Estimating your Italian tax liabilities (Employees)

Under current Italian tax residence rules you are considered as either tax resident or not for any full tax (calendar) year – there is no split year concept, except in some limited circumstances – and you will deemed resident in Italy under the Italian statutory residence test if you are physically present in Italy, registered as resident in Italy, or have your center of vital interests or habitual abode in Italy, for more than 183 days (including days of arrival and departure)  in any tax year, 184 days in a leap year. In this context note that the timing of the move is fundamental in assessing your liability to Italian tax for any Italian tax year and will also be a factor in your eligibility for a special tax regime and the start of any tax benefit.

 

If you are either tax resident in Italy or have earned income from working from Italian soil in general you are liable to pay Italian tax on your earnings.

 

As regards Italian tax, the actual rate depends on a series of factors such as the type of income,  the amount of tax deductible social security contributions, the terms of your employment contract, whether you will be eligible for a special tax regime, where you will be registered as resident in Italy, and any deductions to which you might be entitled.

 

If you can access the Impatriates Regimes (and you need to check if you meet the conditions – see this article) then you will be liable to Italian income tax on your gross salary less deductible social security less the 50% or 60% (depending on whether you have a child, Impatriates reduction. 

 

The taxable base will also include any other taxable income such as rent from a foreign property.  Income Tax (national, regional and municipal) will apply on the base so calculated at scale rates.  Income and gains from investments are generally taxed separately at a flat rate of a maximum 26%.  

 

The amount of tax deductible social security will depend firstly on whether you are paid through an Italian payroll or directly from a foreign employer and are eligible to apply to remain covered within the foreign social security system, or not.   This will primarily be an issue for your employer – see this article.  If you are liable to Italian social  security on earnings then the applicable rate will depend on a number of variables,  such as the terms applicable to the employment contract, your age, social security history.   We cannot advise an employer on their liability to Italian social security in respect of an employee who is a client of ours due to conflict of interest rules. We cannot act for both employee and employer.

 

For any year that you are tax resident in Italy, you are liable to Italian wealth taxes on non-Italian situated property.  See this article.

 

We can calculate your liability to Italian tax once we have the necessary information.  If you are going to be working for an Italian employer or EoR then they may be able to provide a forecast of net salary.  

 

Base Information required for a forecast of Italian tax liabilities once tax resident in Italy and working under a contract of employment

• Background and personal details  – acquired via sign up process
• Forecast annual gross salary and benefits in kind in Euro
• Details of any profit sharing arrangements, stock option, purchase or award schemes, with an estimate of the annual benefit deriving therefrom
• Copy of employment/letter of hire/terms of employment and/or posting to Italy
• Details of applicable social regime and forecast of applicable rates of employee contributions
• Confirmation of whether you started to make payment of social security in Italy or any other country with a social agreement with Italy (this included the EU, EEA the U.S. Canada, Australia New Zealand and several other countries)  before 1 January 1996
• An estimate of other income sources on annual basis e.g.
• • Pension income
  • Interest, dividends, distributions, gains on savings and financial (including crypto) assets 
  • Income from renting real estate
  • Royalties
  • Miscellaneous income
•  The purchase price of any foreign real estate and the amount of any property paid in respect of the ownership of the same
• The value of funds in any pension or retirement benefit schemes 
• The value of any investments, savings with an indication of the type of investments  
• The value of any shares membership interest in foreign entities 
• The number of foreign bank accounts 

The information needs to be provided for each individual taxpayer showing the percentage ownership in each asset reported above.

 

Further information may be required on a case by case basis.