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Why Italy’s inheritance taxes aren’t as high as you might expect

Inheritance taxation in Italy is much more advantageous than in other European countries. In fact, it ranges from 4% to 8% - and in many cases is not even applicable. But what exactly is the inheritance tax and how does it work in Italy? Tuscany-based tax experts MGI Vannucci e Associati explain.

Why Italy's inheritance taxes aren't as high as you might expect
Property and other assets are often passed down through the generations in Italy, and inheritance tax rules are favourable. Photo: AFP

Inheritance tax must be paid by residents in Italy under certain conditions, that will be described below, when they inherit property – both real estate and movable property – wherever this heritage may be located (therefore also on assets held abroad).

The Italian inheritance tax concerns not only the assets of Italian citizens, but also all assets, in Italy and abroad, of foreign citizens if they have their tax residency in Italy at the time of their death.
 
On the other hand, the Italian inheritance tax is calculated only on assets located in Italy if the deceased, whatever their citizenship, is not a tax resident in Italy at the time of their death.
 
The Italian law governing inheritance tax provides for different taxation depending on who is receiving the inheritance, and there are some cases in which no tax is due. 
 
In particular:
  • If the heirs are the spouse, children, or other relatives in a direct line (father, mother, grandchildren), a one million euro deductible is provided for each heir under which no tax is due; 4% tax is due on the part exceeding one million euros;
  • If the heirs are brothers or sisters, there is a 100,000 euro deductible under which no tax is due; a tax of 6% is due on the part exceeding 100,000 euros;
  • If the heirs are relatives other than those indicated above, there is no limit on taxation up to the fourth degree of relationship, and the inheritance received is taxed at 6%;
  • For all the other heirs, there is no limit on the taxation and the inheritance received is taxed at 8%
  • Furthermore, if the heir is a disabled person, the deductible under which no tax is due rises to 1.5 million euros.
For example, assuming that an Italian resident with a patrimony of four million euros dies, leaving his wife and two children as his heirs, with the patrimony shared equally among them, the following taxation occurs: 
 
Each heir receives a fortune of 1.33 million euros (1/3 of 4 million). Since the heirs are the spouse and the two children, the exemption allowance of one million euros applies to each of them, and 4% is applied to the surplus. So each has to pay 13,333 Euros (4% of 333,333 euros). 
 
Therefore, on a total inheritance of 4 million, the inheritance tax to be paid is equal to 40,000 euros (with an incidence of only 1% on the total inherited assets).
 
The following table offers a summary:
 
 
If real estate located in Italy is included among the assets to be inherited, the mortgage tax of 2% and the cadastral tax of 1% is due, without any benefit from deductible exemptions.
 
Therefore, in the event that real estate located in Italy is inherited, there is still a 3% tax burden to be applied. This is, however, on the cadastral value of the asset, which currently in Italy is generally much lower than the market value.
 
 
 
Photo: AFP
 
As we have already said, in cases where the inheritance tax is due in Italy, the assets held in foreign countries must also be calculated. 
 
In this case, it is probable that, for assets located abroad, an inheritance taxation will most likely also apply in the country in which these assets are located. In this case there is thus the risk that a hypothesis of double taxation is generated. 
 
According to Italian legislation, where inheritance tax has been applied to the same asset abroad, said foreign tax can be deducted from the tax to be paid in Italy. 
 
In addition, Italy has signed bilateral agreements aimed at eliminating double taxation in matters of succession with the following countries: Denmark, France, the United Kingdom, Greece, Israel, the United States of America, and Sweden.
 
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Finally, we should draw attention to the fact that, in the presence of assets worth more than 100,000 euros, or in any case in the presence of properties (whatever the value) that have fallen into succession in Italy, a specific declaration of succession must be presented. It is advisable to contact specialized professionals for this requirement.
 
Taxation on inheritance in Italy is certainly very “generous” compared to what happens in other countries. 
 
For this reason, for some years now there have been discussions in Italy of revising this tax, providing for an increase. In this sense, legislative proposals have been promoted aimed at increasing the rates and reducing the exemptions on succession tax. 
 
At the moment, however, the taxation applicable to successions in Italy is as described in this article.
 
MGI Vannucci e Associati are a team of English-speaking chartered accountants and tax experts based in Tuscany, Italy.

READ ALSO: The real cost of buying a house in Italy as a foreigner

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EXPLAINED: What is Italy’s new digital invoicing rule for freelancers?

Italy is bringing in new rules from July that mean changes for freelancers on the 'flat tax' rate. Here’s what you need to know about the new ‘fatturazione elettronica’, or digital invoicing system.

EXPLAINED: What is Italy’s new digital invoicing rule for freelancers?

Italy has been slowly moving more of its bureaucratic systems online in recent years, and in many cases this has made it quicker and easier for residents to access services and get their considerable amounts of Italian life admin in order.

It was hoped that the new electronic invoicing rule would do the same for freelancers on Italy’s flat-tax regime, by doing away with the existing need to print out invoices and affix tax stamps by hand.

