Taxable Income

What part of my income is taxable?

Taxable income in Italy is officially divided into the following six categories, each of which is defined by law: employment, self-employment, business, property (land and buildings), capital (principally dividends and interest), and ‘ miscellaneous’ income.

Taxable Income

Income from employment includes bonuses (annual, performance, etc.), stock options, interest-free loans, overseas adjustments, cost of living allowances, housing allowance, education allowance, tax reimbursements and car allowance.

Taxable income also includes contributions to profit sharing plans, storage and relocation allowances, language lessons provided for a spouse, personal company car, payments in kind (such as free accommodation or meals), home leave or holidays (paid by your employer), children’s education, and property and investment income (dividends and interest).

Some income, such as certain social security benefits, isn’t subject to income tax. However, income also includes unemployment benefits, redundancy pay, pensions, and benefits for cessation of employment (e.g. severance pay) over and above the minimum required by law. Benefits in kind are valued for tax purposes at their fair market value.

Residents are taxed on their world-wide income and non-residents on income earned in Italy only.

Although the tax rates in Italy are relatively high, your net income tax can be considerably reduced by allowances and credits, as explained below.

Property Income

All property owners in Italy (whether residents or non-residents) must pay income tax based on a property’s imputed income. Income from land and buildings is based on their cadastral value ( rendita catastale), which is a nominal value attributed by the land registry ( catasto).

The value of land is calculated by multiplying the average ordinary income (fixed by the catasto) by the surface area, taking into consideration the location of the land. The value of buildings is calculated by multiplying the surface area by an amount (fixed by the catasto) that takes into consideration their location, age, condition and official category.

Income tax is also payable on rental income from an Italian property, even if you live abroad and the money is paid there. All rental income must be declared to the Italian tax authorities whether you let a property for a few weeks to a friend or 52 weeks per year on a commercial basis. Rental income is taxed as ordinary income.

You’re eligible for allowances such as repairs and maintenance, security, cleaning costs, mortgage interest (Italian loans only), management and letting expenses (e.g. advertising), local taxes, insurance and depreciation. You should seek professional advice to ensure that you’re claiming everything to which you’re entitled. Many people find that there’s little tax to pay after deducting their expenses.

Income from employment includes bonuses (annual, performance, etc.), stock options, interest-free loans, overseas adjustments, cost of living allowances, housing allowance, education allowance, tax reimbursements and car allowance.

Taxable income also includes contributions to profit sharing plans, storage and relocation allowances, language lessons provided for a spouse, personal company car, payments in kind (such as free accommodation or meals), home leave or holidays (paid by your employer), children’s education, and property and investment income (dividends and interest).

Some income, such as certain social security benefits, isn’t subject to income tax. However, income also includes unemployment benefits, redundancy pay, pensions, and benefits for cessation of employment (e.g. severance pay) over and above the minimum required by law. Benefits in kind are valued for tax purposes at their fair market value.

Residents are taxed on their world-wide income and non-residents on income earned in Italy only.

Although the tax rates in Italy are relatively high, your net income tax can be considerably reduced by allowances and credits, as explained below.

Property Income

All property owners in Italy (whether residents or non-residents) must pay income tax based on a property’s imputed income. Income from land and buildings is based on their cadastral value ( rendita catastale), which is a nominal value attributed by the land registry ( catasto).

The value of land is calculated by multiplying the average ordinary income (fixed by the catasto) by the surface area, taking into consideration the location of the land. The value of buildings is calculated by multiplying the surface area by an amount (fixed by the catasto) that takes into consideration their location, age, condition and official category.

Income tax is also payable on rental income from an Italian property, even if you live abroad and the money is paid there. All rental income must be declared to the Italian tax authorities whether you let a property for a few weeks to a friend or 52 weeks per year on a commercial basis. Rental income is taxed as ordinary income.

You’re eligible for allowances such as repairs and maintenance, security, cleaning costs, mortgage interest (Italian loans only), management and letting expenses (e.g. advertising), local taxes, insurance and depreciation. You should seek professional advice to ensure that you’re claiming everything to which you’re entitled. Many people find that there’s little tax to pay after deducting their expenses.

This article is an extract from Living and Working in Italy from Survival Books.

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