Work in Italy: Income Tax and Social Security Contribution

In our previous posts, we covered job categories, how to evaluate salary offers, and the components of a salary in Italy. This post will delve into Italian income taxes and social security contributions.

Tax Residence

Italy applies two principles of taxation: residence-based and territorial. The difference is that tax residents are subject to taxation on their worldwide income, while territorial tax applies only to income generated in Italy.

An individual is considered a tax resident in Italy if, for more than 183 days in a year, they meet one or more of the following criteria:

• Registered as a resident in the country (residence done at the Comune);

• Habitually living in Italy;

• Having Italy as the center of business or personal interests.

Individuals with two or more tax residences (typically living and earning income in more than one country) will be subject to tax treatment according to treaties between the involved countries.

Note: Simply having a Codice Fiscale (Italian tax identification number) does not categorize an Italian as a tax resident. The determination is based on the criteria mentioned above.

Taxation

Individuals with an Italian employment contract will have their taxes deducted directly from their source of income (salary). These taxes are charged progressively, based on the income bracket and earnings. Benefits offered by the company, such as housing or a company car, are also calculated and considered as part of the total income for income tax calculation.

Annual income (in Euros)	Tax Rate
0 - 15.000,00	23%
15.001,00 - 28.000,00	25%
28.001,00 - 50.000,00	35%
above 50.000,01	43%

In addition to the above values, certain regions in Italy may levy a regional and municipal income tax of up to 4.23%.

Social Security Contribution (INPS)

In Italy, formal employment contracts also include mandatory social security contributions (to INPS or another pension institute within the category). The contribution percentage varies depending on the employment contract, but the rate is around 9% for a regular worker. The INPS contribution is deducted from the total income for income tax calculation.

Let's consider an example: A childless professional received an offer for an indefinite-term job with an annual salary of 40,000 Euros. This value typically represents the total compensation the company intends to pay within a year, and the taxes will be calculated as follows:

Gross annual salary	40.000
Gross monthly salary (13 months)	3.076
Monthly Social Security Contribution (INPS)	283
Income for Income Tax Calculation	2.794
Income Tax	~731
Net Monthly Salary (13 months)	2.063
Effective Income Tax Rate in this example	33%

Click to calculate net salary

Other Incomes

In addition to salary, other income, such as rental income, dividends, interest, and capital gains, are also considered for income tax calculation purposes. These values must be declared annually, and payments must be made according to the instructions of Agenzia delle Entrate (Italian Revenue Agency).

• Rental income in Italy: 95% of the annual rental income received will be added to all other income received by the individual and calculated according to the progressive tax rate indicated above.

• Rental income outside Italy: The taxed amount in the country where the property is located will be added to all other income received by the individual and calculated according to the progressive tax rate indicated above. If the taxpayer is not required to file an annual income tax return in the country where the property is located, the base calculation value will be 85% of the total annual rental income.

• Dividends received from abroad: Subject to a 26% tax rate on the net received amount.

• Interest received from abroad: Subject to a 26% tax rate on the gross received amount.

• Capital gains: Subject to a 26% tax rate.

Note: Dual citizens who have never lived in Italy and do not meet any of the criteria mentioned above will not have an income tax to pay in Italy.

As seen above, several taxes apply to Italian residents and workers. To encourage more people to live and work in Italy, there are various tax incentive programs that can significantly reduce the amount deducted from salaries. We will discuss them further in our upcoming posts.