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The Italian tax system is renowned for being complex and in constant evolution. That doesn’t mean, however, that it’s not possible to do business in Italy; instead, this is one of those cases where it pays to learn as much as you can. While it’s not possible to address a specific issue in a FAQ format, these are the questions that I hear the most and the answers should start you on your way to gaining the knowledge you need.

  • Here are a selections of FAQ from Filippo.
  • If your question is not answered please just ask.

The short answer to this question is that if you are working in Italy, the likelihood that you owe Italian taxes is very high. As a general principle, those who are considered tax resident in Italy are taxed on their worldwide income; in other words, Italian tax residents are taxed on the income they earn in Italy and the income they earn in any other country in the world. On the other hand, non-residents are only taxed on the income that is produced in Italy. Therefore, for example, if you worked as an employee on Italian territory, you would owe Italian taxes on that income but not on the employment income that you may have earned abroad before moving to Italy. Many countries have entered into tax treaties with Italy so if your home country would also tax income that is taxable in Italy, the tax treaty would work to reduce that double taxation.

The short answer to this question is that if you are working in Italy, the likelihood that you owe Italian taxes is very high. As a general principle, those who are considered tax resident in Italy are taxed on their worldwide income; in other words, Italian tax residents are taxed on the income they earn in Italy and the income they earn in any other country in the world. On the other hand, non-residents are only taxed on the income that is produced in Italy. Therefore, for example, if you worked as an employee on Italian territory, you would owe Italian taxes on that income but not on the employment income that you may have earned abroad before moving to Italy. Many countries have entered into tax treaties with Italy so if your home country would also tax income that is taxable in Italy, the tax treaty would work to reduce that double taxation.

For non-rented properties, tax is calculated in reference to the cadastal value (rendita catastale) of the property, whereas for rented properties tax is calculated on the gross rental income, without any deductions. Payment of any tax due must be normally made by 16th June, or 16th July with a small interest recharge.

As owner of Italian property, you are already registered for tax. Your tax code (codice fiscale) issued before your property purchase identifies you for taxes and financial purposes.

In this case is acceptable to submit one single return, including the tax code (codice fiscale) of the spouse on the return.

Yes there is a way, but I wouldn’t suggest to do everything without help. To cut it short, by submitting a request for password and pin numbers from the Italian Italian Tax Office you will be entitled to submit online your returns.

Also real estate held by Italian tax residents and located abroad are taxed. The tax base is equal to the purchasing costs or, if absent, to the market value. Specific rules apply to real estate located within the EU. The rate is in general equal to 0.76%. Should the tax amount be lower than €200, no payment is due. Tax credit for foreign wealth or property taxes can be obtained. Moreover Individuals tax resident in Italy are required to indicate in a specific return (so called “quadro RW)” the investments held abroad and the transfers of cash and financial assets to/from foreign countries, should the cumulative amount exceed € 10,000 per year.

The Italian tax code states that an individual is considered tax resident in Italy if he or she satisfies at least one of the following three criteria for more than half (183 days) of the calendar year: Registration with the Anagrafe (Office of the Resident Population); Having your center of vital interests in Italy; Having your habitual abode in Italy. The Anagrafe is a local municipal office where a person registers the address where he or she regularly lives. It is a critical part of living in Italy because it has implications for numerous aspects of life in Italy; for example, you will be asked for it in order to obtain a telephone line, register with the public health care service, buy a car, send children to Italian state schools and so forth and so on. A person’s center of vital interests is an assessment of a variety of factors that would connect a person to a specific locale. The primary consideration is where one’s family lives but other factors are also considered: where one’s social network is located, where one earns income, the publishing of marriage vows, where one belongs to clubs, etc. Finally, having a habitual abode refers to identifying the place where a person returns to regularly after work, after vacation, after business trips. In other words, your habitual abode is the place where you go when you have no other place to go.

This isn’t really a tax question but it does present significant implications regarding one’s ability to legally work in Italy since an employer can be subject to significant penalties if found to have a foreign citizen working without the proper authorizations. Individuals who are EU nationals do not have to obtain a visa from the Italian embassy located in their home country prior to coming to Italy. Everyone else must obtain a visa before coming to Italy and must then request a permit to stay within 8 days of arriving.

If you carry out a business professionally you will need to apply for an IVA (VAT) number and normally make quarterly IVA returns. You also almost certainly have to get a licence from your local Comune. There are a certain number of factors involved in deciding what activity constitutes a professional business and each case needs to be considered carefully.

