Table of Contents
General Rules
An Italian resident taxpayer has the right to certain deductions and claim a tax deduction or tax credit for certain expenses and charges incurred in the relevant tax return. Some, but not all, of these deductions/credits may be claimed by non-residents with taxable income in Italy.
If the income tax due is less than the total deductions, the taxpayer is not usually entitled to a refund of the excess. It is possible to opt to take certain deduction in the tax year in which they are incurred and in future years – e.g. if you have significant medical expenses in one year and do not have capacity to utilise in the year in which they were incurred.
Also note that if you are liable to tax under a flat or substitute regime you will likely not be able to benefit from most of these deductions.
With the Finance Law 2020 deductions for expenses can only be claimed where payment is made by bank transfer or debit/credit card. Cash payments no longer qualify. The Law also reduces the certain deductions for taxpayers with income over Euro 120,000 and drops to zero for those with income over Euro 240,000. Medical expenses, building restructuring and some mortgage interest deductions are not impacted by this, but like all the expenses described here may have their own limits and thresholds.
Many of the limits and thresholds are set in annual Finance Laws and other legislation so will need to be checked as the tax return is prepared.
Some of the deductions can be obtained via the payroll if you are working in Italy for an Italian employer. Medical expenses are can best be claimed by showing your “tessera sanitaria” at the point of purchase (e.g. hospital clinic or pharmacy) and will be available to your tax preparer via the pre-compiled tax return available on the Tax Agency web site.
Expenses incurred outside Italy can often be claimed for deduction/tax credit providing adequate documentary evidence is available and in particular an invoice showing the taxpayer’s name and address and providing payment is not made in cash.
Copies of supporting documenting should be collated before a tax return is filed. The Italian tax return filing process does not require that documents are attached to the tax return but this documentation may be required if the Tax Agency ask to see it at a later stage and penalties for late payment and interest will apply if the taxpayer cannot prove that expenses were incurred and deducted according to the rules.
This is a general guide and not intended to be an exhaustive list of all deductible items.
Deductions for dependent family members:
In addition to deducting qualifying expenses incurred on behalf of dependent family members such as a spouse, civil partner, children, grandchildren, parents, etc. there are also “standard deductions” available for dependent spouses, civil partners and children.
A spouse, civil partner or child is considered to be dependent they have taxable income in the year of less than:
€ 2,840.51 for a spouse/civil partner (not legally separated and effectively separated);
€ 4,000 for a child (natural, recognized, adopted, entrusted or fostered) under 24, and concern;
€ 2,840.51 euros for a child up to 24 years and then to 2,840.51 euros for those of older age;
The deduction that is available (as a tax credit) is
- for a qualifying spouse/civil partner – a maximum of €800 – this starts to descends to zero for people with taxable income over € 15,000 – the descent is gradual up to €80,000 of taxable income after which no deduction is available.
- for children under 3 years of age, a basic tax credit of 1,220 Euros is due;
- for dependent children over 3 years of age: the deduction is 950 Euros for each child;
- for handicapped children: an additional deduction of 800 euros is available
There is generally no deduction for people with income over 95,000 euros.
Social Security and welfare/alimony payments.
Statutory social security and welfare contributions (i.e. INPS pension contributions and state pensions in the EU and countries with a social security treaty) – fully deductible as long as they are paid under legal obligation. Voluntary payments may not qualify for a deduction;
Costs of supplementary contributions (“ticket”) to the Italian national health service;
Charges for private and individual pension contributions up to € 5,164.57 per annum;
Contributions to the disabled;
Periodic maintenance allowances to separated or divorced spouses, excluding periodic maintenance allowances for children;
Contributions paid for compulsory INAIL insurance for family members – protection against domestic accidents (so-called home insurance);
Voluntary state social security contributions paid to cover University years and reunification of contributions between Italian social security funds;
The cost of certain social security contributions for maids, nannies and baby sitters up to € 1,549.37.
Payments to schools for education of children.
Primary, secondary schooling and unversity education expenses are one of the items that can be deducted in the Italian tax return.
The deduction of school expenses is allowed for expenses up to Euro 800 per child. 19% of the expenditure is admitted as a deduction, giving a maximum tax credit of Euro g a maximum of Euro 152.
From 2021 procedures exist allowing educational institutions to communicate the relevant expense to the Tax agency at year end, so that the relative amount is shown in the draft pre-complied online tax return. However, taxpayers will not always find the expenses incurred indicated, considering that until the 2021 tax year the transmission of data for educational institutions is optional. It is therefore a good idea to carefully check the amounts incurred in order to be able to benefit from the relevant deduction.
