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Tax Return in Italy

This guide on the Italian Tax Return will give you insights on fulfillments related to your case, as well as various types, deadlines available and penalties in case of non-compliance.

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Should I file Italian Taxes?

Conditions to file a tax return in Italy vary on the individual’s tax residence. For instance, individuals who are tax resident in Italy shall pay taxes on their worldwide income. This condition applies regardless of the taxpayer’s nationality.

On the other hand, non-resident individuals shall pay taxes only on income produced in Italy.

Those who are Italian Tax Residents must pay taxes in Italy on all income produced anywhere in the world, regardless of their nationality or the country where the income is earned.

How do I pay my taxes in Italy?

Italian income tax may be withheld at source by an Italian withholding agent (employer). In absence of the latter, individual shall declare their taxable income on the Italian tax return (“Form Modello Redditi PF” or “Form 730”) and pay the corresponding liability within the deadlines provided (i.e.: self-assessment method).

In some cases, however, the withholding tax levied at source may not be sufficient to exempt the taxpayer from filling a Tax Return.

One such case being 2 or more incomes taxed at source by different employers, but still subject to progressive taxation. In this case, the tax return is filed to declare the total amount of taxable income, the total amount of withholding tax paid and to calculate the income tax difference to be paid by the taxpayer.

The income tax liability resulting from the Italian income tax return, Form Modello Redditi PF, is paid by submitting a tax payment form called “F24 model”.

Payment of the Italian F24 model

The F24 model can be paid through the following ways:

  • telematic services of the Italian Tax Office, using the services “F24 web” or “F24 online”
  • telematic channels “Fisconline” or “Entratel”;
  • internet banking services of the taxpayer’s bank or Poste Italiane’s account.

In case of Tax return filed through the Form 730, the income tax liability is deducted directly from the taxpayer’s salary or pension and paid to the tax office by the employer or the National Pension Institute.

When to pay taxes in Italy

Unless an extension is granted, the income tax liability resulting from the Italian income tax return – form Modello Redditi PF – is payable by June 30 of the year following the tax year.

Taxpayers may also make tax payments within a second deadline of July 31st, increased by an additional amount of 0,40% of the relevant liability.

In addition to the tax settlement for the tax year for which the tax return is submitted, taxpayers must pay 2 tax advances for the following tax year. The total of the tax advances is equal to 100% of the previous year’s tax liability.

The payment of advances should be made in 2 installments: 40% by June/July deadline and 60% by November 30 of the same year.

Tax Deadlines
Fiscal Year Statutory deadline for filing the Modello Redditi PF Statutory deadline for tax payment
X September 30th, x+1 (See section for below for more information) June 30th, x+1

a. Balance of the tax due for year x

b. First tax installment (if due) for year x+1 equal to 40% of the previous year’s tax liability

November 30th, x+1 c. Second tax installment (if due) for year x+1 equal to 60% of the previous year’s tax liability

Deadlines falling on Saturdays, Sundays and public holidays are postponed to the next working day.

Taxpayers could also opt for a reduced advance payment. This would be convenient to avoid an overpayment, which would then require to apply for a refund. This, for instance, may happen when the taxpayer no longer has a source of income or where income for the current year is expected to be lower than the previous year.

However, penalties and interest apply in case of an underpayment (e.g., if actual income is higher than expected), but the penalty can be reduced by spontaneous payment (ravveddimento operoso) before an assessment is made by the Tax Agency.

What are the consequences of not paying taxes in Italy?

If taxpayers fail to pay the Italian tax liability resulting from his income tax return within the statutory deadlines, a penalty of 30% of the unpaid tax will be applied.

The penalty may be reduced to 15% if the delay does not exceed 90 days. In addition to the fine, statutory interest are due, calculated on a daily basis from the date on which the tax should have been paid until the actual payment date.

Italian tax law set specific conditions for taxpayers to regularize their situation, provided that the offence has not yet been assessed by the Italian Revenue Agency and, in any case, no access, inspection, audit or other administrative action has been carried out,of which the taxpayers were formally aware.

