General Overview

The income taxes applicable to individuals are IRPEF, a State tax, and IRAP, a regional tax. IRAP is not deductible in determining the taxable base for IRPEF.

IRPEF is a progressive individual income tax that applies to the aggregate total income of the taxpayer, while IRAP applies to adjusted income from professional and business activities (for IRAP see Taxation of Resident Companies).

IRPEF applies to both resident and non-resident individuals. Resident individuals are subject to tax on their worldwide income and a credit is provided for taxes paid abroad.

Residents

For income tax purposes, residents of Italy are those persons, whether nationals or not, who for the greater part of the tax period are registered in the Civil Registry or who are resident or domiciled in Italy as defined in the Civil Code.

According to the Civil Code, the domicile of a person is the place where he has established the principal centre of his business and interests (centre of vital interests), while his residence is the place where he has his habitual abode.

Non-residents

Non-resident individuals are only subject to IRPEF on income that is considered to arise in Italy. They are obliged to file a tax return regarding the income that is considered to arise in Italy, unless such income is subject to a substitute tax or to a final withholding tax deducted by the payer of the income.

Under domestic law, compensation for independent work carried out in Italy by non‑residents is subject to a final 30% withholding tax. This includes directors' fees paid by an Italian company. However, you must consider that tax treaties may change such taxation.

IRPEF Rate Structure

The current IRPEF rate structure is as follows:
- up to euro 15,000: 23%;
- from euro 15,001 to euro 28,000: 27%;
- from euro 28,001 to euro 55,000: 38%;
- from euro 55,001 to euro 75,000: 41%;
- over euro 75,000: 43%.

The above rates must be increased by a regional surtax ranging from 0.9% to 1.4%. The rate may be further increased by the municipal and provincial surtax, determined by each municipality and province at an aggregate rate of up to 0.8%.

It is also provided a special contribution of 3% on taxable income exceeding the amount of 300.000,00 euro per annum.