Payment of fees must be with a traceable means of payment. For university students away from home, there is also a specific deduction on rent costs.
Deductible costs include those incurred for attendance at crèches, kindergartens, elementary and middle schools, secondary schools, i.e., both state and parity high schools, and for enrolment in university or specialisation courses at public or private universities. The costs include not only course fees but also meals, school trips and transport to and from school.
University rent expense deduction
Among the costs that can be claimed as a tax deduction are those relating to the cost incurred for the rent for off-campus University students subject to a ceiling of Euro 2,633 annually.
The amount that can be offset against income tax is 19 per cent of the expenditure incurred, i.e. a maximum tax credit of Euro 500.
Deduction of nursery school fees
Day-care centre enrolment fees can if they meet certain criteria be deducted from tax.
It is necessary to verify on a case-by-case basis whether the fees paid qualify for deduction. The deduction is not available if the parent has received a day-care bonus under the relevant scheme.
The deduction is allowed up to a limit of Euro 632 per child. The tax credit is equal to 19 per cent of the total cost incurred up to the cap.
Gifts and payments to charity etc.
Charity payments to religious institutions;
Charity payments to non-governmental organizations;
Charity payments to ONLUS (26% with a maximum limit of 30,000.00 euros);
Donations to political parties (26% tax credit);
Donations to amateur sports clubs and associations, mutual aid societies, social promotion associations, cultural society “La Biennale di Venezia”, cultural and artistic activities, entities operating in the show and foundations operating in the music sector.
Donations to universities, research bodies – tax credit of 26% of the cost.
Most of these deductions depend on the recipient of the gift/payment being tax resident in Italy since it is necessary to provide the recipients an Italian fiscal code. However it may be possible to deduct payments to non Italian organisations but a case by case review is required.
Assistance for the disabled
Disabled nursing and rehabilitation assistance: where prescribed by a doctor.
Medical costs for the disabled: nursing staff and technical assistance workers, professionally qualified staff coordinating personal care, animation and occupational therapy activities.
Expenses for the assistance and hospitalization of the disabled
Vehicle expenses for people with disabilities
Expenses for the purchase of guide dogs
Building maintenance, improvements, energy saving expenditure
Superbonus 2021 – 110%;
- Ecobonus 65%;
- 50% for building renovations;
- Household equipment;
- Home bonus;
- Earthquake bonus;
- Energy saving bonus.
Mortgage and Rent
Interest on mortgage loans for purchase of the “prima casa” – first home where you are registered as resident.
Rent paid by low-income tenants: personal income tax deduction of 300 euros, if total income does not exceed 15,493.71, 150 euros if taxable income is higher than 15,493.71 but lower than 30,987.41 euros.
Rent of a principle residence for an employee who transfers residence for reasons of reasons: a deduction of 991.60 euros where income is less than 15,493.71 euros and 495.80 euros if the total income exceeds 15,493.71 euros but is less than 30,987.41 euros.
Rent for the main home for young people between 20 and 30 years: deduction of € 961.60 for total income up to € 14,493.70.
Rent for university students living away from home: deduction is 19%, calculated on an amount not exceeding 2,633 euros.
Protected tenancy arrangements: a deduction of 495.80 euros is due, where is income is less than 15,493.71 euros and 247.90 euros, if total income is higher than 15,493.71 euros but lower than 30,987.41 euros .
Deductible Healthcare Expenses
A taxpayer has a tax credit equal to 19% of the total documented healthcare expenditure over € 129.11 incurred in the year as well as for healthcare costs of prior years which were taken in instalments.
To qualify for a deduction medical expenses you must give to us/your tax preparer
- A copy of the receipt or invoice showing the name of the medical practitioner or firm to whom payment was made, details of the service provided and your fiscal code number.
- Made payment by credit card/bank card or by bank transfer/paypal. If you paid in cash the amount is not deductible.
- Confirmation that the expense is duly deductible (feel free to discuss this with us).
Medical expenses are deductible even if reimbursed under a health insurance policy with two broad exceptions:-
- Health insurance policies paid for your employer and which have not been treated as a taxable fringe benefit;
- Specific expenses covered by a third party insurance – e.g. you were involved in a road accident and the damage is covered by a third party’s insurance policy.
Other
- Funeral Expenditure
- Baby sitting and nursery costs
- Veterinary expenses (invoice/receipt must show the others tax code)
- Credit for foreign taxes (providing proof of payment is available)
Help and Assistance
If you need help with your deductions or require any further information please contact us here
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