Managing Taxes In Italy As An Expat

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Sep 30 2020
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Italy is home to more than 5 million expats. For many of them the priority is to send international money transfer to support their families back in their home countries. A clear understanding of the prevailing tax regime can help maximize remittances. Here are some general ideas that can help cut through some of the confusion regarding Italian taxation laws and help migrant workers save taxes while ensuring compliance.


Italy’s basic tax structure

Italy’s personal income tax regime consists of 3 types of taxes – national, regional, and municipal. Expatriate professionals living in Italy for more than 183 days of the year are liable to pay all 3. Foreigners who have been in Italy for less than 183 days only pay taxes on what they earn in the country.


Nonresident employees with no sources of income other than formal employment need not file tax returns. This is because under Italian law the employers withhold taxes at the source. June 30 is the last date to clear all tax-related dues with The Italian Revenue Agency. This office also allows the clearing of dues in the month of July with a late filing surcharge of 0.4% on the payable tax.


National, regional, and municipal taxes

Italy’s National Income Tax takes into account a person’s entire income earned in Italy. This includes income from business, capital gains, pensions, employment, and freelancing. Anyone who earns an income of EUR 15,000 or more annually must pay tax. The National Income Tax rate is progressive, and increases with one’s income. Currently it ranges between 23% and 43%.


Depending on their region of residence in Italy migrant workers must pay Regional Income Tax. This can range from 1.23%-3.33% of the taxable income. In addition there is also the Municipal Income Tax, which is based on the municipality of residence. It ranges from 0%-0.8%. The tax rates are occasionally updated. The newest information is available on the Italian Government’s Fiscal Information website.


Other taxes

Expats in Italy do buy and sell real estate, stocks, and various investment instruments. These transactions attract a capital gains tax at 26% of any profits generated. Foreign nationals also have to pay a remittance tax of 1.5% to the government on every transaction, whenever they transfer money to any country outside the European Union. This applies to remittances sent via popular services such as the Ria Money Transfer App.

Italy Financial Management

Double taxation

A nonresident citizen may have to pay taxes in both his host country and home country. There are certain provisions in Italian law to avoid the unreasonable burden of double taxation. Italy has bilateral agreements with several countries to prevent this. The list currently has 90 countries on it, including the US, India, and the Philippines. Migrants can easily check the availability of a double taxation treaty between Italy and their home countries by visiting the Italian government’s official finance portal.


To apply for a tax exemption under a double taxation treaty a foreign national must apply with the necessary information to the Italian Revenue Agency. Double taxation no longer applies after an expat acquires full Italian citizenship.


Relocation incentives

In May 2019 Italy passed a bill widening the scope of its special tax regime for expats. Prior to this the law extended tax exemptions only to professionals and executives, and capped the exemption rate at 50%. A new amendment has increased the exemption rate to 70%. It also makes all foreign employees and workers eligible for tax exemptions for the first five years after relocating to Italy. Migrant workers who have been living in Italy for two years and commit to living there for at least two more years can also apply for exemptions.


Expats can further minimize their tax burden to just 10% of their taxable income for the first five years. This would mean 90% of their income will be untaxed. To enjoy this benefit they must transfer their residence to Southern Italy, Sicilia, or Sardinia.


Other tax breaks and deductions

The Italian Revenue Agency provides many provisions for minimizing taxes. Expats working in junior positions and earning less than EUR 8,000 per year are not liable to pay any income tax.


Having dependent family members also makes one eligible for tax breaks. Expats living with dependent spouses can ask for a tax deduction of EUR 800 every year. As the income of the dependent spouse increases these deductions progressively decline to zero.


Expats with children also get tax breaks. The basic deduction starts at EUR 950 per child annually. This can increase or decrease depending on the number of children and the total household income.


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