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Last partial update, March 2008
Taxation of an individual's income in Italy is progressive. In other words, the higher the income, the higher the rate of tax payable. In 2008 the tax rate for an individual is between 23%-43%, In addition to direct taxation (IRPEF), there is also a regional tax of 0.9%-1.4% and a municipal tax of 0.1%-0.8%.
There are reduced rates of tax and tax exemptions available to certain income earners.
The standard rate of Italy corporate tax (ires) in 2008 is 27.5%%. In addition, local tax (IRAP) is imposed at a rate of 3.9% , bringing the effective tax rate to 31.4%.
Income Tax for an Individual
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An individual is liable for tax on his income as an employee and on income as a self-employed person. Tax will be payable on income earned in Italy and overseas by an individual who meets the test of a "permanent resident" of Italy. A foreign resident who is employed in Italy pays tax only on income earned in Italy.
One of two tests must be passed to be considered an Italian resident: a life centered in Italy, or being registered in the Population Registry as living more than 183 days a year in Italy. It is important to point out as regards taxable income from outside Italy, that a "tax credit" is granted for tax deducted outside Italy. In the case of income from a salary, the employer is obligated to deduct the amount of tax payable on a monthly basis. A self-employed person must prepay income tax that will be offset on filing an annual return. The advance payment is determined on the basis of the return made for the previous year. In the event of a new business, the advance will be calculated on the basis of estimates made by the owner of the business.
Certain payments are deductible from taxable income as detailed below.
Italy individual income tax rates 2008
| Tax (%) |
Tax Base (EUR) |
| 23% |
0 - 15,000 |
| 27% |
15,001-28,000 |
| 38% |
28,001-55,00 |
| 41% |
55,001-75,000 |
| 43% |
75,001 and over |
For individuals capital gains are generally added to the regular income.
- The rate of tax payable on capital gains from shareholding is 12.5% for non-qualifying shareholding of up to 20% in a company.
- For the purpose of calculating a capital gain, the gain is decreased in line with the rate of increase in inflation, from the date of purchase to the date of sale. In regard to capital gains in a corporation, identical relief is allowed at the rate of increase in the Index.
- Companies pay 27.5% tax on capital gains. In sale of participation, 95% is tax exempt, subject to certain conditions.
REPORTING DATES AND PAYMENT
The tax year in Italy ends on December 31st. Advance payments of tax are made on the following basis.
An Individual - An individual whose only income is from a salary is not obligated to file an annual tax return. His employer deducts tax from the employee and transfers the payment immediately to the tax authorities on a monthly basis.
A Self-Employed Individual is obliged to pay 100% of the tax forecast for a year, or an amount that is the equivalent of 98% of the tax paid in the previous year, whichever is the lower, The pre-payment is made in two installments. 40% of the total is paid by June 20th and the remaining 60% is paid on November 30. The date for filing an annual return for an individual is July 31.
Fines are imposed for arrears in filing an annual return at the rate of 120% - 240% of the tax, depending on the length of time that the return is in arrears.
A Limited Company - A limited company is obligated to submit Financial Statements within 30 days of the date of approval of the Statements.
Up until the date of approval of the Statements, the Company is obligated to pay the amount of tax due for the previous year as well as 40% of the advance on account of the tax forecast for the current year.
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DEDUCTION OF TAX AT SOURCE
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As regards employed persons, the employer is obligated to deduct tax at source from an employee and to make additional contributions to social security.
- An employed person - the employer's contribution is between 30% - 37% of the salary and the employee's contribution is usually 9% of the salary.
- A self-employed person - the rate of payment is between 10% - 13%, with an upper limit that changes from year to year.
- A foreign resident - if he is self-employed in Italy, the rate of payment is 13%.
Deductions must be made from the following payments to nonresidents according to this table:
| |
% |
| Dividend
| 27.5 (1.375% to EU and EEA residents) |
| Royalties |
22.5 |
| Interest |
12.5 / 27 |
| Director's Remuneration |
20 |
Comments:
Deduction at source in the case of a dividend, royalties and interest paid to foreign residents is subject to the Double Taxation Prevention Treaty.
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