In order to speed up all the required procedures to set up new businesses, from 1 April 2010 the applying to the Tax Authority for the VAT number together with the communications to the Register of Companies and to the Labour Authorities are made on-line through the so-called ‘Single Communication’ (ComUnica) channel which allows within a short period of time to set up a business in Italy. Be careful, ask a consultant for advice and let him do it.

lower taxation system on new individual business initiatives carried out by residents has been introduced recently. New business initiatives can benefit for 5 years from a tax rate of 5% providing that the gross profit is under 30.000 euros every year but, although the new rate is 5%, the burden of the Social Security Contribution will bring the amount due to higher rates.

Individuals pay taxes determined using the 2007 tax rates shown in the below table. These tax rates are applied progressively so that the first € 15.000 of income is taxed at 23%, the next € 13.000 are taxed at 27% and so forth. up to € 15.000 - 23% € 15.001 to € 28.000 - 27% € 28.001 to € 55.000 - 38% € 55.001 to € 75.000 - 41% € 75.001 and up - 43% Italian regions can also tax an individual but the rate of taxation depends on where the taxpayer resides. Currently, the tax rates range from 1,23 to 1,73%. Finally, the individual municipalities also have the power to tax. The tax liability cannot exceed 0,8% of income.

The corporate tax rate is 27,5% and is applied to income net of deductible expenses. Many companies are also subject to IRAP, the tax on productive activities, which is charged at 3,90%. This tax was subject to much debate within the European Union and many were expecting it to be abolished. Alas, it was not only confirmed but increased to 4,82% for those living in certain regions, such as Abruzzo, Lazio, Puglia and Sicilia, where it was determined that additional funds were required to cover the exorbitant costs of the public health care system.

Applied at the time of registration of documents for specific transactions (e.g. the transfer of property, contracts, registered documents, etc.) at a fixed rate or one that is proportional to the specific case.

These are levied on transcriptions, inscriptions and updates in public property registers which follow transactions, donations, inheritance of property and the setting up of a tenancy or other beneficial rights, at a fixed rate or one that is proportional to the case.

These are levied on cadastral transactions following transaction, donation or inheritance agreements, at a fixed rate or one that is proportional to the specific case.

The main Real Estate tax applying in Italy is called IMU which is meant to be a Municipal tax on property. It is levied on the value of the Italian property (building and land), owned also by non resident, according to a rate set by the municipality. The taxable base is the cadastral value of the property. The rates range from 0.4% (for “prima casa”, i.e. the principal abode) to 0.76% for other estates. Basically, any change in the property occurred during the ended year has to be declared to the Comune by the 4th of February and has to be payed in June and December each year.

The tax on household refuse is essentially based on the square meters of the property and differs from Comune to Comune. Any change in the possession of the property occurred during the ended year has to be declared to the Comune within the 20th of January. The bill will be sent by the comune through the year and it will be essentially based on what has been declared. From the 1st January 2013 this tax has changed name and calculation method, it is now called TARES but details about how it is calculated are still not completely clear.

Social security contributions are due on a territorial basis. That means that if you perform a working activity in Italy, you have to contribute to the Italian Compulsory Social Contributions Plan (INPS) or to other compulsory schemes provided for specific sectors. Italy has entered into totalization agreements, which are similar to tax treaties that may provide for exceptions to this rule. Contributions are calculated on the gross salary of the employee: the applicable rate is generally 38/40% (of which 9/10% is paid by the employee at source). Different rates are applicable for social contributions due from executives and self employed. The maximum annual ceiling for FY 2012 is € 96,149.00, amount over which nothing more is due. The employee contribution is fully creditable, if compulsory, against income taxes. Expatriates may qualify for exemption from social security contributions if they are eligible to opt for social security contributions in their State with which Italy has a social security agreement. Usually, this requires the filing of the A1 form with the Italian Authorities.

This depends on the nationality of the deceased. The law which applies to the succession is the law of the country whose nationality the deceased had at the time of his/her death. Italian law allows derogations from this rule and a testator can designate the laws of the State where he/she has his/her habitual residence to govern his/her succession. The applicable law is the national law of the deceased, but it must be taken into consideration that the national law can refer to Italian law or to another law. In a cross-border situation, a will is valid in principle if it complies with the laws of the State where the will was drawn up or the laws of the State whose nationality the testator held or where the testator had his/her residence at the time the will was drawn up or at the time of his/her death. The testator can choose the law of his/her country of residence, provided that he/she lives in the same country at the time of death. For the succession of an Italian citizen, the choice does not affect the rights of persons entitled to the reserved portion living in Italy when the succession is opened. There are special forms that a person wanting to draw up a will must respect. Italian law recognises, among others, the following forms of wills: a will executed before a civil law notary in the presence of two witnesses; a sealed will drawn up by the testator and transmitted to a civil law notary subject to certain formalities; a holographic will which must be written entirely by the testator with his/her own hand and signed by him/her; international wills. A will can be registered with the register of wills, kept by the Minister of Justice, thanks to notarial records.

