Social security contributions
The social security contribution mainly depends on the relationship between the individual and the company:
Employment relationship (staff)
Social security contributions are made by both the employee and the employer.
The Italian employer, in order to pay social security contributions for employees, must register with the Italian Social Security Administration (Instituto Nazionale Previdenza Sociale or INPS).
The total social security rate is around 40% of the employee's gross compensation (the rate depends on the work-activity performed by the company, the number of employees of the company, the employee's position), and is shared as follows:
- Employer's charge is around 30%.
- Employee's charge is around 10%.
In general, only 33% of the total rate is paid into the National Pension Fund, the remainder is paid to the following Social Security funds:
- Unemployment fund
- Sickness fund (not applicable for executives)
- Maternity fund.
- Temporary unemployment compensation fund (ordinary and extraordinary, not applicable to executives)
- Social mobility fund (not applicable to executives)
- Other minor funds.
The social security contribution, for employees who registered with INPS after 1 January 1996 without a previous social security position in Italy, is calculated and paid up to a maximum amount of EUR 102,543 for the year 2019.
Employment relationship (executive)
Social security contributions due from executives (i.e. dirigenti) for the year are described below.
A commercial executive is required to make the following contributions:
- INPS (national mandatory pension fund): 9.19% on the income up to a ceiling of EUR 46,630 of income and 10.19% on the excess above the maximum amount.
- Fondo Mario Negri (complementary pension fund): 1% is due on a notional annual remuneration of EUR 59,224.54; and EUR 129.12 per annum as professional training charges.
- Fondo Mario Besusso or FASDAC (medical care fund): 1.87% is due on a notional annual remuneration of EUR 45,940.
- Fondo Pastore (supplementary pension fund): Entity consists of a combination of insurance and investment (not compulsory) and is required to contribute EUR 464.81 per annum.
An industrial executive is required to make the following contributions:
- INPS: 9.19% on income up to a ceiling of EUR 46,630 of income and 10.19% on the excess above the maximum amount.
- Fondo Assistenza Sanitaria Industria or FASI (medical care fund): A flat contribution of EUR 960.
- Fondo Previdenza Dirienti Aziende industriali or PREVINDAI (additional pension fund): 4%, up to a maximum annual income of EUR 150,000.
Self-employed individuals who are not value-added tax (VAT) number holders and are not covered by a mandatory private pension fund must be registered with INPS in a ‘separate social security regime’ (Gestione Separata Inps), instituted with Law n. 335/95.
The separate social security regime provides for three different rates:
- Individuals enrolled in other mandatory contribution regimes: Rate is equal to 24%.
- Individuals with a VAT number enrolled in the exclusive way into the separate social security regime (Gestione separata INPS): Rate is equal to 25.72%.
- All others individuals enrolled in the exclusive way into the separate social security regime (Gestione separata INPS):
- For who is provided DIS-COLL additional contribution: Rate is equal to 34.23%.
- For who is not provided DIS-COLL additional contribution: Rate is equal to 33.72%.
All the percentages are applied up to the limit established by the law for the year 2019 equal to EUR 102,543.
The percentages due by the self-employed individuals without VAT are:
- two-thirds on charge of the company, and
- one-third on charge of the collaborators.
The payment of the contribution is effected wholly by the company.
For self-employed individuals who are VAT number holders, and who are not covered by a mandatory private pension fund, the percentage is wholly charged to the individuals, and the payment of the contributions follows the same deadline applied for taxes. Individuals, in this case, can charge an amount equal to 4% of the compensation to the company.
Generally, collaborators and directors (unless an exemption applies) also have to be enrolled in a ‘separate social security regime’ with INPS.
The social security regime is the same as discussed under the self-employment relationship above for individuals who are not VAT number holders.
Value-added tax (VAT)
Italian VAT (Imposta sul valore aggiunto) applies to the supply of goods and services carried out in Italy by entrepreneurs, professionals, or artists and on importations carried out by anyone. Intra-community acquisitions are also subject to VAT taxation under certain situations.