This procedure, known as ravvedimento operoso, allows taxpayers to rectify their omissions or irregularities in their tax payment and consists in a reduction of the applicable penalties:

  • 1/10 of the minimum penalty if the regularisation takes place within 30 days of original deadline;
  • 1/9 of the minimum penalty if the regularisation takes place within 90 days of the original deadline;
  • 1/8 of the minimum penalty if the regularisation takes place within the deadline for the submission of the tax return relating to the year in which the violation was committed;
  • 1/7 of the minimum penalty if the regularisation takes place within the deadline for the submission of the tax return relating to the year following the one in which the violation was committed;
  • 1/6 of the minimum penalty if the regularisation takes place after the deadline for submitting the tax return for the year following the one in which the violation was committed.

In a few words, the earlier the taxpayer pays, the lower the penalties.

What is the difference between the 730 and Modello Redditi PF tax forms?

Form 730 is a simplified tax return for employees and pensioners, which is more advantageous in comparison with the ordinary tax Form Modello Redditi PF.

The main features of Form 730 are:

  • Easier for the taxpayer to complete;
  • It is not necessary to calculate the tax, as this is done by the authorised intermediary or the Tax Assistance Centre (CAF), which is very often appointed by the employer;
  • It provides for the almost immediate reimbursement of the tax credits resulting from such a declaration; these are reimbursed through the employee’s/retiree’s payroll or directly by the Italian Revenue Agency;
  • In the event of a tax liability, the employer or the National Pension Institute will deduct the resulting tax from the payroll (or the pension) of the taxpayer;
  • Joint filing with spouse is allowed.

It should be noted, however, that besides being limited to employees/pensioners, the 730 form can be used to declare specific types of income, such as: employment and similar income, pensions, income from real estate, income from capital (subject to ordinary taxation), income from self-employment (excluding income subject to VAT) and some income subject to separate taxation.

The Modello Redditi PF Form

The Modello Redditi PF form, on the other hand:

  • can be used to declare all kinds of income;
  • can be filed by both tax residents and non-tax residents;
  • does not allow joint filing and the resulting taxes must be paid directly by the taxpayer.

In addition to the above:

  • refund can be carried forward to the next tax year’s return and can be used against other taxes, or
  • it can be claimed as a refund directly from the tax Agency. It should be noted that, unlike Form 730, the refunds deriving from Form Modello Redditi PF are not immediately available after the submission of the tax return. Taxpayers often wait a long time for their refunds.

How and when must the Form Modello Redditi PF be submitted?

The Italian tax return must be filed in the year following the tax year. The Form Modello Redditi PF can be filed:

  • from May 2 up to June 30 for paper filing;
  • Until September 30 if the submission is made electronically;
  • Late filing of the Tax return is allowed within 90 days after the September 30 ordinary deadline (approx. within February 28 of the following year). A penalty of 25 € (1/10 of 250 €) is due for such late filing, to be added to the penalties/interest due on the liability deriving from the tax return.
  • Tax returns filed later than 90 days after the deadline are considered omitted by the Italian tax authorities, and penalties of between 120% and 240% of the tax due is applied (increased by a third for income earned abroad and doubled for income earned in a blacklisted country) plus legal interests calculated on a daily basis, starting from the date the tax should have been paid to the date of actual payment. In this case, omitted tax return may still be filed, and estimated penalties and interests may be calculated and paid, but the final penalties and interests will be calculated and requested by the Italian tax authorities.

Is there any possibility to amend a tax return in Italy?

Taxpayers can amend their tax return in Italy for up to 5 years after filing. During this period, favorable changes for the taxpayer can be added and/or omissions that could result in additional tax can be corrected.

In case of an unfaithful tax return (that is, a lower income was filed), the increased liabilities resulting from such amended returns are subject to penalties of between 90% and 180%, increased by a third for income earned abroad and doubled for income earned in a blacklisted country.

However, the applicable penalties may be reduced through the so-called “ravvedimento operoso” procedure, which results in a reduction of the fine. This is allowed up to certain deadlines set by law and described in the previous paragraph “What are the consequences of not paying taxes in Italy?“.

Specific rules and payment conditions must be checked and considered if the annual tax return also includes the RW section as referred to in paragraph below.

The “RW form” of the Italian Tax Return

Individuals who qualify as Italian tax residents are subject to disclosure requirements in Italy in respect of all assets held directly outside the Italian territory.

Conversely, in case of foreign assets are held through an Italian resident financial intermediary (e.g., a trust company), there are no reporting requirements from the Italian resident taxpayer, as all tax compliance is handled by the resident intermediary.

