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EXPLAINED: The rules and deadlines for filing Italian taxes in 2021

From an upcoming deadline to special tax breaks, here's what you need to know about filing taxes in Italy.

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Know the taxes you need to pay in Italy and when. Photo by Ibrahim Boran on Unsplash

Who has to file tax returns in 2021?

Residents and non-residents in Italy alike have to file a tax return, but the rules are different for each group.

Those who are resident in Italy – which includes people who live in Italy more than 183 days per year, making it their primary residence – are taxed on worldwide income.

This means you have to take into account earnings you make from everywhere. Even if you generate an income from another country, you pay taxes to Italy and this is true regardless of your citizenship.

Non-residents on the other hand, such as those who have a second home in Italy, only pay taxes on income made in Italy. Find out more about the taxes second-home owners need to pay here.

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Not everyone has to file taxes, however. This includes people who receive employment income from a single employer, those who make an income taxed at source such as money gained from dividends, people who earn an income of 8,000 euros or less from employment and people who receive a retirement income of 7,500 euros or less.

When are the deadlines for filing this year?

The final deadline for filing your taxes is approaching – they are due November 30th.

The Italian tax year is the same as the calendar year, running from January 1st to December 31st. For the 2021 tax season, the tax return regards income and expenses incurred during 2020.

Do your research when looking for work

Photo: Van Tay Media on Unsplash

You must file your tax form online via the dedicated website of Italy’s tax office (Agenzie delle Entrate). If you’d prefer a professional to take care of it, your accountant can do this for you.

You’ll need some form of electronic ID credentials such as your SPID or CIE.

Which Italian tax form should I use?

There are two different tax forms – one is known as the 730 and the other is the ‘Redditi‘ (revenue).

Everyone can file taxes using the latter within the upcoming final 30th November deadline.

However, the more simplified 730 form can only be used by those employed by a company (and therefore not self-employed) – it’s generally processed faster but has an earlier deadline of 30th September.

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The Redditi tax form is broken down into sections, based on the type of income earned, including a section for foreign assets, which would incur a type of tax called ‘wealth tax’.

If you have any assets or income that can’t be included in the shorter 730 form, you must complete the Redditi to adhere to Italy’s income reporting requirements.

What taxes can I expect to pay?

There are three main taxes you need to pay on income in Italy. Everyone is subject to personal income tax called ‘Irpef’, which starts at 23 percent of earnings for the lowest income bracket and rises cumulatively to 43 percent as a wage increases.

You pay tax on each income bracket you pass through. So if you earn over 15,000 euros for example, you pay 23 percent on income earned up to this threshold (making it 3,450 euros).

Anything over that you start to pay 27 percent tax and so on according to your salary.

Photo: Kelly SikkemaUnsplash

There are also regional taxes which vary from under 1 percent to over 3 percent and you’ll also need to pay municipal income tax rates, which varies according to where your fiscal residence is.

You’ll also need to take social security contributions into account, which is around 9 percent for employees of a company as employers pay the major share (around 30 percent).

The rate is much higher for self-employed workers, coming to around 25 – 29 percent of gross income.

One exception is for those who are eligible for Italy’s flat tax rate or ‘regime forfettario’ for new freelancers, which can slash income tax to between five and 15 percent. Find out more about this here.

What happens if I miss the deadline?

The best approach is to never miss Italy’s tax deadlines, as there are fines and sanctions in place for those who do.

You could be fined anywhere between 250 euros to over 1000 euros for not filing taxes on time. If your tax return lands you in a tax liability, you could be issued with a further fine ranging from 120 percent to 240 percent of each tax liability.

READ ALSO: Working remotely from Italy: What are the rules for foreigners?

If you have foreign assets and were late with your tax return, you will face a fine of between 3 and 15 percent of the asset value. Double that if your asset is held in a black-listed country or jurisdiction, such as the Cayman islands, Oman or the Seychelles.

Tax breaks for new residents to Italy

There are hefty tax discounts available for some people who move to Italy and make it their primary residence, which is worth bearing in mind ahead of filling out your tax form.

Essentially, there’s a discount on taxes for new residents for a period of up to five years.

To be eligible, you need to be either employed or self-employed in Italy and not have had residence in Italy in the previous two years.

