This article has been contributed by Dott. Raffaele Marino and provides a short overview about doing business in Italy, concerning information about the Italian taxation system. If you are interested in moving to Italy please feel free to consult Dott. Marino’s Italian taxation F.A.Q. Also, you can join the Facebook group ABOUT LIVING IN ITALY.
TAXATION IN ITALY: HOW IT WORKS
Subjects resident in Italy for tax purposes are taxed on the basis of the worldwide principle. This means all that income earned throughout the world will be taxed in Italy. Non-tax residents will only be taxed for income earned in Italy.
The main taxes are:
IRES: taxes on legal persons/corporate entities (currently 24%)
IRPEF : personal tax paid by freelance professionals, employees and individuals with non-business income e.g. pensions, investment income
IRAP: a regional tax on productive activities (around 3,9% but it differs by regions)
There is also a municipal tax of 0.01% – 0.9% (additional IRPEF). Each region and municipality is free to set its own rate within the range set out in national law.
Take into account:
– tax allowances (available to all taxpayers)
– any deductions you are entitled to for certain types of expenditure.
When and how do you pay?
Your employer deducts income tax and social-security contributions from your salary. If you have no other source of income, you do not have to file an annual return. If you wish to do so, you should do it online by 30 September. In some exceptional cases, annual returns in paper format are still possible; these should be filed between 2 May and 30 June.
Income tax should be paid by 30 June. It is possible to pay in the course of the following month, i.e. by 31 July – however, a surcharge of 0.40% would then apply.
The individual company is the simplest way to start an economic activity if there is only one entrepreneur physical person. This legal form provides unlimited liability for the obligations
To start a business it is necessary to possess the requisites required by law, in particular for many activities professional requisites and the requirement of integrity are required. The start-up of the activity takes place with the presentation of the start of activity report (SCIA) at the municipality where the company is resident.
It will be necessary to register the company in the business register, and register the entrepreneur for public social security (INPS)
A business Partnership must proceed with the drafting of a statute through the intervention of a notary. The company will be registered in the business register. Also in this case the members who want to start a business must possess the requisites required by law based on the activity carried out, in particular those of professionalism and that of respectability.
The notification of the start of the activity (SCIA) must be presented to the municipality where the partnership has its registered office. The working members will have to register with the public social security (INPS)
Members have unlimited liability for social obligations. However, it is possible to set up a limited partnership, which includes two categories of shareholders: general partners who are unlimitedly liable for social obligations, and limited partners who are limited in their responsibility. The taxation of profits is carried out directly by the shareholders and not by the partners
Limited liability companies can be of three types: SRL, SPA, and SAPA. The SRL is the simplest type suitable for small businesses. Taxation of limited liability companies is currently 24%.
The constitution of a limited liability company takes place through the drafting of a statute in the presence of a notary, and the payment of a minimum capital of € 10,000. There are limited liability companies that provide for the payment of capital of less than € 10,000, however special requirements are set. Also in this case the members who want to start a business must possess the requisites required by law based on the activity carried out, in particular those of professionalism and that of respectability.
Notification of the start of the activity (SCIA) must be presented to the municipality where the partnership has its registered office. The working members will have to register with the public social security (INPS) Members have unlimited liability for social obligations. However, it is possible to set up a limited partnership, which includes two categories of shareholders: general partners who are unlimitedly liable for social obligations, and limited partners who are limited in their responsibility.
Limited companies have to deposit for each year of activity the yearly financial statement made in accordance with Italian accountancy principles.
INDIVIDUAL PROFESSIONAL (freelancing)
Income deriving from a professional activity is taxed on the basis of IRPEF progressively. Every professional must be enrolled in a social security scheme, which varies according to the profession, as it may be public or private social security. For resident professionals, there is a facilitating regime, through which the tax base is calculated as a flat rate.
TAXATION IN ITALY FOR NON-RESIDENT SCHUMACKER
The DM 21.9.2015 implements the art. 24 co. 3-bis of the TUIR (introduced by Article 7 of Law 161/2014), based on which, if the non-resident person produces at least 75% of the total income in Italy and does not enjoy any similar tax benefits in their state of residence, the taxable amount is determined “on the basis of the provisions contained in articles 1 to 23” of the TUIR, the Italian consolidated law on income tax, (that is, again limited to the incomes considered to be produced in Italy pursuant to Article 23, but benefiting from the same deductible charges and deductible and of the same exclusions provided for residents).
As of 2014, these individuals (defined as non-resident “Schumacker”) remain non-residents for tax purposes (the fact of having produced in Italy at least 75% of the income does not, in fact, acquire them the status of residents); the tax benefits, on the other hand, are represented by the possibility of benefiting from reductions and benefits otherwise not due to non-residents.
The typical case is that of subjects who, working in Italy but living and maintaining their family abroad, remain non-residents based on the Conventions against double taxation (having a permanent home and / or the center of interests abroad) vital), while portraying most of its proceeds from the activity carried out in Italy.
ITALIAN TAXATION: SPECIAL TAX REGIME FOR SMALL TAX PAYERS
The parties that adhere to the forfettario regime determine the taxable income by applying to the amount of revenue received the coefficient of profitability diversified according to the ATECO code that distinguishes the activity exercised. Once the taxable income has been determined, the flat-rate taxpayer applies a single tax, to the extent of 5%, replacing income taxes, regional and municipal surcharges and IRAP.
In the case of family businesses, the substitute tax, applied to income gross of the fees owed by the holder to the spouse and his family members, is payable by the entrepreneur. Compulsory social security contributions, including those paid on behalf of the employees of the family business fiscally dependent, or, if not fiscally dependent, if the owner has not exercised the right of compensation on the same collaborators, are deducted from the income determined lump-sum; any surplus is deductible from the total income. The determined income also applies for the purpose of recognizing the deductions for family loads, while it is not taken into consideration to determine the further deduction due according to the type of income
The revenue ceiling for apply “forfettario regime” from 2019 is 65.000 per year.
EUROPEAN FUNDS FOR ENTREPRENEURS
Many regions use European funds to stimulate entrepreneurship and innovation at the local level. The funds granted to companies can be of different types, in particular:
- Non-refundable contributions: which must not be reimbursed;
- Contribution for interests cost: they cover the cost of the interest incurred by the company for the loans received, in this way company can have loans without any cost;
- Contribution for operating expenses: they cover operating costs incurred by the company.
In addition, there are some tax breaks related to research and development costs. The tax breaks are measures taken by national level.
For more information please contact: