Italy

The main income tax levied on individuals is the personal income tax (PIT), also known as the Imposta sui redditi delle persone fisiche (IRPEF).

In Italy, the individual is subject to the following income taxes:

• National income tax.
• Regional income tax.
• Municipal income tax.

The tax liability shall be computed on a progressive rate, and the applicable tax rates are shown below (see National income tax).

The scope of taxation in Italy

The tax status of an individual is the starting point for applying the correct taxation in Italy. According to the Italian tax law, both Italian residents and non-resident individuals are subject to taxation in Italy, but on a different basis.

Tax resident individuals

Tax resident individuals are liable to the Italian personal (or national) income taxes on their income wherever produced (under the so called ‘worldwide principle’). Therefore, tax residents are also subject to taxation on foreign incomes (e.g. deriving from real estate owned outside of Italy, foreign dividends and interest, foreign compensation and director’s fees, and other foreign income).

Tax resident individuals are also subject to 'wealth tax' on real estate and on financial investments owned outside of Italy (see the Other taxes section for more information).

Tax resident individuals are required to declare all their foreign investments (financial and not) for monitoring purposes through the Italian tax return.

Tax regime for neo-domiciled individuals

Individuals who transfer their tax residency (see the Residence section for more information) from abroad to Italy may elect for the application of a flat tax, at a fixed amount of 100,000 euros (EUR) (hereinafter the ‘neo-domiciled tax regime’) on the foreign sourced incomes.

Due to changes occurred by the entering in force of the Article 2 of the Law Decree No 113 of 2024, for the individual who opt for the neo-domiciled tax regime from 2025 tax period, the flat tax amounts to 200,000 euros (EUR). The individuals who opted for the regime from 2024 tax period can continue to pay the fixed amount of euros 100,000 (EUR) up to the end of the application of the regime regardless of the new provisions.

The mentioned tax regime will also apply on:

• the income tax on foreign investments (foreign interests, dividends, and capital gains) with the exception of capital gains on qualified participation earned in the first five years
• the wealth tax on real estate and financial investments owned out of Italy, and
• financial monitoring obligations through the Italian tax return (meaning that the individual is not required to declare one's foreign investments into the Italian tax return).

In addition to the taxpayer, each family member could be subject to a flat tax on non-Italian sourced income at a fixed amount of EUR 25,000.

In order to be eligible for this tax regime it is necessary to carry out the option through the annual Italian tax return. In any case, it is advisable to submit an advance ruling to the Italian tax authorities in order to obtain their formal opinion on the applicability of the special regime.

To elect such treatment, the individual must meet several requirements, including previous non-Italian tax residency for at least nine years over ten fiscal years preceding the transfer.

The mentioned tax regime is not cumulative with the special tax regime for inbound workers (see New tax regime for inbound workers in the Income determination section).

Flat tax regime for non- Italian retirees

The special regime provides for a flat tax rate of 7% on the non-Italian sourced pensions and incomes.

The ordinary length of the regime is 10 years starting from the year in which an individual become Italian tax resident. The regime applies to pension income but also to employment or self employment income, business income, capital income, rental income.

An individual is allowed to apply for the 7% flat tax regime if the following conditions are meet:

• The individual has not been resident of Italy for tax purposes for at least 5 tax periods before the option for the application of the 7% flat tax regime become effective (i.e. tax period in which the transfer of tax residence occurs)
• The individual is holder of a foreign pension income
• The individual transfers s the tax residence to Italy, pursuant to the art. 2 of the Italian tax code (DPR 917/1986) in one of the municipalities belonging to the territory of «southern Italy», with a population of less than 20,000 inhabitants, located in the following Regions: Sicily, Calabria, Sardinia, Campania, Basilicata, Abruzzo, Molise and Puglia
• The transfer of residence occurs from countries with which are in force administrative cooperation's agreements.

