Italy Tax System

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Faculty of Business and Management, Brno University of Technology

INTERNATIONAL AND EUROPEAN BUSINNES LAW

Tax system in Italy

2009/2010

Taxation in Italy

The taxation system in Italy is administered by the Agenzia delle Entrate (Revenue Agency) which is the national legal authority for taxation. Taxation of an individual's income in Italy is progressive. In other words, the higher the income, the higher the rate of tax payable. There are reduced rates of tax and tax exemptions available to certain income earners. The liability for Italian income tax depends on where a person is domiciled. A domicile is usually the country we regard as the permanent home and where we live most of the year. A foreigner working in Italy for an Italian company who became resident in Italy and has no income tax liability abroad is considered to have a tax domicile in Italy. A person can be resident in more than one country at any time, but can be domiciled only in one country. The country of domicile is important regarding inheritance tax, as there’s no longer any inheritance tax in Italy. Generally, person is considered to be an Italian resident and liable to Italian tax if any of the following applies:

The person has permanent home in Italy;
He/She stays at least 183 days in Italy during any calendar year •Person carries out paid professional activities or employment in Italy, except when secondary to business activities conducted in another country; •The centre of person’s economic interest in in Italy

If the person is registered as a resident in a comune, he/ she is liable to pay income tax in Italy. If a person moves to Italy to take up a job or start a business, he/she must register with the local tax authorities soon after the arrival. This is done at a local tax office. An individual is also liable for tax on his income as an employee and on income as a self-employed person. Tax will be payable on income earned in Italy and overseas by an individual who meets the test of a "permanent resident" of Italy. A foreign resident who is employed in Italy pays tax only on income earned in Italy. It is important to point out as regards taxable income from outside Italy, that a "tax credit" is granted for tax deducted outside Italy. In the case of income from a salary, the employer is obligated to deduct the amount of tax payable on a monthly basis. A self-employed person must prepay income tax that will be offset on filing an annual return. The advance payment is determined on the basis of the return made for the previous year. In the event of a new business, the advance will be calculated on the basis of estimates made by the owner of the business. The taxation system in Italy is divided into two categories:

Direct taxes

* IRPEF or IRE: Imposta sui Redditti delle Persone Fisiche ( Personal Income Tax) * IRPEG or IRES: Imposta sur Redditi delle Persone Giuridiche (Corportation Tax on the Income of limited liability and joint-stock companies - SRL or SpA) * IRAP: Imposte Regionale sulle Attività Produttive (Regional Tax which applies to the value of goods and services)

Italy Personal Income Tax rates in year 2009

* 23%0 - 15,000(EUR)
* 27%15,001-28,000(EUR)
* 38%28,001-55,000(EUR)
* 41%55,001-75,000(EUR)
* 43%75,001 and over (EUR)

Capital Gains Tax in Italy

For individuals capital gains are generally added to the regular income. •The rate of tax payable on capital gains from shareholding is 12.5% for non-qualifying shareholding of up to 25% in a company. •For the purpose of calculating a capital gain, the gain is decreased in line with the rate of increase in inflation, from the date of purchase to the date of sale. In regard to capital gains in a corporation, identical relief is allowed at the rate of increase in the Index. •Companies pay 27.5% tax on capital gains. In sale of participation, 95% is tax exempt, subject to certain conditions.

Italy Reporting Dates...
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