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You can take advantage of a 70 percent tax exemption on your income, meaning that if you make 100,000 euros per year, only 30,000 euros is taxable.

There are even greater tax breaks on offer if you move to the south of Italy, with the exemption increased to 90 percent. Where living costs are lower and only 10 percent of your earnings are taxable, that’s an alluring prospect to new professionals.

The scheme is extended for a further five years if you have a dependent child or you buy any residential property in Italy.

To find out whether you may be eligible, speak to an accountant or your local agenzie delle entrate (tax office).

People sit at a table during a job interview

There are different steps for the employed and self-employed when it comes to taxes in Italy. Photo: Nick Morrison on Unsplash

When do self-employed workers pay their taxes?

Self-employed workers are subject to the same income tax brackets as the employed, but they can pay their taxes slightly differently.

Compared to those employed by a company who pay income tax at source, the self-employed can pay their taxes in June or spread them out over six months in instalments.

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

They must meet the November 30th deadline for filing taxes, but it’s always recommended to do it earlier to avoid potential penalties.

What about income earned from outside Italy?

Depending on where the income from abroad is earned from, you’ll need to check any double taxation treaties in place between Italy and the country you’re generating income from.

Regardless of where income is generated, however, you can deduct any extra tax paid abroad from the limits set in Italy.

If the tax paid is higher in the other country, you don’t have to pay anything in Italy. If it’s the contrary, you’ll have to pay the difference in accordance with Italy’s tax rates.

Even if it turns out you don’t have to pay any extra taxes to Italy, you still have to file a tax return and disclose your foreign income.

If you have any foreign assets, such as residential and commercial properties, bank accounts, shares owned in private or public companies, vehicles such as a boat, investments, insurance, pensions and cryptocurrency, you need to declare these.

Only residents in Italy must disclose foreign-held assets, however. Again, any taxes paid abroad can be used as credit to offset taxes in Italy in accordance with double taxation agreements.

Are there any tax deductible items I can claim for?

There are plenty of items and schemes that can be deducted in your tax return. This can include health expenses, kindergarten fees, holiday tax credit and a whole raft of Italy’s building bonuses.

The 110 percent IRPEF deduction, better known as the ‘superbonus‘, can be filed for work carried out to upgrade a property’s energy efficiency rating or to reduce seismic risk.

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This is a good way to offset income taxes while benefitting from government-funded renovation work. In addition, Italy’s latest Budget Law 2022 plans to extend the scheme into 2023 for certain categories of property.

In the 730 form for 2021, there’s also a 90 percent deduction for the facade bonus (set to drop to 60 percent in 2022) and a 30 percent personal income tax deduction to finance measures to contain and manage the Covid-19 epidemic emergency.

Please note that The Local cannot advise on personal tax questions. For further guidance, contact your accountant (commercialista) or your local tax office (agenzie delle entrate).

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PROPERTY

Nine things we’ve learned about claiming Italy’s building ‘superbonus’

Two years after it was introduced, Italy's popular renovation discount scheme continues to cause headaches for homeowners trying to access it. Here's what we've learned so far about claiming the so-called 'superbonus 110'.

Nine things we've learned about claiming Italy's building 'superbonus'

In May 2020, as the pandemic gripped Italy in its first wave, the government introduced a new building bonus programme to kickstart the country’s sluggish, Covid-hit economy.

This emergency response, known as the ‘superbonus 110′, came as part of the government’s Decreto Rilancio (Relaunch Decree), which offered a tax deduction of up to 110% on the expenses related to making energy upgrades and reducing seismic risk.

Other types of building bonuses existed before – and continue to be available.

However, none had offered quite so high a value to those looking to make home improvements on their property.

In fact, not only did the new measure incentivise people to upgrade their existing properties, it encouraged people to buy old, abandoned properties, making previously unfeasible renovation projects, in financial terms, a genuine possibility.

READ ALSO: How Italy’s building ‘superbonus’ has changed in 2022

We counted among those taking the plunge to buy a crumbling and uninhabitable building, with the intention to carry out extensive works thanks to funds from the superbonus.

Our property search completely changed due to the scheme and we planned on taking advantage of the generous sums of state aid.

After looking around and viewing properties for months, attracted by adverts that claimed a property was eligible for restoration with the superbonus, we found an old farmhouse – which had become a derelict wreck – in the lowlands countryside outside Bologna, near where we are already located.

