Italy's Self-Employed Pay Just 2% in Taxes!
The benefits of being self-employed are numerous. The sky’s the limit to what you can do, where you can live, and how much you can earn. Of course, working for yourself requires discipline and can be unpredictable at times, but ultimately those who are self-employed admit to increased job satisfaction for doing what they love and on their own terms.
Well, the pros are mounting because in Italy self-employed individuals can write off up to 60% of their gross revenue for business expenses. These fortunate professionals pay just 15% taxes on the remaining 40% of their taxable basis, which effectively is only 6%. While you may ask if this good deal has an expiration date, the answer is no! As long as you are self-employed and your revenue does not exceed 65,000 euro, you qualify for the tax regimen.
Let’s find out how it works…
What is a “Partita IVA” and how do I get one?
A “Partita IVA” is a VAT registration number that is necessary for all businesses as well as independent contractors, freelancers, or self-employed professionals. This 11-digit code must be displayed on all invoices and business documents.
The process for obtaining a Partita IVA is straightforward, inexpensive and quick. An accountant can open one for you within the same day. Once you’ve obtained your permit to stay (permesso di soggiorno) and tax identification number (codice fiscale) in Italy, you may register for a Partita IVA. Depending on your home country, you may also be required to have a self-employment visa to reside in Italy. After you submit a Declaration of commencement of activity with the Italian Revenue Agency (Agenzia delle Entrate), they’ll issue you a VAT number in accordance with the type of business activity you’ll be performing.
What is the “Regime Forfettario” tax regimen?
The special accounting system “Regime Forfettario” is derived from the French word forfait meaning flat-rate and allows the self-employed to write off between 14% – 60% of their expenses by default, without having to keep complicated accounting recordings. In fact, you don’t even have to report your expenses, so you can forget the headache of copious filing of your receipts and invoices.
In the U.S., it’s similar to the schedule C on your personal income tax return but more simplified.
Benefits of the “Partita IVA Forfettaria”
As mentioned previously, those who are self-employed pay 15% taxes on the remaining 40% of their taxable basis. For the first 5 years after opening a business, though, startups receive the benefit of paying just 5% on 40% of their taxable basis, which makes it a mere 2% tax on their personal income!
You can apply the Partita IVA Forfettaria for yearly revenues of up to €65,000, and if you have a spouse who is self-employed, he or she can also apply for one so your household limit doubles to €130,000.
With the Partita IVA Forfettaria your clients will also be singing your praises, as you won’t have to apply VAT on your invoices; they’ll be VAT exempt. VAT is like a sales tax, and in Italy the rate is 22%! Your clients will be just as happy you are self-employed as you are.
Self-Employed Tax Example:
Say for instance you decide to follow your dream of moving to Italy and opening a Bed & Breakfast. You put it on Airbnb, and rent out the rooms short-term for up to 30 days per reservation. Your yearly gross revenue is €50,000. You’re able to write off 60% flat, and effectively your taxable income is €20,000. Next, you calculate 5% of that for your new business and your total tax owed is just €1,000!
If you’re interested in moving to Italy to take advantage of its many tax incentives, fill out our property scouting form so we can match you with the perfect home and you can start living “La Dolce Vita” pronto.
What's the LTV & Interest Rate?
The typical LTV ratio for Italian residents is between 70% and 90% with a 25-year duration and 2% to 3% fixed interest rate. If you are 35 years old or younger, banks could grant you a mortgage with a duration of up to 40 years and a 100% loan to value ratio up to €250,000 with an astonishingly low interest rate. Mortgage rates in Italy remain very competitive compared to the U.S. and other parts of the world.
For residents interested in home renovation projects, the government has renewed tax breaks and incentives amounting to 50% to 90% of the total renovation costs. Save on eco-friendly improvements and updates to the property’s facade, furniture, windows, terraces, and more. Plus, if the home is an apartment building with an HOA, you may qualify for a 110% super bonus! It’s never been a better time to buy a property and renovate in Italy.
Other Mortgage Options:
High Net Worth Individuals who need time to sell another property or move funds around, can apply for a short 5-year loan starting at 3 million Euro. This loan repayment for HNWI is interest-only, usually below 2% with a 30% downpayment. The loan can be easily refinanced at any time.
Mortgage Tip:
If you are planning to buy a property solely under your name but the bank requests your spouse or parent to co-sign the mortgage… wait! This mistake could cost you thousands of Euro. Your spouse would not be able to deduct interest on the mortgage on their personal income tax return and you would be able to deduct only 50% of interest. You want to avoid this scenario by all means, and there is actually a simple solution; your spouse or parent should be a guarantor (“fideiussore” in Italian) on the mortgage instead. In order to be able to fully deduct interests on the mortgage, the title owner of the property and the mortgage signee must match.
Contact Us to discuss your financing options, and subscribe to our blog below for more tips on investing!