Italy

The Italian tax law allows for certain expenses to be deducted from a taxpayer’s gross income, while tax credits can be used as an offset against a taxpayer’s tax liability.

Employment expenses

With reference to employment income, Italy has adopted a system of tax credits (see Employment tax credits under the Other tax credits and incentives section for more information), unlike other countries that permit an employment expenses deduction in determining taxable income.

Provided that the conditions requested by law are met, the main deductions from employment taxable income are the following:

• Employee’s mandatory social security contributions are fully deductible.
• Contributions paid to the specific complementary pension funds are deductible, up to EUR 5,164.57.

Personal deductions

Provided that the conditions requested by law are met, the main deductions from gross taxable income, if they have not been deducted from each kind of income, are the following, if properly documented:

• Employee’s mandatory social security contributions are fully deductible (see Employment expenses above).
• Social security contributions paid for domestic employees: up to EUR 1,549.37.
• Medical expenses for disabled individuals are fully deductible.
• Contributions paid to the specific complementary pension funds are deductible, up to EUR 5,164.57 (see Employment expenses above).
• Voluntary social security contributions paid to the mandatory pension scheme.

Alimony payments to a separate spouse

Individuals can fully deduct from taxable income the alimony paid to a separate or divorced spouse resulting from a court judgement.

Note that only the portion that is related to the separate spouse is deductible, while the portion attributable to maintenance of children is not deductible.

Charitable contributions

Contributions to certain religious entities can be deductible from the taxable income up to EUR 1,032.91 (per taxpayer).

Personal exemptions

Unlike other countries that permit personal exemptions and allowances in determining taxable income, Italy has adopted a system of tax credits (see Family tax credits under the Other tax credits and incentives section for more information).

Business deductions

Unlike other countries that permit business deductions in determining taxable income, Italy has adopted a system of tax credits (see Employment tax credits under the Other tax credits and incentives section for more information).

Losses

For personal income taxation purposes, offset of losses against income is allowed for capital gains/losses on income items of the same nature.

It is possible to offset the gain/loss from sale of shares regardless of the issuer of the shares, whether the shares are quoted or not. The loss of quoted shares can be offset against the gain from the sale of unquoted shares.

It is not possible to offset the gain/loss of ‘qualified’ and ‘not qualified’ participation.