(Photo by Philippe HUGUEN / AFP)

In our case, we had to demolish the old property and rebuild a home from scratch – it couldn’t be restored due to earthquake damage in the area, rendering it far too unstable and destroyed to ever be habitable again.

READ ALSO: Why we decided to build our new house in Italy out of wood

That wasn’t a disappointment as we had the opportunity to design our own home instead, choosing every angle, material, layout and floorplan we wanted. It would have been beyond our means to take on a project like this without the superbonus, but with it, we thought it was possible.

Incredibly, the small print of the incentive permits this too, as the government intended to reinvigorate the nation’s many old, damaged and inefficient buildings and recover lost land – including using existing plots to build new homes if the property was too damaged, as is the case for us.

So, we ploughed all our savings and the money from the sale from my husband’s apartment into a collapsing set of bricks, filled with junk and debris from years gone by.

Although daunting, the figures stacked up and meant that we could create our own country home with a manageable mortgage for around 15 years.

Since I’m now 37, that seemed to work well and it all looked reasonable.

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But it was just the beginning, before the superbonus spiralled into delays, bureaucratic quagmires and fraudulent claims, which all contributed to making accessing the funds a stalemate for many homeowners.

18 months into our project, we have got as far as a concrete shape in the ground, the old farmhouse demolished, but no sign of our future home still – and a budget that has blown out of proportion, changing our financial future considerably.

18 months ‘ progress looks like this on our Italian property renovation project. Photo: Karli Drinkwater

The clock is ticking with deadlines too, albeit briefly extended, to access the bonus in time.

Since its inception, here’s what we have learned about (trying to) claim Italy’s superbonus 110.

1. Demand slowed down starting renovation projects

Within its first year, interest in the scheme was so high that building companies were overwhelmed and projects piled up in a queue.

Many firms stopped taking on new clients, as they battled to push through projects that were already delayed by months and some homeowners abandoned their plans altogether as a result.

As the backlog built up, firms increased their construction quotes and material prices rose – driven by a worldwide boom in cost increases and also most certainly not helped by Italy’s superbonus-fuelled building boom.

Photo by Bill Mead on Unsplash

The situation has continued to worsen due to the war in Ukraine, which has impeded the import and subsequently driven the cost of raw materials.

It was this demand that also saw us sit and wait, watching on while absolutely nothing happened and we continued to be stuck, all the while watching the project cost continually rack up.

READ ALSO: How to stay out of trouble when renovating your Italian property

It had taken four months just for the sale of the wreck to go through, so we were on the back foot already as far as the bonus is concerned.

We were ready to get going in May 2021 after putting in our offer on the property in the January, but in the past year, very little has happened.

We’ve since had to move out of our apartment, as the new owners understandably wanted to move in and we’re now effectively camping out in a part of my husband’s parents’ new house.

As they, too, are trying to access the superbonus, our life has been packed into boxes while we our living area and office is all squeezed into a garage.

I write this surrounded by scaffolding and orange construction barrier tape, now heavily pregnant, and trying not to lose hope that we’ll have our own place to go to.

Our building project has got no further than knocking down the old wreck and laying down the concrete foundations. One year on, there’s not even the bones of a structure.

READ ALSO:

So is it still demand for the bonus and materials that’s causing the delay?

Yes, but also a huge part is down to how you can claim the bonus.

2. Credit transfer problems stopped the banks lending

Another recent cause for a further slowdown is the change in how people could access the bonus and the increasing difficulty of obtaining credit.

There are a few routes to obtaining Italy’s superbonus. The option of offsetting tax from income is likely only financially viable for high earners, as any unused tax discount gets lost.

Image: moerschy / Pixabay

Let’s say your renovation costs come to €100,000, which are tax deductible at 110 percent for five years.

So, if you have a tax break of €22,000 every year for five years, therefore, but your tax bill from your income tax, known as ‘IRPEF’, falls short of that, you lose the deduction and will end up footing the rest of the renovation bill.

READ ALSO: Do you have to be Italian to claim Italy’s building bonuses?

Note – the latest changes specify tax deductions for the superbonus will be spread over four years, not five as previously.

Little surprise, then, that the other two options to access the funds – transferring the credit (cessione del credito) or discount on the invoice (sconto in fattura) – have been more popular.

