Income tax in Italy is one of the high when compared to its neighboring countries. Well, it is no more. At least, for the new expatriates who are planning to move to Italy.
As you know, after extensive research, interviews from the expatriates and with my own personal experience, I came up with the article to help people Relocate to the Fashion City, Italy.
The good news is, I constantly get emails and queries from many people asking me to help them make a decision.
People who are like the confused cat on the wall, yet to decide on which side of the wall they want to jump. People on the way to decide which pill to take – the green or the red of the Matrix!
One of the key factors in the decision to relocate to a new country is of course how much they can take home from there earnings. Right? And it is not easy to tell people how much money is sufficient for their Dolce Vita in Italy. Because living “happy” is subjective.
So, that encouraged me to come up with a complete guide on the Cost of living in Italy and help people decide if their salary will be sufficient for their own style of life. In the cost of the living article, I have provided enough details about the salary structure including the Income Tax deductions in Italy.
The New Income Tax Regime of Italy
It is always a pleasure to see that the cost of living article has been helping many out there. Few readers have thanked me saying this guide helped them make a better negotiation with their employers.
Goal achieved. Yes, I still remember the struggle I had to go through during my relocation. With practically no information on the salary structure, cost of living, and the tax structure I was handicapped to do any negotiation.
Thus my blog was born, and I see it is proving to be helping many out there.
I am also happy to (Shamelessly) share some behind the scenes on my blog. Even a few days back I had a thank you email from one of my readers. Not just that, I have been getting a lot of queries about the taxes.
Recently, I see many queries & comments from my readers about the 70% exemption from Income earned for calculating the tax. Quite unbelievable, and I can understand the curiosity. 70% exemption is not a small amount.
And guys, it’s Italy. Every new law comes with even more by-laws. Every if’s come with additional but’s. So, I started researching this more and the result is this article.
Disclaimer: All information provided in this article is based on researches, interviews, and discussions with fellow expatriates. So, please enquire with your tax consultants before making any decisions. These are just guidelines to help you understand the new tax regime details.
Tax Exemption is True
First thing first.
Yes, the new Italian Income Tax law exempts up to 70% of the income from being taxed. And it is certainly true. Not just that, it can even be increased by up to 90% of the income.
Enough of the rosy picture. Now, let’s get into the details. The famous “Ifs and buts”.
Do you know? It is not just Italy, that has come up with such an Income Tax regime. Many other European countries do have such laws to attract talents from different parts of the globe.
Expats Tax Breaks in Italy
Impatriati or the Expats tax breaks regime was originally introduced by the Italian parliament in the year 2016. When this was introduced first, there was a provision to have 50% of the salaried income free from any taxes in Italy. Under certain conditions, this was also offered to existing expatriates who moved less than 2 years in the previous fiscal year.
Starting from the year 2020, Italy has enhanced this law to attract more expatriates. Don’t ask me if they failed to find some takers in the first place and hence increased this.
- An individual who is newly employed in Italy.
- The individual should not have resided in Italy in the past 2 years [Tax years, i.e after 1 Jan 2018].
If you full-fill the above conditions, then you are eligible and here are the benefits you may get.
- 70% of your Gross salary is exempted from income tax in Italy
- 30% of your Gross salary is only taxed in respective slabs
- The maximum tax rate for the individual will be 13%
This exemption is available for 5 years. But these are extendable depending on the number of minor kids you may have. For example, if you have one minor kid, then you are eligible for another 5 years of extension.
But, the taxable salary will be increased from 30% to 50%. Do not think this as an additional tax for 20% of your income. Believe me, it is still a very substantial saving!
Remember, all these benefits are available only if you are in Italy. If for some reason you are out of Italy for max of 2 years, then you automatically lose the status.
How to avail the benefits of the new Income tax regime in Italy
My recommendation here is to approach your employer. When you negotiate with your employer, make sure you highlight this to them and get a commitment that they can get this done.
If you missed it for any reason, do not worry. You can still claim the money while you file your tax returns or the famous 730.
Even though it is possible to claim back the money that was deducted in your monthly salary, I do not encourage it.
Be persistent with your employer, and make sure it is taken care of at the source rather than you going between posts and pillars. I am sure, by now you are well aware of the Italian bureaucracy.
How can I reduce the tax by another 20%
Yes, saving another additional 20% of Income Tax in Italy is very much possible. But there is a catch!
If you are ready to relocate to the cities and towns in the south of Italy (Like Abruzzo, Puglia, Sicily, Sardinia, Calabria, etc) you can get a jackpot.
Yes, you get an additional 20% tax exemption on your income. That is a whopping 90% tax exemption!
Beware of Frauds
Before I say good luck to you and sign off, a word of caution.
In the past years, I have seen many complaints on social media about how several expatriates were fooled by (so-called) tax consultants with the promise of getting them the benefits of the new tax regime.
I do not want to generalize everyone here. But at the same time, I wanted to keep you informed so that you do not fall prey to such canvasing. Whatever clarification you are looking for, first get in touch with your employer.
Next would be to check with the CAF offices or the ACLI offices around the city. You can also fix an appointment and visit the Agenzia Entrate for an interview to get these clarified and avail the full benefits.