The Italian standard VAT rate is 22% as of October 2013. Reduced rates are provided for specifically listed supplies of goods and services, such as 4% for listed food, drinks, and agricultural products, and 10% for electric power supplies for listed uses and listed drugs. Intra-community supplies and exports are exempt from VAT.
Specific supplies of goods and services expressly listed in the law are exempt from VAT (e.g. public postal services, hospital and medical care, education, insurance services, specific financial services, supply, leasing of particular immovable property). Other specifically listed transactions are also out of the VAT application scope (e.g. transfers of money, transfers of business parts).
In the case of a taxable person (VAT number holders), input VAT on purchases of goods and services related to business activity generally is allowed for recovery. Special limitations apply in relation to specific items (e.g. cars, entertainment expenses).
The filing deadline for VAT returns is 30 April of the next year.
Wealth tax on real estate properties owned outside of Italy
The Italian wealth tax on real estate properties (Imposta sul valore degli immobile situati all’estero or IVIE) owned outside of Italy by an individual who qualifies as a resident for Italian tax purposes has been introduced in Italy.
The wealth tax due is proportionate to the percentage owned and the size of the property.
The IVIE applies on the value of the real estate (i.e. the purchase cost of the real estate property resulting from the purchase act or the market value in force where the real estate is located).
For real estate owned in a European Union (EU) member state and in a country which is a member of the European Economic Area (EEA) that has an exchange of information agreement with Italy, the wealth tax is based on the cadastral value in force in the foreign country. In instances where there is a lack of cadastral value, the wealth tax is based on the purchase cost of the property resulting or the market value in force where the real estate is located.
The applicable tax rate is equal to 0.76%.
No IVIE is due if the tax is lower than EUR 200; otherwise, the entire IVIE amount is due.
If the real estate properties are subject to a foreign wealth or income tax, the individual can deduct said amount paid from the tax due in the Italian tax return.
The mentioned wealth taxes will be determined when the Italian tax return is filed.
See the tax regime for neo-domiciled individuals in the Taxes on personal income section, which substitutes the wealth tax on real estate owned out of Italy, provided the individual opted for it.
Wealth tax on financial investments owned outside of Italy
The Italian wealth tax on financial investments (Imposta sul valore delle Attivita` Finanziarie detenute all` Estero or IVAFE) owned outside of Italy by an individual who qualifies as a resident for Italian tax purposes has been introduced in Italy.
The wealth tax due is proportionate to the percentage owned and the size of the property.
The taxable base is the value of the financial investments as of 31 December or the end of the holding period. The applicable tax rate is equal to 0.2% for FY 2018.
Only for bank accounts, the above-mentioned tax is a flat amount equal to EUR 34.20 for each bank account. This flat amount is not due if the average saving amount is lower than EUR 5,000, taking into consideration all the bank accounts owned by the taxpayer.
If the financial investments are subject to a foreign wealth tax, the individual can deduct such amount from the Italian wealth tax.
The wealth tax will be determined when the Italian tax return is filed.
See the tax regime for neo-domiciled individuals in the Taxes on personal income section, which substitutes the wealth tax on financial investments owned out of Italy, provided the individual opted for it.
Inheritance, estate, and gift taxes
A tax on inheritance and donations was reintroduced in October 2006 after a five year period during which this tax was abolished. The percentage and exemption limits applicable to transfers of money or assets depend on the beneficiary’s relation with the deceased person or donor.
In summary, in case of transfers made in favour of:
- the spouse or relatives in a direct line, the inheritance or donations tax will be imposed at 4% on the value of the assets exceeding the tax-free threshold of EUR 1 million (per heir)
- a sister and brother, the inheritance or donations tax will be imposed at 6% on the value of the transfer exceeding EUR 100,000 (per heir)
- other family members up to the fourth generation, the inheritance or donations tax will be imposed at a 6% tax rate on the entire value of the transfer, and
- all other beneficiaries not previously mentioned will be subject to an 8% tax rate to be applied on the entire value of the transfer.
