Italy

Taxable income is generally subject to progressive tax rates. The Italian tax system provides for the following six categories of income:

• employment income;
• business income;
• self-employment income;
• real estate income;
• investment income;
• capital gains.

Gross taxable income is determined by the sum of the taxable income of the above categories subject to ordinary taxation.

Some types of income, such as interest, dividends, and capital gains, may be subject to a flat tax rate, provided that the conditions established by Italian tax law are met.

Employment income

Employment gross taxable income includes all compensation, whether cash or benefits in kind, received by the employee in relation to the employment relationship, including:

• salaries;
• bonuses;
• stock options;
• loans;
• overseas adjustments;
• cost of living allowances;
• tax reimbursements;
• car allowances;
• fringe benefits and similar items.

New tax regime for inbound workers

Individuals who transfer their tax residency to Italy starting from tax period 2024 may benefit from a reduction of 50% of employment income and assimilated income, as well as self-employment income, produced in Italy.

Under the current regime, income produced in Italy by qualifying individuals does not contribute to taxable income up to 50% of its amount, within an annual limit of EUR 600,000.

The regime applies from the year in which Italian tax residence is acquired and for the following four years.

The regime is subject to the following conditions:

• the worker undertakes to reside for tax purposes in Italy for at least four tax periods;
• the worker was not tax resident in Italy in the three tax periods preceding the transfer;
• the work activity is performed in Italy for the greater part of the tax period;
• the worker meets high qualification or specialisation requirements.

If the employee works in Italy for the same employer for which they worked abroad before the transfer, or for an employer belonging to the same group, longer foreign residence requirements apply.

The taxable income contribution is reduced to 40% if the worker moves to Italy with a minor child or in case of the birth of a child during the period of application of the regime, provided that the minor child remains resident in Italy.

The new regime applies to individuals transferring their tax residency to Italy from the 2024 tax period. Individuals who transferred their legal residency to Italy by 31 December 2023 continue to apply the previous inbound workers regime.

Employment activity performed abroad

For employment income derived from work activity performed outside Italy by an Italian tax resident individual, Italian tax law provides for a specific rule allowing taxation on notional remuneration, retribuzione convenzionale, provided that certain conditions are met.

This regime applies when:

• the employee is resident in Italy for tax purposes;
• the employment activity is rendered wholly and continuously abroad for more than 183 days in a 12-month period;
• the assignment abroad is regulated by a written agreement between the parties.

Employment income derived from work activity performed abroad by a non-tax resident individual is not subject to taxation in Italy.

Equity compensation

Income derived from the exercise of stock options is generally considered taxable employment income and subject to ordinary progressive income tax rates.

Such income is generally exempt from social security contributions according to the interpretation of the Italian Social Security Authorities.

Self-employment income

Self-employment income is subject to IRPEF.

Income derived from services rendered by self-employed individuals is calculated as the difference between fees collected and business expenses.

Documented expenses reimbursed for travel, board, and lodging incurred in rendering services outside the tax domicile may be excluded from taxable income.

Self-employment income may also be subject to VAT.

Non-residents who are self-employed are subject to a 30% final withholding tax unless otherwise provided by double tax treaties.

Real estate income

Real estate income is generally determined based on the cadastral value of the property or the rental income received, depending on the circumstances.

Income deriving from real estate owned outside Italy by a resident individual is taxable in Italy. If the foreign rental income is also taxed abroad, the taxpayer may be entitled to a foreign tax credit.

The lump sum tax regime for new resident individuals may substitute income tax on foreign rental income deriving from real estate owned outside Italy, provided the individual opted for that regime.

Principal abode

The taxable income deriving from the ownership of a principal abode is generally calculated based on its cadastral value, where applicable.

For IMU purposes, special rules apply to the principal abode. IMU is generally not due on the principal abode, except for certain luxury properties.

Real estate at disposal and rented properties

Real estate income from properties at the owner’s disposal or rented properties is generally determined based on cadastral income or rental income, depending on the relevant rules and circumstances.

Rental income may be subject to ordinary taxation or, where applicable, to the substitute tax regime known as cedolare secca.

Foreign real estate

Real estate located outside Italy and owned by an Italian tax resident individual is generally relevant for Italian tax purposes.

Income from foreign real estate may be taxable in Italy, and the property may also be subject to IVIE, unless an exemption or special regime applies.

Investment income

Investment income generally includes income arising from the use of capital, such as interest and dividends.

Foreign investment income received by Italian tax resident individuals is generally taxable in Italy, unless a special regime applies.

The lump sum tax regime for new resident individuals may substitute income tax on foreign interest and dividends, provided the individual opted for that regime.

Capital gains

Capital gains may be subject to ordinary progressive income tax rates or to separate taxation, depending on the nature of the asset and the circumstances.

Capital gains on financial assets are generally subject to a 26% substitute tax.

Capital gains and income deriving from crypto-assets are subject to a 33% rate from FY 2026. The 26% rate remains applicable to stable coins denominated in euros.

Capital gains on real estate may be subject to progressive tax rates or to a 26% substitute tax under certain conditions.

Exemptions may apply, including for:

• sale of real estate owned for more than five years;
• sale of real estate used as the taxpayer’s principal abode for most of the ownership period.

Additional tax on variable compensation in the financial sector

Variable compensation, such as bonuses, stock options, or incentive plans, paid to executives or managers in the financial sector, is subject to an additional tax of 10%, provided that the applicable legal conditions are met.

Flat tax on productivity bonus

Italian tax law provides for a favorable tax regime for certain productivity bonuses, where the relevant legal conditions are met.

The Budget Law for FY 2026 provides for a reduction of the tax rate for productivity bonuses. The measure is valid for FY 2026 and FY 2027.

Exempt income

Examples of income exempt from IRPEF include:

• war pensions;
• pensions and allowances paid to legally blind, deaf-mute, and disabled individuals;
• social pensions;
• certain compensation paid by INAIL for permanent disability or death.