Taxes in Italy

Understanding Taxes and Payroll in Italy

Navigating the administrative landscape of a new country is a critical step for any foreign national moving to Italy. The Italian tax system is characterized by a progressive income tax structure and a robust social security framework. For employees, most tax obligations are managed directly by the employer, who acts as a "withholding agent" (sostituto d'imposta).

This guide outlines the fundamental components of the Italian payroll system and the tax obligations for the 2025 and 2026 fiscal years.

The Foundation: Codice Fiscale

Before entering any employment contract or opening a bank account, a foreign national must obtain a Codice Fiscale (Tax Code). This is a unique alphanumeric identifier used by the public administration to identify individuals living in Italy.

• Where to apply: At any office of the Agenzia delle Entrate (Revenue Agency) or through Italian consular authorities in your home country.
• Cost: Free of charge.
• Requirement: Valid passport and, for non-EU citizens, a valid stay permit (permesso di soggiorno) or the receipt of the application.

Payroll Basics: The Busta Paga

In Italy, salary is usually discussed in terms of RAL (Reddito Annuo Lordo), which is the Gross Annual Salary. The Busta Paga (payslip) is the monthly document that details the breakdown from gross to net pay.

Standard employment contracts in Italy often include more than 12 monthly payments. Depending on the National Collective Labor Agreement (CCNL), workers may receive a 13th-month salary (paid in December) and sometimes a 14th-month salary (usually paid in June or July).

Key Components of the Payslip

• Gross Salary: The total amount before any deductions.
• Social Security Contributions (INPS): Usually around 9.19% for the employee, deducted automatically.
• IRPEF (Income Tax): The progressive tax withheld by the employer.
• Regional and Municipal Surcharges: Small additional percentages that vary by location.
• TFR (Trattamento di Fine Rapporto): A portion of the salary set aside as a "severance payment," accessible upon leaving the company.

Income Tax Brackets (IRPEF)

As of 2025, Italy utilizes a three-bracket progressive tax system for personal income tax (IRPEF). These rates apply to the taxable income after social security contributions have been deducted.

• Up to 28,000 EUR ($29,400 USD, Jan 2026): 23%
• 28,001 EUR to 50,000 EUR ($52,500 USD, Jan 2026): 35%
• Over 50,000 EUR ($52,500 USD, Jan 2026): 43%

Note: These brackets are subject to legislative adjustments in the annual Budget Law. Always verify current rates with the official Revenue Agency portal.

Social Security and Pension (INPS)

Social security contributions fund the Italian welfare system, including pensions, unemployment benefits, and sick leave. These are mandatory for all workers.

While the employer pays the majority of the contribution (roughly 30% of the gross salary), the employee’s share is typically around 9% to 10%. These funds are managed by INPS (Istituto Nazionale Previdenza Sociale).

For a gross salary of 30,000 EUR ($31,500 USD, Jan 2026), the employee’s social security deduction would be approximately 2,757 EUR ($2,895 USD, Jan 2026) per year.

Tax Incentives for Foreigners

Italy offers specific tax regimes to attract skilled labor and residents from abroad. The most notable is the "Lavoratori Impatriati" (Inpatriate Workers) scheme. Under the rules applicable for 2025/2026 (introduced in late 2023):

• Exemption: Qualifying workers may receive a 50% tax reduction on their Italian-sourced income.
• Duration: Valid for 5 years, provided the individual stays in Italy for at least 2 years.
• Income Cap: The incentive is applicable on income up to a maximum of 600,000 EUR ($630,000 USD, Jan 2026) per year.
• Requirements: High qualification or specialization, and the individual must not have been resident in Italy for the previous 3 tax years.

Annual Tax Compliance

Even though employers withhold taxes monthly, many workers must file an annual tax return (Dichiarazione dei Redditi). The two primary forms are:

• Form 730: Used by most employees and retirees. It is simplified and allows for direct reimbursement of tax credits in the following month's paycheck.
• Form Redditi PF: Used by individuals with complex income sources, foreign assets, or those without a current employer.

The deadline for filing Form 730 is typically September 30th of the year following the tax year in question. Failure to disclose foreign bank accounts or assets (RW module) can result in significant penalties.

Practical Steps for Newcomers

To ensure full compliance and optimize your financial situation in Italy, consider the following steps:

1. Secure your Codice Fiscale: Do this immediately upon arrival or via the consulate before moving.
2. Review your Employment Contract: Ensure you understand whether your salary is quoted as Gross (RAL) or Net.
3. Consult a CAF or Commercialista: A Centro di Assistenza Fiscale (CAF) provides low-cost help with tax filings, while a Commercialista (Accountant) is recommended for high-earners or those with foreign income.
4. Register with the SSN: Use your employment status to register with the Servizio Sanitario Nazionale (National Health Service) to receive your health card (Tessera Sanitaria).

Disclaimer: Tax laws are subject to change. This information is provided for general guidance and does not constitute legal or financial advice.