How to take home 70% income tax-free

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Jul. 15, 2020, by Maheshwaran Jothi

Are you looking for relocation to Italy? Or have you recently moved to Italy for a better opportunity? Here is good news for you all. I am sure you all have heard the different versions of the horror story about Italy being a land with high-income tax. Well, so far this was true, but not anymore. At least for the expatriates who moved into Italy recently. If you are in the process of finalizing your move to Italy, then this is the time.

Why?

Because the Italian government has approved a law that helps you take home 70% to 90% of your income with ZERO tax. You read it right. Hard to believe? But you have to, it is the fact. Read on to know more information.
Disclaimer: All information provided in this article is based on researches, interviews, and discussions with fellow expatriates. So, please consult your tax consultants before making any decisions.

The New Income Tax Regime of Italy

Depending on your family status and the location where you move into Italy, the new Italian Income Tax law exempts from 70% to 90% of the income from being taxed.  Just like other European countries, Italy has also come up with this fantastic law to attract skilled people into the country.

Even though this Expat tax breaks regime was originally introduced by the Italian parliament in the year 2016, it was allowing only 50% of income to be tax-free. Now it is raised to a minimum of 70%.

Remember this is not only to the newly relocating expatriates. If you are one who relocated to Italy in the last 2 years, then you can also apply for this and get back the taxes you would have paid.

Who can avail of this benefit? So, who can really get the benefit of this new law?
1.    Any individual who has relocated and newly employed in Italy.
2.    The individual should NOT have resided in Italy in the past 2 years [Tax years, i.e after 1 Jan 2018].

If you full-fill the above two conditions, then you are eligible, and here are the benefits you may get.
1.    70% of your Gross salary is exempted from income tax in Italy
2.    Only 30% of your Gross salary is taxed in respective slabs
3.    The maximum tax rate for the individual will be 13%

Let us do simple math to understand this. Here are the regular Tax slabs for income earned in Italy.

Stylized 10-euro banknote

Taxable income bracket Total tax on income below bracket Tax rate on income in the bracket
From To EURO Percent
0 15000 0 23%
15001 28000 3450 27%
280001 55000 6960 38%
55001 75000 17220 41%
75001 Over 25420 43%

So, if you earn 55000 Euro per year, under regular taxation you would end up paying up to 17000 Euro as tax. You take home, max of 38000 Euro (less the social benefits and other deductions)

Now, if you are taxed as per the new law, you will end up taking 70% of 55000 Euro, which is 38000 Euro without any tax deducted. And the rest 17000 euros will be taxed which should be approximately 4000 euros. So, you get the 13000 euro after tax paid. Now, the total is 38000 + 13000 which is a whopping 51000 Euro. Isn't this amazing?

Moreover, this benefit is not just for a year or two. But, you can get this benefit for a maximum of 5 years. That is an amazing saving of 65000 Euros in 5 years.

Wait, it does not end there.

At the end of the 5th year, if you have a minor kid, then this can be extended for a further 5 year term. The only difference is, the 70% exemption will be reduced to a 50% exemption.

Hey, who cares., still, it is a big chunk of money. You practically pay tax only for 50% of your salary. Interesting isn't it?
How can I avail of the benefits? My sincere recommendation here is to approach your employer. For those who are are in the process of negotiation of your salary, let your employer know about this. And have them confirm to help you with this.
In case it is too late, or you already relocated in the past 2 years, do not worry. You can always get back what is yours by filing your tax returns or the famous 730. For this, you can approach a good tax consultant (commercialista) who can help you file and get your money back.

Normally, these tax consultants charge around 50-100 Euro depending on the complexities of the case.

How can I reduce the tax by another 20%

I can see you smiling all the way hearing the news of 70% tax exemption. Now, what if I tell you that you can further extend this to 90% tax exemption? True, but with a catch! You should be ready to relocate to the south of Italy like Abruzzo, Sicily, Puglia etc. Don't ask me what opportunities we have in there in terms of work.

Finally, a word of caution: We all have seen how people cheat others in the name of promises. I do not want to generalize but at the same time, be informed. As far as possible, try to work with your employer to get this sorted out.
If you could not find much help from your employer, get in touch with the CAF or ACLI offices in the city. They will surely help you with good information.

Alternatively, you can also fix an appointment directly with the Agenzia Entrate and get all your queries answered.
I am sure it would be a bit challenging if you do not know the Italian language. But look at the brighter side. The amount of money you can save if you can get this done right is not small. So, this will be a good motivation to get your Italian proficiency in place as well.

Don't you agree?
Happy Earning.

Author's blog: http://travel.mjothi.com