For Italian tax purposes, foreign investments are considered to be all investments/assets held outside the Italian territory, that have the potential to generate income (e.g. real estates, bank accounts, shares, investment funds, life insurance, voluntary pension funds, exercisable stock options, etc.).

The reporting is fulfilled through the Form Modello Redditi PF, by filling in the special section for foreign assets, known as the “RW form”.

The complexity of Form RW depends on the number of assets held abroad by the taxpayer resident in Italy.

The form is made up of rows (righi), one for each asset to be declared. The lines are in turn divided into columns to be filled in with information about the specific asset, such as:

  • The value (in €) of the assets at the beginning of the Italian tax year (January 1, x) or at the time of acquisition, and at the end of the Italian tax year (December 31, x) or at the time of sale,
  • the number of days of ownership of the financial asset during the period,
  • the percentage of ownership and the Italian tax code of the co-owners who qualify as tax residents in Italy,
  • whether the financial assets or properties generated foreign income during the relevant Italian tax year.

In addition to tax monitoring purposes, form RW is also used to determine the amount of wealth tax due on the assets owned:

  • tax on real estates located abroad (Imposta sugli immobili situati all’estero, “IVIE”) and
  • tax on foreign financial investments (Imposta sul valore delle attività detenute all’estero, “IVAFE”).

As the RW section is part of the Form Modello Redditi PF, it must be submitted within the same time limits as the tax declaration.

The payment of IVIE and IVAFE follows the rules and deadline described in the section above, including the procedure for paying the two annual advances; all balance and Tax advances are paid using the above mentioned “F24 model”.

Failure to submit RW form or incorrect RW form

In case of foreign assets, even if no wealth tax is payable, irregularities in the filing of Form RW will result in administrative penalties, ranging from 3% to 15% of the undeclared amounts (6% to 30% if the assets are held in a “blacklisted” country).

Furthermore, if IVIE and IVAFE are due, in addition to the administrative penalties mentioned above, failure to declare the corresponding amounts in the tax return may result in penalties ranging from 90% to 180% of the tax due (“unfaithful” declaration, see section 5 “Is there any possibility to amend a tax return?” above).

Both penalties may be reduced by the same percentages as indicated in the section above (from one ninth to one sixth of the minimum penalty), depending on when the regularization takes place.

It is possible to fix any irregularity relating to Form RW, including its omission, provided that the income tax return is filed on time or with a delay of no more than 90 days. In fact, as previously explained in section “How and when must the Form Modello Redditi PF be submitted?“, tax returns filed more than 90 days after the due date are considered omitted by the Italian tax authorities.

What about foreign taxes paid on income taxed in Italy?

If income earned abroad contributes to the total Italian taxable income, a tax credit is granted to residents in order to eliminate (or at least mitigate) double taxation.

On the other hand, the tax credit method does not apply to foreign income that is fully exempt or subject to withholding tax in Italy. The reason for this is that such income does not contribute to the total taxable income of individuals.

With the foreign tax credit mechanism, taxes paid abroad on a permanent basis (the term excludes all taxes paid in advance) can be deducted from the net Italian tax due, up to the tax rate corresponding to the ratio between income produced abroad and total income, less losses from previous tax periods that can be deducted.

However, specific features are needed in the income taxes to which the credit is to be applied:

  • Tax credits only apply to taxes paid abroad on a permanent basis. These are taxes paid in full once and for all; they should not be provisional and therefore subject to the payment of a balance, nor should be instalments, nor subject to partial or total refund.
  • The final payment of foreign taxes must be made within the deadline for filing the Italian income tax return for the period to which the taxes refer.
  • In the event that the final payment is made after this date, a new settlement is provided to take into account any additional foreign income, and in this case the deduction is calculated on the taxes owed for the tax period in which the request was made.

Regulatory Framework

Presidential Decree No 917 of 22 December 1986(IT) - Consolidated Income Tax Act (TUIR)

Reference

Art. 1 of Legislative Decree No 471 of 1997

Reference

Art. 5 of Law Decree No 167 of 1990

Reference

Art. 13 of Legislative Decree No 472 of 1997 – ravvedimento operoso

Reference

Ministerial Decree of 4 May 1999 – Blacklist Country

Reference

Italian Revenue Agency website (Agenzia delle Entrate)

Reference

Circular No 9/E of 2015 issued from the Italian tax authority – extensive guidelines on the application of domestic foreign tax credit provisions set forth by Article 165 of TUIR

Reference

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