In addition, according to the law provisions, annuities and lump sum pension payment fall into the application of the 7% flat tax regime with exclusion of those deriving from unit linked policies, integrative foreign pension fund, annuities linked to life insurance policies and aimed at covering the risk of permanent disability.

The option for the 7% flat tax regime is exercised through the filing ot the annual income tax return linked to the tax year in which the tax residence is transferred to Italy. This option is valid from that tax period and for the first nine subsequent tax periods. Specifically, the individuals need to indicate, in a dedicated section of the Italian tax return, the country or countries in which he/she was the tax residence before to exercise for the above mentioned option.

It ia also possible to exclude one or some jurisdictions from the application of the 7% flat tax regime.

With the Resolution no. 21/E of 2024 the Italian tax Authority clarified that for the application of 7% flat tax regime, in compliance with the other requirements provided by the law, it is sufficient the registration with the record of Italian resident population (i.e. Anagrafe)

Non-tax resident individuals

Tax non-resident individuals are subject to PIT (IRPEF) only on ‘income produced’ in Italy (i.e. employment income related to the work activity performed in Italy). Therefore, the foreign incomes are not relevant to the purposes of taxation in Italy.

National income tax

National income tax for FY 2025 is levied at progressive tax rate on all income reported below.

Additional tax on variable compensation in the financial sector

Variable compensation (e.g. bonus/stock option/incentive plan) paid to an executive/manager in the financial sector (i.e. banks, financial institutions, and other companies whose business is exclusively or primarily to acquire ‘holdings’; management companies, Società di Gestione del Risparmio [SGR] and Società di Intermediazione mobiliare [SIM]; financial intermediaries) is subject to an additional tax of 10% as described below.

With the Sentence no 16257/2023 the Italian Supreme Court further extended the subjective scope of application of the rule, also including companies that provide consultancy and compliance services in corporate and financial matters to companies.

In case the variable compensation is paid before 17 July 2011, the taxable base for the additional tax of 10% is the variable compensation (FY ‘n’) less three times the base salary (FY ‘n’).

In case the variable compensation is paid after 17 July 2011, the taxable base for the additional tax of 10% is the variable compensation (FY ‘n’) less the base salary (FY ‘n’)

In both cases, the comparison between variable/base compensation has to be applied between variable and base compensation in the same fiscal year (independently from the year of payment).

Flat tax on 'productivity' bonus

Productivity bonus consists of a variable remuneration paid to an employee in light of the improvement of the quality of production and/or of the company’s productivity, as long as it is applied for the whole eligible workforce (or homogeneous category of them) grounded on objective, fair, predetermined and materially valuable performing criteria, generally named ‘KPIs’ (e.g. savings related to electricity, growth of revenue, profits increase, decrease of the production waste; improvement of the delivery time; implementation of the smart working scheme).

The productivity bonus cannot exceed EUR 3,000 per year.

Such bonus is subject to a flat taxation equal to 10% as PIT, regional, and municipal withholding, but it is not exempt from social security withholding borne by the employer and employee. The Budget Law for FY 2025 has reduced, confirming what was already provided with the Budget Law for FY 2024, the applicable tax rate to 5%. This provision is valid up to the tax period 2027.

With regard to eligibility, employees who have received an annual gross retribution during the previous year (including variable compensation scheme potentially provided) exceeding EUR 80,000 are not entitled to benefit from the aforesaid tax discount.

In order to allow for the application of the aforementioned measures, the employer shall mandatory sign a collective agreement with unions/work councils. In case of lack of unions/work councils, it is possible to apply a territorial collective agreement (if existing) signed by the most representative unions (if any) in the territory of reference.

Regional income tax

Regional income tax depends on the region of residence. The regional income tax rate ranges from 1.23% to 3.33%.

Municipal income tax

Municipal income tax depends on the municipality of residence. The municipal income tax rate ranges from 0% to 0.9%. Municipalities can establish progressive tax rates applicable to the national income bracket.