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By Gareth Horsfall
This article is published on: 2nd May 2025
Understanding your taxes and timing of tax payment in Italy
It’s that time of the year again folks!
am always given warning that tax time is approaching because a number of clients start to ask for valuations of accounts, interpretation of some documents and also help with organising and sharing some documents with commercialisti.
INCOME TAX RATES FOR 2025 (IRPEF)
In a move to simplify the tax regime in Italy the tax bands have now moved from 4 to 3 in 2024.
| On the first € 28000 | 23% |
| € 28001 to € 50000 | 35% |
| € 50000+ | 43% |
Most of my clients are in, or planning for, retirement to some degree and so understanding how your pension will be taxed as a resident in Italy is of paramount importance.
PRIVATE PENSIONS AND OCCUPATIONAL PENSIONS (Income tax rates – IRPEF)
Private pension provider income: 401K / IRA’s etc / Occupational pensions / Personal pension income / State pension or social security.
All these types of pension incomes fall into the income tax rates ( IRPEF), they are added together and the rates applied to the progressive bands of income.
(tax in country of origin unless Italian citizen!)
The definition according to the Italy / UK / USA double taxation convention 1988 is, paid from:
” a political or an administrative subdivision or a local authority”
The pension awarded is generally taxable only in the state in which it originates and tax is generally deducted at source in that country of origin, unless your are an Italian citizen and then it becomes taxable in Italy as well.
(Check the double taxation treaty from the country in which the pension payments originate)
(This income is not taken into account when calculating the tax on your other income sources in Italy, e.g. rental income, and it is not declared on your tax declaration in Italy)
The NO TAX AREA applies to anyone receiving a pension, whilst resident in Italy (“pensioner” is defined as someone who is receiving official state benefits i.e., social security or state pension).
No distinction is made between pensions being paid from abroad or within Italy!
The NO TAX AREA is €8500 per annum.
It is important to understand that this is NOT an allowance but a tax credit system.
If your total income (reddito complessivo) is €8500 or less then all the tax payable on your pension will be provided as a tax credit.
HOWEVER, the more your total income, from all sources, increases over €8500, the more of the tax credit you lose.
If your total income is €50000 or above you would not receive any tax credit.
A very simple to understand and acceptable €34.20 per annum is applied to each conto corrente e libretto di risparmio: current account or deposit account. This would typically include fixed deposits, short terms cash deposits, CD’s etc. The charge is the equivalent of the ‘imposta da bollo’ which is applied to all Italian deposit accounts each year.
(Money market accounts, premium Bonds in the UK and other deposit based instruments will not generally fall in this category and would be subject to wealth tax – see below)
Interest income is taxed at 26%.
A flat tax rate of 26% is payable on interest and income payments from capital and realised capital gains are also taxed at the same rate of 26%.
(Interest from Italian government bonds and government bonds from ‘white list’ countries are still taxed at 12.5% rather than 26%, as detailed above. This is another quirk of Italian tax law as this means that you pay less tax as a holder of government bonds in Pakistan or Kazakhstan, than a holder of corporate bonds from Italian giants ENI or FIAT).
If you are invested in NON-EU harmonised collective investment vehicles i.e. funds which are listed in a place outside the EU, then the gains and income from these assets are NOT taxed at the flat 26% rate in Italy, but would be added to the rest of your income for the year and taxed at your highest marginal rate of income tax! Funds or ETF’s, for example, which re listed in the UK with a GB ISIN code or in the US with an equivalent US number, would fall into this category.
This is particularly important for UK and USA domiciled assets. If you have a brokerage account with a group such as Fidelity or Vanguard or one of the many other asset management firms, or you invest through a platform such as Hargreaves Lansdown in the UK/USA, then depending on which assets you invest in could mean you are pushing yourself into a higher tax bracket on taxable gains and income for the year. Your portfolio may need restructuring for life in Italy!
Any financial assets other than property attract an annual wealth tax of 0.2% on the value of the asset as at the 31st December each year.
Here are examples of a few:
GENERAL INVESTMENT ACCOUNTS, ISAS, BROKERAGE ACCOUNTS, PLATFORMS, DISCRETIONARY MANAGED PORTFOLIO, DIRECT INVESTMENT IN FUNDS, STOCKS AND SHARES, COMMODITIES, ART WORK, CLASSIC CARS, ETC.
If the assets are located in one of tax regimes around the world which are considered fiscally privileged by the Italian authorities, then the rate of tax is 0.4% pa. The list can be found at the end of this article HERE
Overseas net property income (after allowable expenses in the country in which is located) is added to your other income for the year and taxed at your highest progressive rate of income tax.
For properties based in the EU, the value on which this tax is based is the Italian cadastral equivalent. You will find that the market value will, in most cases, to be significantly more than the cadastral equivalent value. For a list of the different tax values across Europe see the table below.
For properties located outside the EU (inc the UK/USA/Canada/Australia/NZ etc) the value for tax purposes is defined as the acquisition value (purchase /inherited/acquired) where this can be evidenced, otherwise it is the current market value of the property.
Disposal of properties both abroad and in Italy (exc prima casa) are not deemed speculative if you have owned the property for more than 5 full tax years and therefore are not capital gains tax liable on the disposal, in Italy.
NOTE: If you gain residency in Italy then by default your previous ‘first home’ or ‘family home’ for the purposes of the Italian tax authorities is now classified as an investment property. By definition, if you have a home in Italy and a property in another country, even if you consider this property your family home, it can no longer be considered your ‘Prima Casa’ for Italian tax purposes.
If you have any questions about any of these taxes and how they might apply to you and your individual financial situation, or if you think that you might be paying more than need to, then do get in touch and I will be happy to see if I can help you with your plans.
I can be contacted on email: gareth.horsfall@spectrum-ifa.com or on cell: +39 333 6492356
