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Five essential things to know about filling out your Italian tax return

Italy's tax season begins in May, and the bureaucracy involved can be daunting. Here are some of the most important things to know about filing your tax return.

Five essential things to know about filling out your Italian tax return
Photo by Kelly Sikkema on Unsplash

Tax season is now underway in Italy as the window for filing your personal income tax return opened on May 11th, 2023.

The deadline for submitting your tax return this year is October 2nd – find a detailed list of Italy’s tax dates and deadlines here.

Filing a tax return is never the most enjoyable task, but dealing with a new country’s rules and language adds another layer of complexity. And of course, Italy’s tax rules aren’t simple to begin with, so it is always a good idea to seek professional advice and assistance.

Here are a few things you’ll need to know about the process before you get started.

Which form will you need?

In this article we’ll focus on the modello 730 (form 730), the newer and most commonly-used income tax return form, which most employees and retirees will need.

READ ALSO: The Italian tax calendar for 2023: Which taxes are due when?

But some people, including the self-employed, those with certain types of redditi diversi (sources of income other than employment or pension), and taxpayers who are not legally resident in Italy, might need to use the older form called the modello redditi persone fisiche instead.

It all depends on your personal circumstances, so if you’re unsure which form to use, speak to a tax professonal for advice.

The form 730 comes partially pre-filled with your personal details, which should make completing it somewhat more straightforward.

Tax season in Italy begins in mid-May.(Photo by ANDREAS SOLARO / AFP)

As tax expert Nicolò Bolla from Accounting Bolla explains on his website: “The 730 is a simplified form. It comes already filled in with your details courtesy of the Agenzia delle Entrate (Italian tax authority).

“So, when compared to the modello redditi, this form requires much less work on the part of the taxpayer. The details they provide can be changed, or not, which has its pros and cons.”

Where do you find this form?

You can download your personal 730 form from the Agenzia delle Entrate website.

You should find it already pre-compiled on a special section of the site HERE which you can log in to using your SPID (Sistema Pubblico dell’Identità Digitale) or CIE (electronic identity card) credentials.

The tax agency notes that “Italian citizens residing abroad who do not hold an Italian identification document may also use login credentials issued by the INPS (social security agency)”

READ ALSO: How to use your Italian ID card to access official services online

“You can view, edit and/or supplement your tax return within the service and then send it to the Agency.”

Unfortunately, while the Italian tax agency does have some information available online in English, the part of the website dealing with the 730 is only available in Italian, German, or Slovak.

How do you fill it out?

The form 730 can be filled out entirely online via the tax agency’s website.

According to the agency, the form should already contain “a number of automatically entered details, including deductions for health costs, university fees, insurance premiums, social security contributions, credit transfers for building renovation and energy renovation.”

As mentioned above, you may change the pre-filled details if necessary. But Bolla points out that there are some things to consider before you do:

“Changing a tax document does come with some risks, the primary one being that you become exposed to error which in turn means paying a penalty fee,” he says.

READ ALSO: The pros and cons of Italy’s five percent flat tax for freelancers

“The biggest benefit, perhaps, of not changing any information in the form is that you will not be subject to further tax checks, i.e. an audit.

“The 730 is considered changed if your alterations are related to the expenses that you have. When doing this it is recommended that you consult with an accountant to be sure of the conditions of a particular expense. It is always possible that you will have some tax deductible expenses that occur after the form is compiled by the revenue agency which will need to be added to the form.”

Once you or your accountant have filled in remaining details and made any necessary changes, or not, to the pre-filled sections, you can file your 730 online via the tax agency’s portal.

The deadline for submitting the completed form is October 2nd.

If instead you’re using the modello redditi PF the deadline for submitting this electronically is November 30th.

How and when do you pay your income tax bill?

Once you’ve submitted the tax return, the first instalment of the amount payable is due by June 30th.

Payment is made using form F24. Italy’s tax office (Agenzia delle Entrate) offers guidance on how to fill out and submit the form.

The deadline for the second instalment of income tax is November 30th.

Should you ask an accountant for help?

All that famous red tape, plus the language barrier and a long list of tax-related acronyms, can make filing taxes in Italy a daunting proposition for foreign nationals. But you may be wondering whether hiring a commercialista (accountant) is worthwhile or necessary.

While the tax agency has tried to simplify the process, and even provides some Italian tax information in English, many Italians themselves Italians turn to their local tax assistance centre (Centro Assistenza Fiscale, or CAF) or hire a tax professional to take care of the process.

Getting professional advice is particularly important if you’re making changes to the pre-filled sections of the 730 or if you need to use the modello redditi PF.

See more information on the Italian tax agency’s website.

Please note that The Local cannot provide advice on tax issues. For help with filing taxes in Italy, contact your local tax assistance centre (Centro Assistenza Fiscale, or CAF) or consult an accountant (commercialista) or other qualified tax professional.

