Italy Tax Deductions 2025

Deductions for Resident Foreign Investors (Individuals):

• Social Security Contributions: Mandatory social security contributions paid by the taxpayer are deductible from their taxable income.
  Voluntary contributions, even if paid abroad under legal requirements, are deductible up to a certain annual limit (€5,164.57 as of current information, subject to potential updates for 2025).  
• Dependents: Taxpayers can claim deductions for dependent family members, with the amount depending on the relationship and the dependent's income.  
• Medical Expenses: A deduction of 19% is allowed for qualifying medical expenses exceeding a certain threshold.  
• Mortgage Interest: Interest paid on mortgages for the primary residence is deductible up to a specified limit.  
• Education Expenses: Certain education expenses, such as university fees, may be deductible within specific limits.  
• Home Renovation Expenses: Tax credits (which reduce the tax due directly) are available for specific home renovation expenses aimed at energy efficiency or seismic safety.
  These are typically spread over several years.  
• Donations: Donations to recognized charitable organizations are deductible within certain limits.  
• Supplementary Pension Contributions: Contributions to supplementary pension schemes are deductible up to a certain annual limit.  
• Job-Related Expenses: While generally limited, some job-related expenses may be deductible if properly documented.

Deductions for Non-Resident Foreign Investors (Individuals):

• Non-resident individuals are generally taxed only on income sourced in Italy.
  Deductions directly related to the production of that Italian-source income may be allowable.  
• For example, if a non-resident earns employment income in Italy, they may be able to deduct certain directly related work expenses, although these are often limited.
• For rental income from Italian property, non-residents can typically deduct expenses directly related to the property, such as maintenance costs and property management fees.

Deductions for Foreign Investors (Companies/Permanent Establishments):

• Business Expenses: Italian resident companies and the Italian permanent establishments of non-resident companies can generally deduct business expenses that are necessary and directly related to their business activities. These include:
  • Salaries and Wages: Costs related to employees.
  • Rent: Expenses for business premises.
  • Utilities: Costs for electricity, water, gas, etc.
  • Depreciation: Deduction for the wear and tear of business assets.
  • Interest Expenses: Subject to certain limitations based on tax regulations.
  • Bad Debts: Deductible under specific conditions.
  • R&D Expenses: Potentially eligible for the R&D tax credit (which is a credit, not a direct deduction from taxable income).    
• Tax Credit for Investments: Various tax credits are available for investments in tangible assets, Industry 4.0 technologies, and in Southern Italy, which directly reduce the amount of tax payable.  
• Allowance for Corporate Equity (ACE): This notional interest deduction is calculated on the increase in a company's net equity and aims to reduce the tax burden on companies that finance their growth through equity rather than debt.
• Patent Box Regime: This regime allows for a partial exemption from corporate income tax (IRES) and regional tax on productive activities (IRAP) for income derived from the use of qualifying intellectual property (e.g., patents, trademarks).  

Important Considerations:

• Documentation: All deductions must be properly documented to be eligible.
• Specific Rules and Limits: Many deductions have specific rules and limitations outlined in Italian tax law.
• Tax Treaties: Double taxation agreements between Italy and the investor's country of residence may affect the tax treatment and available deductions.