The Italian income tax is called IRPEF “Imposta sul Reddito delle Persone Fisiche”, and it is based on progressive tax rates. Each region and municipality can add a surcharge based on the same income as IRPEF. Each Region and Municipality has different rates.
The national IRPEF is based on brackets ranging from 23% up 43%, the tax applied remains the same within the bracket, whilst it changes for any income above that.
The Italian tax year runs from January 1st to December 31st.
Only Italian residents are obliged to pay Italian income tax. Article 2 of the Italian Tax Code provides that an individual is resident in Italy if:
“for the greater part of the tax period, he or she is registered with the register of the resident population (anagrafe) or has their domicile or residence, as defined in the Civil Code, in the territory of the Italian state“.
This means that you are tax resident in Italy if, for the greater part of any tax year (more than 183 days or 184 for leap years), you are:
– registered in register of the resident population maintained by the local comune; or
– have your domicilio (centre of vital interests); or
– have your habitual place of abode;
in Italy.
| Lower limit | Upper limit | Tax bracket |
| € 0 | € 15,000 | 23% |
| € 15,000 | € 28,000 | 25% |
| € 28,000 | € 50,000 | 35% |
| € 50,000 | 43% |
Note that the Italian tax system allows for a great variety of tax deductible items which can either reduce your taxable income, thus being subtracted from the income subject to taxation, or they can reduce the gross income tax payable.
It is therefore crucial to master Italian deductible items to make taxes more affordable.
If you also pay tax overseas, you can claim that against the Italian tax liability applying thus the foreign tax credit. This of course has to be determined by the Double Tax Treaty between Italy and the foreign country (if existing).
In this way you can further reduce (potentially to 0) your tax exposure to Italy.
Substitute taxes
Italy has introduced various substitute taxes applicable to certain income categories. The principle of the substitute tax is that it provides a lower and flat tax rate for certain income sources such as: self-employment, financial income, rental income.
These types of taxes are easier to manage and to forecast the tax expenditure as they stay flat, however they don’t allow for any tax deductible items nor foreign tax credit.
Sometimes you can opt for the substitute taxes, sometimes it is the only option available.
