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Danish Italy, with its rich cultural heritage and stunning landscapes, is a dream destination for many expats and retirees. While it's essential to understand the tax implications of such a move, it's equally important to know that Italy offers various schemes to make your tax liabilities manageable, if not advantageous. This guide aims to provide a balanced overview of both.
Personal Income Tax
Personal Income Tax in Italy is progressive - meaning that it increases as one's income goes up - affecting diverse income types such as employment, business, self-employment, and real estate. The rates range from 23% to 43%, based on your income levels. Additionally, a regional tax that varies between 1.23% and 3.33% is applied, depending on your region of residence. While these rates might initially seem daunting, Italy offers several tax schemes designed to reduce the tax burden for expats and retirees, which we will explore later.
Additional Municipal Tax
Another tax to consider is the Additional Municipal Tax, determined by your place of residence. It usually ranges from 0.2% to 0.9%. Though it may appear as a minor addition, every bit counts, and it's worth exploring how to mitigate this through various tax schemes.
Dividend Income
For those with investments, Dividend Income is subject to a 26% substitutive tax as of the fiscal year 2018. However, non-resident recipients may qualify for reduced tax rates under existing tax treaties, making Italy a potentially favourable investment environment.
Interest Income
Interest Income is taxed differently based on its origin. Government bonds come with a withholding tax of 12.5%, while other securities and bank accounts are subject to a final withholding tax of 26%. These rates are standard but can be offset by various tax schemes and deductions.
Capital Gains
Capital Gains are subject to a flat tax rate of 26% since January 1, 2019. However, certain exemptions and schemes can make capital gains tax more manageable for expats and retirees. Most importantly, one's private principal property can be sold tax-exempt after five years' residence in that property.
Property Taxes (IMU)
Property owners should be aware of IMU, which is a property tax levied based on the cadastral (official) value of a property. This is payable in two annual instalments. While property taxes are a consideration, these are relatively modest compared to other Western countries.
Tax on Investment Income (TARI)
TARI is computed based on waste generated or productivity coefficients and is applicable to property or open space owners. For most households, this tax amounts to a few hundred euro per year.
Tax on Foreign Properties (IVIE)
For Italian tax residents with properties outside Italy, IVIE applies. The tax rate is 0.76%, but deductions are available for property taxes paid in the foreign country, making this tax less burdensome than it initially appears.
Financial Investments Levy
The Financial Investments Levy is based on the value of financial investments, with a tax rate of 0.2% applicable in the fiscal year 2023. A fixed fee of €34.20 per bank account is also levied, waived if the average annual balance is less than €5,000.
Exemptions and Tax Schemes
Italy offers several tax schemes to reduce the tax burden for expats, retirees, and even ultra-wealthy individuals. These include the "regime degli impatriati" for expats, the so-called 7% scheme for retirees, and the EUR 100k flat tax scheme for the ultra-wealthy. Additionally, tax rebates are available for property renovations and business investments. Parents also have the right to monthly payments based on household income and the number of dependents.
Conclusion
While the Italian tax system has its complexities, it also offers a range of opportunities for tax savings and benefits. By understanding both your liabilities and the available schemes, you can make an informed decision that allows you to enjoy la dolce vita without financial strain.
