Italian 2027 Finance Draft Law (subject to Parliamentary debate and approval) – Key Tax Measures: Increase of middle tax band upper threshhold | Flat-tax Regime Forfettario threshold adjustments | Flat tax regime for employment income extended | New Exit Tax for individuals | "Bonus Casa" - real estate restructing relief extended to 2027 | Vehicle Tax Exemptions | Flat tax (Cedolare Secca) extended to commercial lettings | Fixed Rents for Under 36's | Introduction of Sugar and Plastic Taxes postponed to 1 July 2027 | Tax Credits For Cloud Software | Special bank and energy sector levies

Italian Personal Income Tax Rates

These are the personal income tax rates (IRPEF – Imposta sul Reddito delle Persone Fisiche) that apply after 1 January 2024. For applicable rates before that date please click this link.

The rates were changed by Legislative Decree No. 216/2023, published in the Official Gazette No. 303 of 30 December 2023.

The FY 2026 Finance Law (Law No. 199 of 30 December 2025) has amended the IRPEF brackets again. Under Article 1, para 3, the second IRPEF rate is reduced from 35% to 33%, effective from 1 January 2026 (i.e. for income received in FY 2026).  The FY 2026 rates may be subject to legislative amendment as part of the 2027 Budget package.

The IRPEF rates shown below, together with regional and municipal surcharges, apply to income that is not subject to imposta sostitutiva (“substitute tax”). Below the IRPEF table is a list of examples of income and gains that may be subject to Substitute Tax instead of the main national, regional, and municipal income taxes.

At the foot we have an example for a tax resident taxpayer with a mix of income subject to IRPEF, Regional and Municipal taxes as well as income subject to Substitute Tax.

IRPEF (National Income Tax)

Rates for FY 2024 and FY 2025

Bracket of Income (annual amounts) Rate Cumulative Tax to Top of Band
On the first €28,000 23% €6,440
Above €28,000 up to €50,000 35% €7,700
Over €50,000 43% —

IRPEF (National Income Tax)

Rates for FY 2026

Bracket of Income (annual amounts) Rate Cumulative Tax to Top of Band
On the first €28,000 23% €6,440
Above €28,000 up to €50,000 33% €7,260
Over €50,000 43% —

IRPEF (National Income Tax)

Rates for FY 2027 – Subject to Parliamentary Approval per Draft 2027 Finance Bill

Bracket of Income (annual amounts) Rate Cumulative Tax to Top of Band
On the first €28,000 23% €8,440
Above €28,000 up to €55,000 33% €8,910
Over €55,000 43% —

Regional and Municipal Additional Taxes 

On top of the above rates of national income tax you need to add

  • additional regional tax (addizionale regionale) which varies from 0.70% to 3.33%; and the
  • the additional municipal tax (addizionale comunale) which ranges from 0.0% to 0.9%

depending on region, municipality, brackets of income and applicable rates for the relevant tax year, which are updated from time by resolution of the Regional or Municipal authorities. The links below show the current and historical rates in force although extrapolating these is complex.

You can search below for your Region and Municipality (Comune) and find the applicable rates of Additional Regional and Municipal Taxes.

Searches are in the Italian language on the Italian Ministry Web Site and may not be up to date as some Regions and many Municipalities have not yet published the FY 2026 rates and bands.

Department of Finance Additional Regional Tax Rates

Department of Finance  Additional Municipal Tax Rates

Download Department of Finance  Excel Table of Additional Municipal Tax Rates 2025

Imposta Sostitutiva/Substitute Tax

The rates shown above apply only to  income which is not subject to imposta sostititva (“substitute tax”). Substitute tax applies in place of the scale rates shown above  of  IRPEF, national income, regional and municipal tax shown above. Whether substitute tax applies – and it may apply either automatically or at the option of the taxpayer –  depending on the type of income and the applicable treatment under law.

Examples of income that is subject to tax at the scale rates shown in the above tables and regional and municipal additional tax are: 

  • income from employment
  • pension income (except for qualifying pensioners transferring residence to  the South of Italy  and certain distributions from regulated Italian supplementary or complimentary pension schemes
  • business, trading or professional income otherwise than for taxpayers on the Regime Forfettario
  • rent from Italian property (where the option to substitute tax is not taken)
  • rent from non Italian property 
  • royalty income 
  • miscellaneous income
  • distributions from non- EU harmonised investment funds and ETF’s
Examples of income that are liable to substitute tax are:
  • income from pensions where the option to substitute tax at 7% has been taken (NB. if the option has been taken the 7% flat rate will apply to all non Italian source income).
  • foreign-source income where election for an annual flat tax is made (HNWI regime)
  • income from investments, e.g. interest, dividends, capital gains  – generally taxed at 26% flat rate. Lower rates may apply (e.g. 12.5% to  income from qualifying Treasury bonds)
  • capital gains deriving from equity type instruments and disposals on certain financial assets (excluding gains on certain non EU harmonised investment funds and ETF’s)
  • income from self employment carried out under the Regime Forfettario
  • income for renting Italian property for the option for taxation at a flat rate of 21% on gross receipts has not been taken (cedolare secco).
  • certain distributions from  regulated Italian supplementary or complimentary pension schemes
  • income from crypto assets realised otherwise in the course of a business or deemed business (e.g. mining etc.) 
  • capital gains from foreign currency transactions where the average balance of foreign currency accounts exceeds Euro 51,645.69  (1 million lire) for at least 7 consecutive working days during the tax year.
The substitute tax applies to investment income and rental income only where the person receiving the relevant income does not realise the income in the course of a business activity (e.g financial trading or carrying out a property letting business). 

