Navigating Italy’s Tax System
Monday, July 2nd, 2007
You have probably heard the old cliché that there is only two things certain in life: that is death and taxes. Well if you are planning on staying for a long duration it then behooves any serious traveler to become familiar with the country’s tax system.
The United States has fortunately formed a treaty with Italy in order to reduce the burden of United States citizens who live abroad so they are not double taxed on income, property and capital gains. However since each person’s tax liability is different it is recommended that one consult with an international tax attorney or specialist.
Italy does collect taxes on residents and non-residents alike. For the residents you are liable for your worldwide income. For the non-residents you are only liable for income that comes from Italian sources.
Income Tax (IRPEF) has the following structure after allowances. For income up to $9,350 you are taxed at 18.5 % for income up to $14,000 the rate is 25.5% for income between $14,000 and $28,000 the rate is 33.5% for income between $28,000 and $63,000 the rate is 39.5% and finally for income that exceeds $63,000 the rate is 45.5%.
Sales Tax (Imposta sul Valore Aggiunto) which is of course an indirect tax paid every time you purchase goods and services. It is similar if not identical to the Value Added Tax that many residents in the United Kingdom and other European Union countries have to pay. Typically this sales t ax is included in the purchase price however for items when this is not the case the rate structure is 9% on non luxury properties and 19% on luxury properties. What determines a luxury or non luxury property is beyond me so I would seek some advice on this from a professional.
Transfer Tax is a tax placed on the transfer of property from one owner to another. The rates vary by the type of property being transferred. For instance if the property is an urban apartment the rate of transfer tax can be up to 10% of the declared value of the property. For a agricultural property the rate is a bit higher as it can be up to 17% of the declared property value. However, there is some good news for first time home buyers because the rate is reduced to 4% but you must be a resident of Italy to qualify for this benefit.
Property taxes (Imposta Comunale sugli Immobili) are collected each year just like here in America. The property rate is really determined at the local level and is based on the declared value of the property. However what I can tell you is that the property tax rates vary between 4-7% based on the local municipality. This property tax is payable in two installments which occur in June and December.
It is obvious that Italy has a fairly hefty tax bill for their residents. However since the country does offer many social services the money must come from somewhere. Whether you want to retire there or not this can give you some idea as to what you will end up paying to the tax man. I have covered just a brief introduction to what you can expect from the Italian tax system here. The reason for this is that it is always wise to seek expert guidance in this matter.