Specific provisions apply to a handicapped person.
Luxury and excise taxes
The following goods are subject to excise duties:
- Energy products (e.g. petrol, gas oil, natural gas, coal).
- Alcohol and alcoholic drinks (e.g. wine, beer, ethylic alcohol).
- Processed tobaccos (e.g. cigars, cigarettes, tobacco).
- Electric power.
Excise duties imposed on a product must be verified on the basis of its customs combined nomenclature code.
The tax liability, depending on the products, arises:
- at the moment of importation or production (and the excise duties must be paid at the moment in which they are released for consumption in Italy)
- when the excisable goods are used for heating or as fuel, and
- when the excisable goods are released for consumption or used for own use.
The Italian legislation provides for many exemptions with regards to the use of excise goods.
Furthermore, under certain circumstances, a tax refund is granted to the operator who released the excise goods for consumption, if, afterwards, the products are not consumed in Italy.
Regional tax on productivity
The regional tax on productivity (IRAP) is applied at a flat rate up to 3.9%. This flat rate is applicable to the productive activity exercised. The taxable base is the difference between the compensation received and the direct business expenses, excluding any cost of personnel and interest.
The liable taxpayers are mostly self-employed individuals with a structured organisation and non-resident taxpayers exercising business activity in Italy throughout either a permanent establishment (PE) or a partnership. However, as per the recent Judge decision, IRAP is not due for a self-employed individual without a structured organisation.
An expatriate working in Italy will not be subject to IRAP due to the fact that, generally, the expatriate is an individual with an employment relationship.
Financial investments owned in Italy by an individual are subject to the Italian wealth tax.
The taxable base is the value of the financial investments at 31 December. The applicable tax rate is equal to 0.2% for FY 2018.
This tax is withheld directly by the bank.
In addition, bank statements are subject to a fixed amount equal to:
- EUR 34.20 if the client is an individual with a balance lower than EUR 5,000.
- EUR 100 if the client is not an individual.
Municipal taxes on real estate owned in Italy
The Italian Financial Bill for FY 2014 has introduced relevant changes to the municipal tax on real estate owned in Italy. Indeed, the tax law has introduced a 'unique municipal tax' (Imposta municipale unica or IUC).
IUC is composed of three different taxes:
- Municipal tax (Imposta municipale propria or IMU).
- Garbage tax (Imposta sui rifiuti or TARI).
- Indivisible service tax (Imposta sui servizi indivisibili or TASI).
As of FY 2012, IMU is in force in Italy.
The relevant change approved by the 2016 Italian Financial Bill is that, as of FY 2015, a principal abode is no longer subject to TASI.
In order to determine the taxable income of the IMU, it requires a re-evaluation of the cadastral value of 5%; this amount is then multiplied for the coefficient (it depends on the kind of real estate and generally is 160).
Specific tax rates provided from the municipality must be applied to the taxable base.
The basic rate for a principal abode is equal to 0.4%; the municipality may increase or decrease the basic rate to 0.2%.
The basic rate for other real estate is equal to 0.76%, and the municipality may increase or decrease the basic rate to 0.3%.
The basic tax credit equal to EUR 200 and the children tax credit for a maximum amount of EUR 400 are recognised to the taxpayer.
Proration is based on the percentage and the time of possession.
In addition, the IMU has replaced the national income tax (IRPEF) on income deriving from real estate not located in Italy. Therefore, starting in FY 2012, real estate at disposal is not subject to IRPEF, while real estate located in Italy must be reported in the tax return.
TARI can be determined on the basis of the medium quantity and quality of waste produced or by productivity coefficients.
TASI is determined in a similar way of IMU. The total rate of TASI and IMU cannot exceed the maximum rate of IMU.