If you are a resident of Italy, then you will be subject to personal Italian income tax on your total income from all sources worldwide. Should you be classed as a non-resident of Italy then you will be subject to personal income tax on sourced income from Italy only.
Italian Income Tax
You will find yourself classed as an Italian tax resident under two rulings; firstly, if your main home or ‘center of economic interests’ lies within Italy. Secondly, you will be seen as a tax resident in the eyes of the Italian authorities if you are registered within the civil registry for the vast majority of the tax year.
There are certain allowable tax deductions and tax credits available when working as an expatriate in Italy. These include maintenance allowance, university expenses, medical expenses if over €129 and any fees associated with dependent persons either due to age or disability.
Expatriates who live within Italian borders can only be classed as either a resident or a non-resident. Non-residents are only taxed on gains and income that are gained on Italian soil. Residents are taxed on all income sourced worldwide. Expatriates will be classed as a taxpayer if they have their principal place of residence or work in Italy for 183 days or more. This rule also applies if their centers of vital interest lies within Italy or are registered with the registry office of the population registry (Anagrafe).
Inheritance tax is paid by heirs or legatees on the net amount inherited by each recipient from the estate of any deceased person who is considered to be a tax resident of Italy. The amount payable depends on the heir’s relationship to the deceased and ranges between 4% and 8%. An extra 10% tax is imposed in the financial sector on bonuses and stock options when exceeding three times the employee’s fixed salary.
It is worth noting that the Italian government is part of the EU Double Taxation Treaty.
Italian Income Tax Annual Returns
Taxpayers who stem taxable income in excess of certain limits must file an annual return for tax between May the 1st and 31st July of the year following the tax year. Tax returns are required in electronic form and this can be performed yourself or through a professional arbitrator, such as an accountant, for example. Forms can be found on the Italian Revenue Agency (Agenzia delle Entrate) website.
If you disagree with your tax assessment you can appeal by contacting the Italian tax offices. The department required for your working sector should be outlined in the tax assessment letter you receive, which should also highlight the procedure to follow. Further advice can be sourced from the taxpayers watchdog located in your regional directorate of the Inland Revenue Service.
Each person is taxed individually and while a married couple can file a joint tax return, they too will be taxed separately. Italian income tax is usually among the highest rates within the EU. The rate has been dropped slightly over the past decade but is still well above the EU average. However, tax allowances are certainly more generous than other EU countries.
For more information on Italian Payroll, Working in Italy or Contracting in Europe visit the Euro Accountancy & Finance Services website.