Rates of Imposta Sostitutiva/Substitute Tax

Type of Income / Regime Substitute Tax Rate
Capital gains on financial assets 26%
Income from qualifying Treasury and similar bonds 12.5%
Dividends on Equities and Distributions from EU harmonized funds and ETF's 26%
Interest income (possibly with option to tax at scale rates) 26%
Other financial income 26%
Crypto‑asset gains and income (from FY 2026) 33%
Crypto‑asset gains and income (up to FY 2026) and Euro‑linked electronic money tokens (EUR‑stablecoins) from FY 2026 26%
Rental income (cedolare secca) – standard rate 21%
Rental income (cedolare secca) – three or more properties 26%
Self‑employment income – Regime Forfettario (startup rate) 5%
Self‑employment income – Regime Forfettario (standard rate) 15%
Income from Italian regulated pension schemes (returns on investments) 9% – 15%
Flat tax for new residents (Art. 24‑bis TUIR) €300,000 per year
Additional family member under flat tax regime €50,000 per year
Foreign pensioners regime (Art. 24‑ter TUIR) 7%

Tax Deductions and Credits

General Personal Relief/No Tax Area

There is no personal relief or general standardized deduction from income which would exempt income from tax – the rates above apply to all income received in the year. 

Specific Deductions

However Italy does have a series of specific deductions and tax credits applicable to certain types of income and in the presence of certain types of expenditure.

These deductions can be of two broad types:

A deduction (deduzione) meaning that an item of expenditure, or sometimes a lump sum amount, can be deducted in calculating the base liable to IRPEF and in some case the Regional and Municipal tax bases.

A tax credit (detrazione) namely a reduction of the tax due, determined either as a statutory amount, often reducing as reportable income increases, or as a fixed proportion fo expenses incurred. 

Few of these deductions are available to reduce taxable income subject to Substitute Tax or to offset the Substitute Tax due. 

Social Security Contributions 

Statutory contributions to Italian social security institutions are on the whole entirely deductible (in the year which they are made) in computing income from the relative employment  income and from the profits deriving from self employed activities.  The same may hold true for social security contributions paid under obligation of law to foreign institutions, but the position, particularly where it involves contributions to “private” pension schemes needs to be checked on a case by case basis.

Standard Tax Credits

Relief from tax for low income earners is given via tax credit which means that the tax as calculated at the rates above is offset by the credit. wholly or partially depending on total income – the higher the total income the lower the credit. The credit available depends on type of income – income from employment, pension income and income from self employment.

See this post for more information.

Specific Deductions and Credits

See this post for more information.

Example Tax Calculation

John, Italian tax resident, not benefitting from any special tax regime, has the following income in a particular Italian tax year (e.g FY 2025):

Summary of Income

State pension  €14,000
Private pension annuity €14,000
EU‑harmonised fund distributions €16,000
Airbnb rental income €5,000

We assume that the AirBnB income derives from Italian located short term rentals and thus is available for taxation at the flat rate 21% Cedolare Secco.  Income from long term rentals of property situated outside Italy would not qualify for this treatment 

Calculation of Italian Income Tax

Regione Lombardia Province Code MI FY 2025
Comune Milano Municipality Code F205
IRPEF Base €28,000
Table of IRPEF, Regional and Municipal Taxes
Income Bands National Tax Regional Tax Municipal Tax
From To Difference Rate IRPEF Tax Lombardia Rate Tax Milano Rate Tax
€0 €12,000 €12,000 23% €2,760 1.23% €148 0.80% €96
€12,000 €15,000 €3,000 23% €690 1.23% €37 0.80% €24
€15,000 €23,000 €8,000 23% €1,840 1.58% €126 0.80% €64
€23,000 €28,000 €5,000 23% €1,150 1.58% €79 0.80% €40
€28,000 €50,000 €0 35% €0 1.72% €0 0.80% €0
€50,000 €50,000 €0 35% €0 1.72% €0 0.80% €0
Totals €28,000 23.00% €6,440 1.39% €390 0.80% €224
Table of Substitute Tax
Base Income €21,000 Base Rate Tax
Investment Income €16,000 26.00% €4,160
Cedolare Secco €5,000 21.00% €1,050
Total SubstituteTax €21,000 24.81% €5,210
Summary Tax Rate
Total National Income Tax (IRPEF) 6,440 23.00%
Total Additional Regional Income Tax 390 1.39%
Total Additional Municipal Income Tax 224 0.80%
Total Substitute Tax 5,210 24.81%
Total Tax 12,264 25.03%

Notes

The above calculation is an indicative example – a real life situation may produce different results

Additional Regional and Municipal rates depend on Region/Comune of registered residence

Special rules apply where the taxpayer is not registered as resident in Italy

The above calculation does not include wealth tax or indeed any other tax apart from income taxes.

IRPEF and Regional Income Bands shown in the above table are split according to Municipal Tax Bands as these latter are, for the time being at least, different.

Note that the effect of the separation of the income between IRPEF/Regional/Municipal Tax and Substitute Tax, in this case means that the investment and rental income is taxed at a lower rate compared to the marginal IRPEF rate that would apply, if the income were subject to IRPEF on top of the assumed IRPEF base.

2 responses

  1. I have a military pension in Poland. It is on different terms. I will buy a flat and register in Italy and I will be a resident. Where will I pay tax? In Italy or still in Poland. If in Italy, how much percent?

    1. You need to check out the Italy Poland double tax treaty. The standard model treaty provides for taxation of pension income, by default, only in the country of tax residence, but the specific treaty needs to be checked out, as they can vary from the standard model. It depends on the kind of pension – usually special rules apply to e.g. government service pensions.

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