How was that saying about death and taxes? Well, Italy is no exception – even if an over proportional percentage of its citizens will go the extra mile (offshore and/or informal – undeclared) to avoid paying them where possible. A recent poll, 22,5% of Italians believe it is acceptable to fudege on taxes. If you consider the high tax rates here in Italy, it is almost understandable. There are a myriad of taxes in Italy, here we’ll focus on giving you an idea about the main ones – not with the purpose of being thorough to the last detail (that would require volumes) – but rather to allow you to see what are the main taxes you will deal with in Italy, and to get an indication of what your tax load would be. So take the information here only as a starting point – especially when new to Italy, you are well advised to consult tax professionals to ensure the proper management of your tax reporting and especially for minimizing your tax liability – both in Italy and in your home country
In Italy, it is the “commercialista” that prepares your returns and advises you on fiscal issues. As an alternative, you can have your tax return prepared for free at the government CAF (fiscal assistance center) – but which is more focused on simpler returns for people for whom commercialista fees are relatively significant proportion of their income. In addition, there is a large industry that caters to supporting expatriates with their tax management. Not necessarily a cheap option, but sometimes necessary – especially if you have a more complex return with investments, partnerships, trusts, etc. and have to deal with home country tax, tax equalization, and where your income is high enough that your tax burden can be significantly reduced through effective, well thought-out tax planning.
You will need to judge how much you need it, and when you can do without – I know that one US-based firm (one of the “names”) that did tax preparations for me when I first moved to Italy charges very high prices for relatively simple things – like calculating the ICI (property tax): 400 euros for something you could do in 15 minutes once the necessary information had been assembled (something they will expect you to do for them anyways)! To be fair, there are certainly complicated situations. But owning a house with a well established surface area, etc. is not one of those.
The bad guys out to get your tax money (at national level) are commonly referred to as the “Fisco”, or more formally, “Agenzia delle Entrate”. And there is even a special police force that is supposed to focus on tax evasion and the bad guys that cheat on taxes – the “Guardia di Finanza”. I know one small entrepreneur that had them in his offices for 3 months in each of 2 years in a row (yes, you read correctly!) – we hypothesize that he failed to meet some informal, unwritten requirement – but fortunately he had a very picky accounting manager, so at least on the formal level they satisfied all requirements and the tax boys had to leave with empty hands.
The main taxes in Italy are the IRPEF (personal income tax) – which is really three taxes, since you have to pay it at national, regional, and local (township) level; the TIA (garbage tax); ICI (property tax); IVA (value added tax); BOLLO AUTO (automobile tax – also due for motorcycles and scooters), CANONE RAI (TV tax); IRES (corporate income tax for stock “SpA” and limited liability “Srl” companies); and IRAP (business tax, which is levied based on how many people work in the company). And last but not least you have the social security tax. I reiterate: here we will give you a general overview, but PLEASE consult the experts for individual, detailed advice – it’s your money at stake!
In addition to the Italian taxes, there are a couple of other fiscal aspects you will need to consider. First is the possibility of a home country tax. Italy has signed tax treaties with several countries, so the issue of double taxation tends to be reduced.
US Citizens are most affected by this – Uncle Sam feels his nephews and nieces should pay tribute, no matter where they live, and no matter where they have earned their income. The good thing is that for the most part, your Italian tax “expenses” count against this, as well as a “Foreign Earned Income” deduction. But there is this horrible thing called an “Alternative Minimum Tax” which was originally devised to make sure the super-wealthy paid at least some tax – but which now is hitting even lower-mid income families. On top of that, the USA charges a 15% “Self-Employment Tax” in lieu of social security contributions for all self-employed US Citizens and Residents (including Green Card holders) – also no matter where they live and where they earned their income. For initial information, a good source to consult is the IRS site: www.irs.gov http://www.irs.gov
The other aspect, if you are coming over as a temporary expat sent by your company, is the concept of “Hypo-Tax”. The principle is that in order to make the change in country “tax neutral” for an expat, the company will deduct from the employee’s paycheck the equivalent that the employee would have paid in his or her home country, and in turn pay all the taxes due in Italy. See more detail in the article on this subject.
So, click to the corresponding article to learn more. Many Happy Deductions!