Italy Global Payroll & Tax Information Guide

November 8, 2021 | Yana Todorova 5 Mins read

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Payroll in Italy – 2021 Updates

Due to covid-19, the following measures were taken by the Italian authorities:

    • Italy has introduced an obligation to provide Covid Green Pass, a certifying that a person is vaccinated, has recovered from Covid or has negative Covid test from previous 48h, for all workers of any sector of activity starting from October 15, 2021.
    • The European Commission has approved a €31.9 billion Italian scheme to support companies affected by the coronavirus outbreak. The scheme will be open to all companies, irrespective of their size and of the sector where they operate (except for the financial sector). It consists of limited amounts of aid and support for uncovered fixed costs incurred during the period between March 2020 and December 2021 or parts of that period. Under the scheme, limited amounts of aid will take the form of tax exemptions and reductions, tax credits and direct grants.

Basic Facts about Payroll in Italy

Doing business in Italy can be challenging as there are many kinds of work contracts.

Additionally, taxes are high and complicated. The Global Payroll Association noted that Italy has “one of the most complicated payroll algorithms in the world.” Because of this, European payroll experts strongly encourage those doing business in Italy to hire a Professional Employment Outsourcing (PEO) agency or a Global Employer Organization (GEO) before doing business in Italy. That being said, Italy does possess the third-largest economy in Europe. Foreign businesses are likely to benefit by expanding into Italy.

Even though there are 20 work contracts, there are two basic categories: indefinite (long-term) or fixed-term contracts (temporary). Payroll taxes include income taxes (on the national, regional, and city levels), public accident insurance, and public pension. Any companies wishing to do business in Italy must register their business with the government. As such, foreign companies operating within Italian borders are responsible for all payroll, tax, and labor laws.

Taxes

Rates and Thresholds

Any employees earning 15,000 Euro (16,500 USD) or less pay 23% in taxes. Employees earning more than 75,000 Euro (82,600 USD) are subject to the 43% tax rate. For specific tax rates on various earned income, refer to the table below.

How Withholding Works

Italian-source interest payable to a resident individual or a nonresident generally is subject to a 26% withholding tax (which is a final tax for nonresidents).

On dividends and royalties, tax withheld could be up to 75% of the dividend or royalty amount. However, taxes withheld varies based on whether or not there are exemptions, as well as whether or not the employee is a resident. To make matters even more complicated, these numbers change drastically if the employee is a non-resident of Italy from a nation with which Italy has a formal treaty.

Returns and Remittance

Though the taxable year runs January 1 to December 31 as expected, employees may file their return anytime the following year up to October 31 and remit any taxes owed by June 30 the following year.

Residents and non-residents may qualify for a certain amount of exemptions, so long as they comply with tax laws.

Employee Stock/Share Plans

Employers in Italy most frequently offer stock options to employees. However, the government provides public pensions for retired employees, so long as they meet requirements set by the Italian National Social Security Institute. The pension is funded in much the same way that employees in the U.S. pay social security taxes out of their paycheck.

Penalties

Remaining compliant with payroll can be difficult in Italy. Failing to remain compliant can result in penalties. These penalties may be reduced if the company submits and follows directives set by government auditors. Naturally, falsifying tax documents result in felony charges. Employees failing to file or pay their taxes on time also face late fees and interest rates.

Tax Rate Chart

Income tax rates in Italy for 2021:

Income RangeTax Rate                                             
0-€15 00023% 
€15 001 – 28 00027% 
€28 001 – 55 00038% 
€55 001 – 75 00041% 
€75 001 +43% 

*The chart above does not take into account public pension, public accident insurance, regional taxes, and city taxes. Because these rates vary on minutiae, it is best that companies doing business in Italy work closely with a payroll consultant, GEO, or PEO.

 

Compensation and Benefits

Most wage and benefit stipulations are outlined in a work contract. All employees are granted substantial paid leave, per Italy’s labor laws.

Minimum Wage

There is no government-regulated minimum wage in Italy, instead the minimum wage rate is determined by collective bargaining agreements on a sector-by-sector basis.

Overtime

Employees working more than 40 hours a week may not work more than 48 hours each week. Employers also may not allow employees to work beyond 250 hours in a year. There is no extra overtime pay unless an employee’s contract stipulates otherwise.

Hours of Work

Work hours in Italy are a bit unique. Employees typically report to work at 8am local time and work until 1pm. They take a two-hour lunch, returning to work at 3pm and completing their workday at 7pm.

Holiday & Sick Leave

Employees are entitled to a minimum 4 weeks of paid vacation each year. Beyond that, they are allotted 3 sick days a year, plus 5 months’ maternity leave.

Employees are also entitled to a variety of other paid leave options, to include family/child emergencies, adoption, jury duty, and more.

Italy observes the standard set of European holidays, mixing up key Christian holidays with a few related to the creation of the country. The most important holiday is probably Ferragosto on August 15th, which marks the start of the summer break for most Italians. The major cities observe a reginal holiday on the feast day of their patron saint. See the full list of holidays in Italy here.

How Employees File Taxes at the End of the Year

As noted above, employees are responsible for filing their own taxes by October 31 of the following year. If they owe any taxes, they must pay those taxes no later than June 30 the year after.

Foreign Hires

Because Italy is a member of the European Union and the Schengen Treaty, employees from other member countries are not required to secure a worker’s permit. For those foreigners originating from non-member countries, they must secure the necessary permits and work visas before they are legally allowed to work for an employer in Italy.

 

For more information about how our Global Payroll Control Platform integrates with local payroll providers in Italy, contact us today.

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