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The tax reforms to expect in Italy’s 2024 budget

As the Italian government prepares to publish its budget plan for the coming year, income tax and other reforms are at the top of the agenda.

Published: 12 October 2023 16:53 CEST

The tax reforms to expect in Italy's 2024 budget

A tax specialist at an Italian tax assistance centre (CAF) preparing documents. Italy’s government has made tax reform a focal point of its 2024 budget. (Photo by Tiziana FABI / AFP)

Tax reforms are expected to be among the main features of Italy’s 2024 budget, set to be published on Monday, October 16th, and sent to the European Commission for review in the following days.

As well as tax reform for multinationals, the government is moving towards its long-term goal of a ‘flat tax’ for all employees with the introduction of its planned cut to the number of income tax (Irpef) bands.

The Vice Minister of Economy and Finance, Maurizio Leo, said in August the move towards a ‘flat tax’ was intended to encourage a new relationship between tax authorities and taxpayers.

“We have to be aware that our tax system penalises taxpayers,” he said, after the lower house of Parliament voted to approve the cut to the number of tax bands.

“We have to change the face of the tax system and we want to do this, without lowering the guard on the fight against tax evasion.”

Under the reforms, the number of income tax bands is set to be reduced from four to three.

The current bands are as follows:

23% for incomes up to 15,000 euros.
25% for incomes up to 28,000 euros.
35% for incomes up to 50,000 euros.
43% above 50,000 euros.

The three new bands are expected to be set at 23 percent, 33 percent and 43 percent.

The government has said it aims to reduce the number of bands further in the coming years under its plan to introduce a flat tax rate for employees – which was a cornerstone of its election campaign.

Changes to the Irpef rate will apply to all employees, and many self-employed workers (regular partita Iva holders, but not those on the flat tax rate), and pensioners.

The new tax for multinational companies, dubbed the minimum tax, is due to come in from January 1st next year in line with other European directives. It is predicted to bring in an estimated additional two to three billion in tax revenue.

The reform is expected to be fully functioning within two years.

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IMU: Who has to pay Italy’s property tax?

Italy’s main property tax, IMU (Imposta Municipale Unica, or Unified Municipal Tax) was introduced in 2012 to replace the local ICI levy.

It applies to both private and commercial property, building areas and agricultural land, and its exact amount varies by the type, value and location of the property.

IMU must be paid in two yearly instalments, with the first payment normally due by June 16th (the deadline was moved to June 17th this year as June 16th is a Sunday) and the second one due by December 16th.

But the tax is a frequent source of confusion for homeowners in Italy as the rules on exactly which types of property it applies to have changed multiple times over the years.

Taxpayers are fully responsible for calculating and paying the amount of IMU they owe, meaning you won’t get a bill from local authorities specifying how much you need to pay for the relevant year.

Who does IMU apply to?

IMU is generally owed by owners of the following types of property:

Agricultural land (or terreno agricolo in Italian)
Building land (area fabbricabile)
Private houses other than the owner’s main residence (or prima casa), meaning second, third, fourth homes etc.
Luxury dwellings (case di lusso) falling under Italy’s cadastral categories A1 (stately homes), A8 (villas) or A9 (castles), regardless of whether they are the owner’s main residence or not.

Essentially, besides agricultural and building land owners, IMU is owed by all second-home owners in the country and owners of properties categorised as ‘luxury’ under Italy’s cadastral system.

READ ALSO: The Italian tax calendar for 2024: Which taxes are due when?

The tax doesn’t apply to main residences (prime case) but owners must be Italian residents and be registered as such under Italy’s national registry (Anagrafe) in order to qualify for this.

If you’re a foreign resident owning property in the country, you’ll have to pay IMU on it.

There are a number of IMU exemptions and discounts available to some categories of homeowners.

These include for instance a 50-percent discount for retirees residing abroad and claiming a ‘totalised pension’ (pensione totalizzata), meaning a hybrid ‘Italian-foreign’ pension merging contributions made in Italy and those made in the foreign nation they reside in (as long as this country has pension totalisation agreements in place with Italy).

How do I calculate IMU?

Much like most other Italian taxes, calculating IMU is by no means an easy process, especially if you have little to no experience with paying it.

That’s why it’s generally advisable to consult a chartered accountant (commercialista) who can ensure that the correct amount is paid and even arrange the transaction for you.

READ ALSO: What is an Italian commercialista and do you really need one?

That said, as a rough guide, you’ll need to take the cadastral value, or valore catastale, of your property (this is generally reported in the public deed of purchase but you can also request it at your local land registry).

Once you know the cadastral value, you must increase it by 5 percent and then multiply that number by a coefficient, which varies by the type of property you own. For instance, private residential buildings and flats have a coefficient of 160.

Doing this will give you your property’s taxable base and from there you’ll be charged anything from 0.5 to 1.06 percent of that figure, depending on the rate (aliquota) applied by the municipality (comune) where your property is located.

How do I pay?

IMU can be paid via Italy’s standard tax form F24, which is used when paying most types of taxes in Italy, including Irpef income tax instalments.

The form can generally be found and submitted at most bank branches and post offices in the country. Some Italian banks even offer customers the option to complete and submit an F24 form directly online.

Alternatively, you can ask an Italian accountant to complete and submit the form on your behalf.

What happens if I don’t pay?

The Italian taxman shows little in the way of leniency when it comes to late filing or failure to pay IMU.

Late filing can be punished with a fine of up to 30 percent of the IMU owed, whereas failure to pay can lead to enforced credit recovery procedures (recupero coattivo del credito) from local authorities.

The good news here is that Italy has a procedure known as ravvedimento operoso (literally ‘active amendment’) which allows taxpayers to self-report and quickly rectify the delay in their IMU payments in exchange for significantly reduced fines.

For example, under this system, fines for late payment are reduced to 0.1 percent of the sum owed per day if the payment is made within the first 14 days from the relevant deadline.

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.

For more information on property in Italy, check The Local’s property section.

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