Importance of the “occasional”, not financial limits
Offering services on an occasional basis can provide an attractive tax and social security regime. We are talking about the provision of services (e.g. teaching, IT services) on an occasional basis (Prestazione Occasionale). This regime applies to individuals who want to undertake a professional (intellectual) activity in an “occasional” and “sporadic” manner. If your activities are indeed “occasional”, you are not required to register for VAT (aprire la partita IVA) because you conduct the activities on a non-habitual and non-continuous manner.
The amount of the fees you receive is not relevant in this initial analysis. The famous threshold of 5,000 euros of activity without needing to register for VAT does not actually exist in law. There is a threshold of Euro 4,800 below which you are not liable to income tax on income deriving from the provision of occasional services. Note this threshold is in proportion to the time from when you start to the end of the year, so if you start at the beginning of November the Euro 4,800 must be multiplied by 2/12ths (it’s actually the number of days) – so you can earn up to approx. Euro 800 in the first year without paying tax.
There is a threshold of Euro 5,000, on an annual basis, above which there is a liability to register with the social security authority (usually INPS) and pay social security contributions on your earnings.
But, I repeat, the analysis is not based on these limits. It must be based on whether the services you are offering are indeed “occasional”. If you have e.g. a web site, or business cards or publicity detailing your offering, or you sign a contract for the provision of your services, then the Tax Agency may well consider your activity not to be occasional. If you work regularly for the same client, even issuing receipts once a month, it is is difficult to maintain that your activity is “occasional”. The text book example of occasional services is a pensioner who repairs radios – a paid hobby – for friends and others on word of mouth basis.
For example, offering services of teaching English every now and again, on a word of mouth basis, without an “infrastructure” (e.g no web site/facebook page, staff, equipment and machinery), ideally visiting students for lessons, and not setting up an office (even at home), can allow you to stay within the regime applicable to occasional services, at elast at the outset.
If you want to do this, you need to make sure that your services are indeed occasional – so provided sporadically every now and again. If not, you will be liable for penalties for failing to register for VAT.
If any of your clients are running a business and is what is defined by law a “tax withholding agent” e.g. a school or other business or professional registered for VAT, then they must withhold tax on payment to you. The rate is generally 20% of your fee.
For example if you issue a bill for Euro 1,000, the client will give you Euro 800. The Euro 200 the client withholds is paid by the to the Tax Agency the following. The client is essentially paying your tax on your behalf. At the end of the year, assuming you are under the Euro 4,800 threshold you will need to file tax return, showing your total fees. Since you pay no tax under the threshold you will be entitled to a refund of the tax that has been withheld. Obviously this allows the Tax Agency a chance to review whether you should in fact be registered for VAT. This is deliberate – and part of the Tax Agency’s armourty in fighting tax evasion.
If you invoice private clients there is no withholding tax requirement.
You can write your own receipt for occasional services on a normal sheet of paper, provided that you show the following:
- Your name and address;
- The name and address of the client;
- The date of issue of the receipt and a progressive number on the receipt;
- The fee for your work;
- Any withholding tax (equal to 20% of the gross compensation).
- The net amount paid to you by the principal (if withholding has been made).
- The Euro 2.00 for the stamp (see below) if you want to charge this to the client
Stamp on the receipt
Since we are talking about a “non-fiscal” receipt, the legislation requires you to affix a Euro 2.00 revenue stamp (bollo) on the receipt, where the amount of the service exceeds the threshold of Euro 77.47. No stamp is needed for receipts issued showing a lower amount than this.
You can buy a stock of stamps tobacconists and other authorised outlets. The revenue stamp must bear a date prior to that of issue of the receipt, otherwise penalties apply.
You can ask the client to reimburse the cost of the stamp by adding the Euro 2.00 to the invoice.
If you are offering services which (may) go over the Euro 4,800/5,000 limit, then you need to register for VAT. There is a special simplified tax regime for those earning under Euro 65,000 per annum – the regime forfettario. The timing is important and it is best to switch where possible onto the regime forfettario at the beginning of a new year.
There are also a number of special regimes which may be available depending on what you actually do. For example. for teachers/professors employed in the state school/university system there is another flat tax regime (15% in this case) with a view to facility the tax compliance for teachers /professors proving after school/university lessons.