Inheritance Tax has been reintroduced starting from 3 October 2006 as follows: •if the heir is the spouse or a direct relative in law: tax rate 4% (no tax area up to € 1,000,000 for each heir); •if the heir is (i) a relative in law within the fourth degree, (ii) a direct collateral relative in law or (iii) a collateral relative in law within the third degree: tax rate 6% (no tax area does not apply); •in the other cases: tax rate: 8% (no tax area does not apply). Donation Tax was reintroduced starting from 29 November 2006. The tax rates applicable are the same provided for the Inheritance Tax (i.e. 4-6-8%), depending on the degree of relationship of the beneficiary. Furthermore, a more limited no-tax-area is provided for where the beneficiary is a brother or a sister. Both for Inheritance & Donation Tax the evaluation of the business to be transferred must not take into account the goodwill. The Inheritance & Donation Tax does not apply in case of (i) “family agreements” (art. 768-bis of the Italian Civil Law Code) and (ii) transfers of businesses where the counterparts are members of the same family, including the transfers of participations implying the acquisition of a controlling interest in the company. The exemption applies only if the business’ activity is carried on during the five years following the transfer.

Setting up as a sole trader is one of the most popular way to start a business in Italy, and it’s still quite common because it’s easy and cheap. Sole trader registration is straightforward, accountancy is simpler than a limited company, and you can use part of the money in the bank account for your personal expenses. At the end of the year, you will keep all the profits after tax. Now you have read the advantages of a sole trader, but there are also disadvantages; if your business fails, you will have to pay for that failure out of your own pocket, and the creditors can take advantage of your personal wealth even outside Italy in your own country, although this usually happens only for important debts. This is the main reason why many entrepreneurs prefer a limited company. The other disadvantage is the prestige. A limited company sounds more official and in general more respected. However, because a limited company has limited liability while the sole trader has not, it’s sometimes easier for a newly incorporated sole trader to find an office or get a loan. The landlord or the bank knows that – if the business goes bad – they can still tackle the personal wealth of the owner, so they are more open to take the risk. A sole trading company is incorporated directly at the Chamber of Commerce and doesn’t require a notary public, who is mandatory instead to open an Italian limited company (S.R.L.) and an Italian joint stock company (S.P.A.). Thus the company formation is extremely cheaper. Because a sole trader is deeply connected to the (sole) owner, the business usually ceases on the owner’s retirement or death. Before that, it can be dissolved with an application at the Chamber of Commerce. Starting small by sole trading is a way to test a market – many companies are born this way. If this is your case, and you plan to grow later, can you upgrade your sole trader company in a real limited company later? The answer is “yes and no”. The answer is (in part) no, because you can’t simply upgrade your company. A Limited company requires a different procedure and in Italy the company formation should be done in front of a notary public. However you can achieve the same result dissolving the sole trader and moving all the asset to the new company, including the name, the logo and equipments. If your timing is correct, you will dissolve the sole trader, setup a new limited company and move the asset in the same very moment, like if the company has been upgraded. Be careful because there can be some tax involved. In fact, moving the asset from a company to another can be taxed as a sale. How to choose the name of your Italian sole trader company? The name of a sole trader should be the sum of two elements: a fantasy name chosen by the owner at the end of the chosen name, the name of the owner himself. Before choosing the name of a famous company – and be sued by them – read the post How to Choose the Name of a Company in Italy. The name of the owner should be always shown in business card, letterhead and any other commercial document, or the company can be fined. The reason is simple. If a sole trader company fail, the owner has to pay all the debts from his own pocket. He can’t just go bankrupt, in fact there is no limited liability. The law requires to show to your clients and providers who’s the person behind the company. This is the reason why so many of our clients prefer to setup a more expensive Italian Limited Company (S.R.L.) and get a limited liability. So what’s the best choice, a sole trader or a limited liability? Our bigger clients have no doubt, they enter in the Italian market with all the firepower of a limited company (S.R.L.) and the bravest of them start from the beginning with a bigger and more prestigious Italian joint stock company (S.P.A.). But what about the smaller entrepreneur, that want to test the market? Sole trader vs Limited company is one of the most asked question of my smaller clients, and – like any other common question – has no common answer. Personally I would suggest a limited liability company all the time. I like to separate the business from my personal life and sleep well at night. If the business is not so good as expected, you can dissolve the company and lose just a few thousands euros. However, a limited company can be very expensive (for a small business) to open and to dissolve. So you can go for the Sole trader if you can live with the idea that creditors can tackle your personal wealth, or if you have a business model that don’t allow loss, for instance you ship the goods only after you are paid (but be careful, because perfect business model are never so perfect as we think). Whatever is your choice, do it. Italy is a bureaucratic nightmare, but it’s also one of the richest and most populated country of the European Union, definitively a market where any foreigner can make a profit