It effectively means you either trade the tax credit for cash to an Italian financial institution, such as a bank, for the credit transfer, or directly to your contractor or supplier for the discount on the invoice.

Using the credit transfer system means you’ll get cash back that you paid, directly in your bank account.

It’s a slightly riskier route than a discount on the invoice, as the latter means the the supplier recovers the bonus on your behalf, taking a slice of it as a fee.

So, you get less of the bonus but you don’t have to deal with the paperwork and the contractor takes the burden of getting the credit.

“The easiest option is the discount on the invoice,” tax expert Nicolò Bolla of Accounting Bolla told us.

“It takes care of the credit transfer. If you deal with the bank yourself, it takes some expertise and requires a little knowledge of technology and the system, such as downloading and uploading invoices.

“Contractors have multiple sales, so they are more trained to do that,” he added.

However, billions of euros of fraudulent claims led the government to introduce stricter laws, blocking being able to access credit for months, putting the bonus – and renovation projects – on hold.

Our builders were using credit from financial services provider Poste Italiane, who reduced the threshold of credit. This pushed all the building jobs back by months with no word on when works would start.

In that time, they had to search for another bank willing to fund the bonus, while home construction sites lay dormant.

3. Banks blocked and refused credit halfway through projects

Some homeowners faced extra setbacks when they encountered not only delays, but an outright cancellation of prior agreed credit.

Peter (not his real name) told us that he had got the green light to access one of the other building bonuses that can be used in conjunction with the superbonus – the Renovation Bonus (Bonus Ristrutturazioni).

READ ALSO: Budget 2022: Which of Italy’s building bonuses have been extended?

It allows homeowners to apply for a 50 percent tax reduction on carrying out renovation work in both individual properties and condominiums.

The maximum limit on expenses of €96,000 and the 50 percent offset to taxes is divided into annual instalments for 10 years. Or you can apply for the invoice discount or credit transfer.

Photo by Cristina Gottardi on Unsplash

He applied and was approved for credit transfer for works on his home in Modigliana, Emilia Romagna. After buying a property with his partner in December 2020, they began renovations in January 2021, based on credit approved by Italian bank UniCredit.

He told us they carried out €60,000 of works for a new floor and underfloor, electrics and plumbing throughout, a new boiler, replastering walls and installing a new bathroom.

That means that €30,000 credit was due from the bank, but Peter told us they are now refusing to pay out.

“The excuse from the bank is that we didn’t sign with them, however they didn’t ask us to sign anything when they opened the portal for us at the beginning,” he told us.

So, while the bank registered the renovation jobs for them on the government’s portal in order to be able to claim the bonus, they now refuse to return the credit as originally agreed.

“The thing that upsets me so much with UniCredit is we made about 10 payments to builders and suppliers costing €7.50 a time (in administration fees) to make it, and taking the time to go into the bank especially, to get it registered correctly. And to be let down by them now, really is pretty bad,” he added.

Taking this route is “harder” according to Bolla, as “banks prefer to deal with larger businesses than to give credit to individuals,” he said.

For Peter, he now has the option of deducting the tax from his annual income tax bill or finding another bank to take on and transfer the credit.

4. Finding other solutions to open up the credit transfer system

As accessing finance slowed down and projects ground to a halt, the government intervened with yet another regulatory change to the superbonus.

Along with extending the deadline of 30 percent completion of works for single family homes by three months – to the end of September 30th 2022 – the authorities also looked at how to make accessing the funds more straightforward.

The reason for so many changes stems from how the superbonus originally started.

“Two years ago, it was the Wild West. Anyone could get credit to use the bonus – a person, company or business. Due to that, the authorities lost track of sales and plenty of fraudulent claims slipped through the net,” according to Bolla.

“Everything stopped. Then they regulated too much, creating more bureaucracy and delays. So now, they’ve deregulated a little to reopen the transfer of credit,” he added.

Understanding why there were delays to accessing the bonus are complex and manifold. Along with the reasons above, banks also faced rising inflation, which in part caused them to stop lending.

“Somebody needs to offset the tax at some point. Many banks wanted to buy the credit and resell it to larger banks, but any credit that couldn’t be offset in their taxes got wasted.

“It made the banks less willing to buy credit, which in turn slowed down companies’ and individuals’ ability to access it,” he added.

