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Income Tax Brackets Italy 2022

By Gareth Horsfall - Topics: Income Tax, Italy, Tax in Italy
This article is published on: 7th December 2021

Well, it’s the moment that we have all been waiting for.  The announcement was made on the 25th November.  The new income tax bracket bands (IRPEF) from 2022.  Unfortunately, I have to report that they really are not going to make a big difference to most people, but some savings might be available.

I know I mentioned in one of my previous E-zines that there was also talk of a possible allowance being introduced as well, but this area is still being debated.  The talk is that an allowance will not be forthcoming for everyone, but that they will merely extend or enlarge the current no-tax area.  This is not the same as an allowance which everyone would receive regardless of their income; instead it is offered to those with lower incomes, in different classifications.  At present the no-tax areas apply as follows:

For employed workers: €8145pa
Pensioners: €8130pa   (this increases for the over 75s to €9000pa)
Self employed workers: €4800pa

**  You would not be taxed at all if you were earning / receiving income equating to those figures exactly.  However, the more that your total income increases over these figures, the more of the no-tax area that you lose.  Hence distinguishing this from a tax allowance.  It is more like a means-tested benefit   ***

Remember that Italy also has its highly complex system of detractions and deductions which can help to reduce your overall tax bill further.  This, with the changes made in the income tax rates, will also be under review, but I suspect it will still remain in some shape or form for the future.  The complication here is always knowing what you are eligible to deduct and how.  To keep on top of the current system of deductions and detractions, you almost need to make it a full time job, from tax deductions for installing a water filtration system in the house, to veterinary bills and expenses.  Anyway, more on that as and when I know more myself.

For now, let’s concentrate on the fact that income tax rates have now been reviewed and subsequently will change for 2022.

income tax Italy

Entrepreneurial progress?
I think that back in 2019, maybe earlier, I wrote an E-zine bemoaning the fact that Italy’s tax system was cutting off the opportunity for entrepreneurs and small business owners to go to the next level and start to create the next generation of SMEs (small to medium sized businesses), purely because of its taxation and ‘contributi’ system.  My bug bear was that as soon as your income went over €28000 then Italy imposed a taxation of 38% on income earned, until total income exceeded €55000, when the tax rate increased again.  This, in addition to the high level of social security contributions, was the equivalent of asking someone to run a marathon but chopping them off at the knees before they started, and as the marathon progressed (if they could even make it that far) then would start to chop more of the leg off as they progressed.  Hence, why would you even start?

(I am exaggerating a little because for some years now there has been a tax regime for self employed people earning up to €65000pa where they can pay just 15% income tax per annum, but without the opportunity to offset any business expenses.  Most small business people I know are on this regime, which is great, but what if you can, or want to, earn more than €65000pa and take your business to the next level?) 

These were always the bigger questions.  Well, thankfully, Sig. Draghi has used the cloak of Covid (or more likely the cloak of a serious amount of funding from the EU) to do something about this and has made changes to the income tax rates.  However, let’s have a look at the current system of taxation before we look at the new. 

IRPEF as things currently stand is charged as follows:

€0 – €15,000 23%
€15001 – €28000 27%
€28001 – €55000 38%
€55001 – €75000 41%
€75000+ 43%

The biggest leap here being the move from 27% to 38% after €28000pa 

In the shake up, we now go from 5 bands to 4 and the bands have been widened as follows:

€0 – €15000 remains at 23%
€15001 – €28000 will now go from 27% to 25%
€28000 – €55000 will fall from 38% to 35%

And the biggest change here is that from €55000 pa the rate will pass straight to 43%

What can be learnt from this? 
I think the lesson from this change is very simple.  One which I think fits into current world thinking.  The individual earning more (in this case €55000pa) is now going to pay more tax and those on lower than €55000pa incomes, in Italy, are going to be incentivised to spend more with lower taxes.  It’s not a stupid strategy in all honestly because people with less income will naturally spend the extra cash that is available to them.  Those with higher incomes will normally siphon off surplus income into reserves (investments/pensions etc).
So, all in all Italy is doing what a lot of countries already do.  And we are told that this is just ‘stage 1’ of the reformed income tax regime (essentially to get something over the line before the end of 2021), but more reforms are pending from 2022 onwards.  As my classic phrase goes ‘I wait to be amazed!’.



Summary
That all being said, for a lot of people it will mean some tax savings, especially those with income between €15000 and €55000.  The full saving in these tax brackets will be €1070pa.  Not to be sniffed at as the cost of utilities and food has increased substantially in the last year.  For anyone else, you are not really going to see much change at all, and I suspect the system of detractions and deductions will continue for now to help anyone reduce their income tax liabilities even further.  In Italy, it would seem, things happen piece meal and over a longish period of time.  No one politician or political party really has the political clout to push such sweeping reforms as might be needed and get them put into place, even Mario Draghi.  However, the ability to push through smaller reforms which make a big difference over time seems to be more the status quo.  As usual, we bumble along and react to things as they happen and continue to enjoy the life that Italy affords us.

Article by Gareth Horsfall

If you live in Italy and or have financial interests in Italy you can contact Gareth Horsfall directly on: gareth.horsfall@spectrum-ifa.com to request more information about how he may be able to help you. Alternatively you can complete the form below and a message will be sent to him. If you would like to read more about Gareth's work you can follow his blog on tax and financial planning in Italy HERE

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