth noting that retirees who’ve opted for Italy’s special seven-percent flat tax rate are exempt from the requirement to declare (and pay IVIE and/or IVAFE on) foreign assets.

You can find further info about declaring foreign bank accounts HERE.

Tax breaks

Italy has a number of tax breaks to help taxpayers, especially those with lower incomes, reduce their tax bill each year.

These are generally divided between tax deductions (deduzioni fiscali), which lower your taxable income, and tax reductions (detrazioni fiscali), which lower your final tax bill.

Tax reductions for 2024 apply to anything from rent to public transport to education expenses, and include a 19-percent tax break on medical expenses applicable to amounts exceeding 129.11 euros. You can find a full list (in Italian) of tax reductions and deductions here.

It’s also worth noting that Italy offers a number of favourable multi-year tax regimes for residents – these include the so-called ‘impatriate’ tax scheme and the seven-percent flat rate for foreign pensioners – as well as a number of home renovation bonuses.

Tax for second-home owners

If you live outside of Italy but you own property in the country which you use as a second-home or holiday home, there are a few things to be aware of, with the first being whether or not you are an Italian tax resident.

If you use your Italian property just for holidays then you probably won’t be. But if you tend to spend a significant amount of time in your Italian property, you should keep in mind that Italy’s tax office will consider you a tax resident if, for at least 183 days a year, you are registered with Italy’s National Registry of the Resident Population (or Anagrafe) or have your place of “residence or habitual residence” in Italy.

The other thing to consider is whether you have any Italian income through renting out your property, including on Airbnb. If you do, you will need to declare this income in Italy.

Finally, even if you’re not an Italian tax resident and don’t generate any income in Italy, you’ll still have to pay Italy’s property tax IMU (Imposta Municipale Unica), which is owed by all owners of second homes. You can find this year’s IMU deadlines HERE.

Getting help

If you’re completely daunted by the Italian tax system, don’t panic: help is available.

If you have a fairly simple tax situation (e.g. you have a single employer and no other sources of income) and speak some Italian, you may be able to get the assistance you need at one of Italy’s tax support centres (Centri di Assistenza Fiscale, or CAF).

If, however, you are self-employed, are starting or operating a business, are earning income in multiple countries, or simply find the whole process too difficult, you may need the help of a chartered tax accountant, or commercialista in Italian.

Please note that The Local is unable to advise on individual cases. Find more information on the Italian tax office’s website or seek independent advice from a qualified tax professional.

SHOW COMMENTS

Url copied to clipboard!