Italy Global Payroll and Tax Information Guide

Last updated in November 2023.

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Italy, officially known as the Italian Republic, is a European country located in the heart of the Mediterranean Sea.

Rome, the capital city, was once the center of the Roman Empire and is home to iconic landmarks such as the Colosseum, the Roman Forum, and the Vatican City. The official language is Italian.

Italy is known for its manufacturing industry, especially in the production of luxury goods, machinery, and automobiles. However, the country has faced economic challenges and political instability in recent years, including issues related to public debt, high unemployment, and slow economic growth.

Payroll in Italy – 2023 Updates

The Italian government has recently released the text of a Legislative Decree that introduces significant modifications to the expatriate system in Italy, effective from January 1, 2024.

According to the proposed legislation, for individuals who establish residency from January 1, 2024, the benefits provided by the expatriate regime will be reduced to 50%, with a cap of €600 000 on the eligible income for the relief. To qualify for the benefits, individuals must have had three years of prior non-residency, and they must commit to remaining in Italy for at least five years. Furthermore, the revised policy will limit the benefits to highly skilled or specialized individuals, aligning the definition with those eligible for a Schengen Blue Card. Read more here.

Italy Payroll – Basic Facts

The official currency is Euro (€).

In Italy, the tax year follows the calendar year, beginning on January 1st and ending on December 31st.

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.

Employers must maintain accurate payroll records and comply with reporting requirements set by the Italian government.

For individual taxpayers, the annual income tax return must be filed by the deadline specified by the Italian Revenue Agency, which is typically in late spring or early summer of the year following the tax year.

For businesses, the tax year corresponds to their fiscal year, which may or may not align with the calendar year.

Tax and Social Security Considerations

Corporate Tax

Italian companies are subject to corporate income tax on their profits. The standard corporate tax rate of 24% is applied to the company's taxable income. However, they are also subject to IRAP, which is generally levied at a basic rate of 3.9% (such rate may vary, depending on the Region and the business sectors).

Income Tax

Personal income tax in Italy is progressive, meaning that higher income levels are subject to higher tax rates. The tax rates can vary from 24% to 43% depending on the taxpayer's income level, and there are different tax brackets. Additionally, there are various deductions and tax credits available to taxpayers based on specific circumstances, such as family composition and certain expenses.

Italy’s personal income tax rates in 2023

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 vary based on whether or not there are exemptions, as well as whether or not the employee is a resident.

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, as 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 will result in felony charges. Employees failing to file or pay their taxes on time also face late fees and interest rates.

Sales Tax

Italy has a value-added tax system that applies to the sale of most goods and services. The standard VAT rate of 22% is applied to most products and services, while certain goods and services may qualify for reduced VAT rates.

Withholding Tax

• Capital gains – 26%
• Interest – 26%
• Royalties – 30 %
• Dividends – 26%

Property Tax

Property owners in Italy are subject to a property tax known as the Imposta Municipale Unica (IMU). The tax rate may vary depending on the type of property and its location. Additionally, there may be other local taxes related to property ownership, such as the TARI (waste tax) and the TASI (municipal tax on indivisible services).

Wealth Tax

Italy has a tax on financial assets, known as the IVIE (Imposta sul Valore degli Immobili all'Estero), which applies to financial assets held abroad.

Inheritance and Gift Tax

Inheritances and gifts may be subject to taxation in Italy, with tax rates depending on the relationship between the recipient and the donor or deceased.

Vehicle Tax

It is charged annually on all motor vehicles registered in Italy, even if they have not been used.

Social Security Contributions

Employers and employees are required to make contributions to the Italian social security system, which provides various benefits, including healthcare, pensions, and unemployment benefits. The social security contributions rate for Italian companies is 30% of employees’ gross compensation.

Compensation and Benefits

Minimum wage

There is no statutory minimum wage in Italy. However, it is estimated that the average low wage in Italy is approx. €1,150 per month.

Working hours

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.

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 overtime beyond 250 hours in a year. There is no extra overtime pay unless an employee’s contract stipulates otherwise.

Public Holidays

There are 12 national holidays in Italy. Here is the full list.

Leave

In Italy, employees are entitled to various types of leave, which are provided for under Italian labor laws and collective bargaining agreements. Some of the key types of leave in Italy include:

• Annual Leave (Vacation): Employees in Italy are entitled to a minimum of four weeks (28 days) of paid annual leave per year. The specific entitlement to paid vacation may vary based on the length of service and any collective bargaining agreements in place.
• Sick Leave: Employees are entitled to paid sick leave when they are unable to work due to illness or injury. The duration and conditions for sick leave may vary depending on the employment contract and any collective agreements.
• Maternity Leave: Pregnant employees are entitled to maternity leave both before and after childbirth. Maternity leave typically lasts for a total of 5 months, with two months before the expected date of childbirth and three months after childbirth. During this period, employees receive a portion of their salary, which is covered by social security benefits.
• Paternity Leave: Fathers are entitled to paternity leave, which allows them to take time off work following the birth of their child. Paternity leave typically lasts for a few days to a week, and it is paid.
• Parental Leave: In addition to maternity and paternity leave, parents in Italy may have the option to take parental leave to care for their children. Parental leave can be taken by either parent until the child reaches a certain age, and it is typically unpaid.
• Bereavement Leave: Employees may be entitled to a certain number of days of paid or unpaid leave in the event of the death of a close family member or relative.

Wage Payment

Employers in Italy are required to pay their employees at regular intervals, typically on a monthly basis.

Bonuses and Special Benefits

Employers may provide special allowances or benefits to employees, such as meal vouchers, transportation subsidies, health insurance coverage, or contributions to pension plans.

Under Italian law, salary calculations are paid in 12 monthly installments. The additional 13th installment (“tredicesima”) is paid out each year alongside the December salary. Some NCAs also include a 14th monthly installment, normally paid in June.

Termination of Employment

Italian laws does not recognize at-will employment. You can only terminate employees for just cause. You can only terminate employees for just cause. If there’s an unfair dismissal, the employee can take the employer to court.

Workers’ Compensation

INAIL (the National Insurance Institution for Accidents at Work) is the workers´ compensation authority, financed solely by the contributions of employers, which provides protection to workers from any kind of damage resulting from work related accidents, death and occupational diseases.

Record Keeping

Employers must maintain accurate payroll records, including details of employee wages, deductions, and any other relevant financial information. Accounting records must be kept for 5 years following the year of filing the return of income yearly, which becomes 7 years if the relevant tax declaration has not been lodged.

Foreign Workers in Italy

Visas: 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.

Taxes: For residents, income tax is levied on their worldwide income, while for non-residents, tax is generally only paid on income earned in Italy.

Treaties

Italy has signed numerous tax treaties with various countries to prevent double taxation and promote international trade and investment. These treaties aim to provide guidelines on the taxation of income and assets for individuals and businesses operating across borders. The main objectives of these tax treaties are to avoid discrimination, provide clarity on tax obligations, and resolve any disputes related to cross-border taxation.

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