Now, to keep better track of works being done, Italy’s Inland Revenue Agency (L’Agenzia delle Entrate) has introduced better tracking systems in its latest ruling. These will follow the trail of where the money is going, with the aim of cutting down on time lost to bureaucracy.

5. You might – legally – be left with a half-finished house

Depending on what you’ve agreed with your construction company, you may be taking a gamble with the superbonus no matter what, even if works have begun and the system has eased the bottleneck on claiming the funds.

Our builders would only go ahead with the project if we signed a document, in short saying that we understand the project won’t be finished if the funds aren’t available in time or if works roll on past the deadline.

Photo by Filiz Elaerts on Unsplash

The firm wasn’t going to be liable for paying for the construction of our home (and others’ projects too) if they continued to get caught in delays.

In this case, we had no choice. Sign it and hope for the best or lose the €200,000 that has already gone into the works and wreck purchase so far.

6. There are added fees to account for when claiming the superbonus

If you’ve ever sold or bought property in Italy, you’ll know there is an abundance of hidden costs associated with it.

From agency and notary fees, taxes to legal costs, buying a property in Italy can incur another ten percent of the purchase price. For a list of the hidden costs to watch out for, see our guide here.

When it comes to restoring properties using the superbonus, you’ll need to fork out for various certificates, including an energy certificate known as ‘Certificato Energetico APE’ to prove that the property would benefit from energy upgrades using government funds.

This will also need to be done afterwards to prove that the property meets the requirements of the superbonus and has jumped up at least two energy classes.

You may also incur charges from your local town hall or comune for making changes to the property. In our case, as it’s a considerable project, the administrative fee just for submitting our house plans to review cost €12,000.

In total, the cost of fees on our project – before any restoration works using the bonus have taken place – have come to €30,000.

7. The amount you claim and pay continues to rise

Since the superbonus began, the scope of house restoration projects has changed significantly.

The noted demand pushed up construction quotes and material prices continue to rise, vastly increasing the scale of a project’s budget.

It will come as a blow to home renovators who thought they were potentially getting considerable sums of money from the government and therefore making huge savings.

In fact, there will still be large pots of funds to come from the government, but the problem is the price you pay will track the increases and rise too.

Our particular home renovation project has almost doubled since we began.

We initially accounted for a final cost of €450,000 for all works, using the superbonus for almost half of that.

Instead, the quote we received in November was over €700,000 (on top of what we’ve paid for the wreck) and we were told this is unlikely to be the final cost, rising in line with continuing material price rises when works do finally get underway.

The impact of this is life-changing. In our case, it means we’ve had to apply for soaring monthly repayments for 25 years instead of 15. And that’s only if the bank agrees to grant us such a huge financial commitment – which it has, as yet, not done.

8. You might have to pay taxes if you sell your house after claiming the superbonus

At least for a while, you may have to stick with the property you’ve renovated using the superbonus.

Once you’ve claimed this building bonus, essentially you can’t sell it on for another five years if you want to avoid paying capital gains tax.

Tax expert Nicolò Bolla said that this depends on when you bought the property, however.

If you already owned the house for more than five years and took advantage of the superbonus, you can sell it on with no capital gains tax.

On the other hand, if you just bought the property to benefit from the bonus, and therefore have only owned it for under five years, you’ll be liable for the tax – that is, if you make a gain on its sale.

If you bought an old wreck and renovated it, for instance, it’s likely that you will.

For more advice on selling your property after using the superbonus, remember to check with professionals beforehand.

9. It continues to be popular and set back by delays

Despite the recently extended deadline, homeowners continue to wait in queues for their projects to begin or be completed.

Tax expert Bolla told us he gets “daily requests” for the superbonus, but issues a word of caution about the incentive.

“It is a long journey and you need to have some money to renovate your property with the bonus. It’s an expanded timeframe and there are still supply chain issues,” he said.

Despite this, though, Bolla believes it’s an “amazing” scheme. “We have a lot of energy dependence, so this is a good way to upgrade. Normally, the way we deal with our reliance on energy is to punish those who pollute more with higher energy bills, but those are always lower income people.

“Higher energy costs just punish the poor – this, instead, is a good way to solve the problem.”

See more in our articles about property in Italy on The Local.

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