READ ALSO: Beat the queues: 19 bits of Italian bureaucracy you can do online

But a close look at the details of the new rules shows that it probably won’t make life easier for those on the flat tax rate, who have so far been spared the bulk of that infamous Italian red tape – but now need to get to grips with a new online system.

Known as the ‘regime forfettario‘, Italy’s flat-rate tax scheme for individuals and small businesses was introduced in 2015 to encourage more commercial activity by slashing tax rates and simplifying bureaucracy.

New freelancers who choose this tax system generally pay somewhere between just five and 15 percent tax on earnings, regardless of overheads.

READ ALSO: The pros and cons of Italy’s five percent flat tax for freelancers

Little has changed since its inception seven years ago, but freelancers using the scheme now need to be aware of new rules coming into force from July 1st, 2022.

How you invoice – how you send, receive and store receipts, therefore – is due to move from analogue to digital, bringing new requirements and know-how on digital invoicing software.

Here’s what’s changing for freelancers with the so-called ‘fattura elettronica‘.

Who is required to send electronic invoices?

While this was already a requirement for the self-employed on other tax regimes, those on the flat tax rate will now be included from July 1st.

They were previously exempt, but that changed under the PNRR (National recovery and resilience plan or piano nazionale di ripresa e resilienza) – the Italian government’s plan for using EU funding for post-pandemic economic recovery.

Digital invoicing is intended to fight Italy’s major problem with tax evasion, as well as to further automate accounting processes.

For now, not all freelancers under this tax scheme need to move to digital accounting – only those who received an income in excess of €25,000 in the previous year are required to comply with the new rule.

It will then extend to all freelancers using the flat-rate scheme from January 1st, 2024.

From that date, everyone subscribed to the ‘regime forfettario’ will have to switch to electronic invoicing and there are hefty penalties in place for those who don’t.

How will electronic invoices work?

Italy’s tax authority has defined a couple of notable differences between the digital or electronic invoice (fattura elettronica) and a paper invoice (fattura di carta) in its updated guidelines.

Firstly, the digital invoice has to be created using a digital device (a computer, tablet or smartphone), and secondly it has to be sent to the client via an ‘Interchange System’, the so-called Sistema di Interscambio (SdI).

READ ALSO: ‘Smart working’? Here’s what you need to know about going self-employed in Italy

Italy’s flat-rate tax scheme is going digital. Photo by Christian Dubovan on Unsplash

This electronic postal system checks whether the invoice contains the required data for tax purposes, as well as checking the verified e-address (or the so-called PEC address) of the recipient.

In doing so, the electronic invoice automatically checks that the VAT number (partita IVA), or the tax code (codice fiscale) depending on who you send the invoice to, really exist.

Once the checks are completed, the system sends the invoice to the client, which will trigger an alert to the freelancer with a delivery receipt, showing the date and time the document was delivered.

How can you send an e-invoice?

There are a few accounting software options on the market if you’re now faced with having to send electronic invoices.

Some charge a fee of around €1-€4 per month or come at a cost per transaction.

Platforms such as ‘Aruba‘ or ‘Fatture in Cloud‘, are competitive and may offer you a free trial before you deciding to buy.

The Italian revenue agency (Agenzie delle Entrate) has also created free-of-charge services to help send and receive e-invoices. These include websites as well as apps for completing the required steps, which are detailed in their guide here.

You can access their Invoices and Receipts (‘Fatture e Corrispettivi‘) portal to benefit from these free services.

You’ll either need a Spid ID (‘Sistema Pubblico dell’Identità Digitale‘), a Carta Nazionale dei Servizi (CNS) or accounting credentials known as Fisconline/Entrate, which are issued by the Agenzie delle Entrate.

You can also delegate this task to an intermediary, such as an accountant (commercialista) who would do this on your behalf, the revenue agency stipulates 

What about the Italian tax stamp?

Until now, freelancers issuing invoices under the ‘regime forfettario‘ have had to attach a €2 stamp, called a ‘marca da bollo’, to every invoice over the value of €77,47.

So what happens when e-receipts go digital and you can’t physically stick a stamp on a document? Well, that goes digital too and the Inland Revenue has issued a 16-page guide on how you need to go about it.

It seems the previously attractive ‘light’ accounting of this regime is about to get bogged down by time-consuming bureaucracy too.

Authorities will systematically check that the fee has been paid each quarter for all the invoices that require it.

As a general rule, you can see if there are any discrepancies by the 15th day of the first month following each quarter on their Invoices and Receipts portal.

You or your intermediary have until the end of that month to fix any accounting errors, but make sure to check with an accountant if you have any difficulties or need specific advice for your personal circumstances.

Once you receive your final stamp duty bill for each quarter, you can pay either via IBAN, which you set up on the portal, or by filling out an electronic F24 form – details of how to do that are included in the guide.

For further information and FAQ’s, see Italy’s Inland Revenue Agency website on the electronic invoice here.

Please note The Local cannot advise on personal cases and seeking expert financial advice is recommended.

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