Italian Income Tax(es) and INPS

This is an update of the post from 2014 which was also an update from 2006 and 2007

If you are self employed and living in Italy, you must pay tax on your worldwide income in Italy because you are in the Population Registry as having lived there for at least 183 consecutive days over a 12-month period, or your life is centred there.
Living in Italy for less than 183 consecutive days over a 12-month period means you pay tax only on the income you earned in Italy.

Since 2014 personal tax allowance has increased to a maximum of €7.500. So how much of my income will I keep?

Annual Income 2015 (2016 tax return)	Rate
€7.501 to €15.000	23%
€15.001 - €28 000	27%
€28.001 - €55 000	38%
€55.001 - €75 000	41%
over €75,001	43%

There is also a regional tax of up to 3.33% and a municipal tax of 0.1% - 0.9% (addizionali IRPEF). Each region and municipality is free to set its own rate within the range set out in national law. This appears to have decreased since 2014.

Take into account:

• tax allowances (a deduction of between €3.000 and €7.500 to avoid taxing those on low incomes), as well as allowances for dependant family members (dependant wife and/or children).
• any deductions you are entitled to for certain types of expenditure.

On top of all these taxes you must also consider the obligatory pension contributions (INPS) which stands at 29% of your net income (same as 2014). 4% of this should be paid direct by your clients. Therefore one has to add this to any invoice to a client. Note - this is then totaled BEFORE the VAT is calculated, therefore they also make VAT on your pension contributions. A self-employed (libero professionista) person pays the highest % of INPS but are NOT entitled to sick and unemployment benefits. You have to call every client to make sure they pay this amount on your behalf and ask for written proof, if they don't it is you that is fined, not them. Apparently 30% of a self-employed person's work time is used up creating paperwork or chasing it, or explaining it to someone else to do it and do the chasing for you.

VAT - Partita Iva - is 22% but is due to be raised to 24% in 2017

So assuming:
you invoice €28.000
and you qualify for €7.500 tax allowance
further allowable tax deductions and expenditure of €3.000
your income tax (IRPEF) bill would be €8.475
your regional/municipal taxes (IRAP) would be €857
and your INPS contributions would be €7.250

That would leave you just €8.417 for all you hard work that year (roughly 33% of your profit)

OR
you invoice €43.000
and you qualify for €7.500 tax allowance
further allowable tax deductions and expenditure of €5.000
your income tax (IRPEF) bill would be €11.590
your regional/municipal taxes (IRAP) would be €1269
and your INPS contributions would be €11.020

That would leave you just €14.121 for all you hard work that year (roughly 37% of your profit)

The calculations above do not include VAT. You must register for Iva (VAT) no matter what your turnover is. You should consider this if your clients are not VAT (Iva) registered.

Now compare all that with the taxes you would pay in UK, if may help you decide where to live.

You invoice £28,000
and you qualify for £11,000 tax allowance
further allowable tax deductions and expenditure of £3,000
your income tax bill would be £3,400
your NAT INS Class 2 contributions would be £145.60
and your NAT INS Class 4 contributions would be (9% on profits) £1,525

That would leave you £19,929 for all you hard work that year (roughly 79% of your profits)

OR
You invoice £43,000
and you qualify for £11,000 tax allowance
further allowable tax deductions and expenditure of £5,000
your income tax bill would be £5,400
your NAT INS Class 2 contributions would be £145.60
and your NAT INS Class 4 contributions would be (9% on profits) £2,695

That would leave you £29,759 for all you hard work that year (roughly 78% of your profits)

You do not have to register for VAT.

These are obviously rough calculations and do not consider living expenses (council tax in UK or property ownership tax in Italy) but it helps illustrate what a huge difference the two tax systems have on your income balance. In this case about 10,000 (I am ignoring any exchange rate).