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TAXES

Is Italy’s flat tax rate for freelancers right for you?

Italy offers favourable tax rates to those who decide to work for themselves - but is it ever that simple? We weigh up the pros and cons of the flat-rate tax for new freelancers.

Is Italy's flat tax rate for freelancers right for you?

Becoming self-employed is an attractive option for those who want the freedom and flexibility of working for themselves.

And, in Italy, this is sometimes also the only viable option for finding work: many companies are unable or unwilling to pay high employee taxes, and instead offer full-time work to self-employed contractors.

In any case, self-employed workers in Italy will need to open a VAT number (Partita Iva) and will be responsible for covering all of their own social security contributions, as well as paying income taxes – which range from 23 to 43 percent depending on income.

As well as the cost, the amount of paperwork and time involved in managing your own tax affairs is one thing that puts many people off opening a Partita Iva.

For this reason, Italy in 2015 introduced the simplified regime forfettario: a flat-rate tax scheme for individuals and small businesses which aims to cut down on red tape as well as lowering tax bills.

READ ALSO: Five essential things to know about filling out your Italian tax return

This flat-rate tax scheme simplifies accounting and so, in theory, frees you up to spend more time doing your job and less time balancing the books.

But while it may be simplified compared to the usual setup, it’s not necessarily simple and there’s a lot to consider before you sign up.

You’ll pay less tax

This is the main attraction: you keep more of what you earn and the taxman gets a smaller share of your income.

Depending on your situation, you could pay between five and 15 percent tax on your earnings.

This is far more favourable than the standard income tax (Irpef) rates you’d pay otherwise, which are between 23 percent and 43 percent of gross earnings.

The lowest five percent tax rate is for new Partita Iva holders only and is available for the first five years.

That means if you’re starting up as a freelancer in Italy, you’re granted this low flat-rate tax on your turnover as long as your self-employment is not an extension of a business you carried out previously.

READ ALSO: The Italian tax calendar for 2024: Which taxes are due when?

After five years, the rate goes up to 15 percent, which is still low compared to the standard Irpef rates.

Note that your taxable income base will depend on the type of work you do and how much you earn, so some may end up paying even less than this.

As the calculations are complex, the best way to find out exactly how the rates would apply in your circumstances is to speak to a qualified accountant (commercialista).

You need to consider social security

As well as tax, you’ll need to consider your INPS (Istituto nazionale della previdenza sociale, Italy’s social security agency) contributions – similar to national insurance in the UK, for example, though the rates in Italy are much higher.

The calculation of INPS contributions in the flat-rate scheme varies according to the type of work you do, but it is generally between around 24 and 26 percent of your taxable income.

So while you may be paying as little as five percent in income tax, with INPS the total amount you’ll really need to set aside will be closer to 30 percent.

It’s lighter on paperwork

There are several ways in which paperwork is simplified, most notably in that you don’t need to keep purchase receipts or track what you’ve bought to offset your taxes

You also don’t need to charge VAT on invoices, so that means you don’t need to complete an annual VAT return. What’s more, you have a competitive edge in the market as you won’t need to add VAT for your clients.

But of course the VAT exemption goes both ways. So, just as you don’t charge VAT, you can’t claim back the VAT you spend on IT equipment, stationery or any other business-related costs.

So if you run a business with high overheads, this may not work out in your favour. This is just one flip-side that might make you reconsider the regime forfettario.

One previous benefit was also that you didn’t need to sign up and pay to use Italy’s complicated ‘electronic invoicing’ system, but this changed in 2022 and now freelancers need to use it too – or hire an accountant to deal with the process on their behalf.

There’s a limit on how much you can earn

You don’t qualify for the regime forfettario if you make more than €85,000 from self-employment in any given year (increased from €65,000 under Italy’s 2024 budget.)

You’re also not eligible for this regime if you earned more than €30,000 in the previous year from employment. There is an exception to this, though – if your employment ended in the previous year, you can still apply.

And, while many people in Italy do have a Partita Iva in lieu of an employment contract, you’re not allowed to use the flat-tax regime if you’ll be working solely for a previous employer.

For more information on the criteria and exceptions, see the website of Italy’s Agenzia delle Entrate (tax agency).

Whether this way of freelancing in Italy is right for you overall depends on your personal circumstances and speaking to a financial expert is advised.

Useful Italian vocabulary:

Agenzia delle Entrate – The Italian revenue agency/tax office.

Partita Iva – An Italian VAT number, required to set up as self-employed.

IRPEF – ‘Imposta sui Redditi delle Persone Fisiche’, income tax paid by individuals.

INPS – ‘Istituto nazionale della previdenza sociale’, Italy’s social security and pensions agency.

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