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In Italy, personal income tax is known as "imposta sul reddito delle persone fisiche" (IRPEF). It is a direct, personal, and progressive tax.
Who is required to declare?
Italy adopts two taxation criteria: residential and territorial.
A person is considered a tax resident (citizen or foreigner) if they have been registered in the country (residence established in the Comune) for more than 183 days, lived habitually, or maintained a business center or personal interests in Italy.
Therefore, by falling into the category of tax resident in Italy, universal taxation will occur on all their income and assets, including those from abroad.
For example, if taxpayer X is a tax resident in Italy - where they have income and assets - but after leaving Brazil, they maintained financial investments in the country. As a result, taxpayer X will have their income and assets from Italy and Brazil subject to income tax before the Italian government.
Under the territorial taxation criterion, the tax applies only to income originating in Italy.
*Important: Having a Codice Fiscal does not categorize the individual as a tax resident for income tax purposes.
Do Brazil and Italy have a Double Taxation Avoidance Agreement?
Yes.
Brazil and Italy have had an Agreement to Avoid Double Taxation since 1981. This greatly prevents the taxpayer from paying income tax twice.
What is the fiscal year in Italy?
The fiscal year in Italy starts on January 1st and ends on December 31st.
How do I file my tax return?
Income tax must be transmitted through an electronic declaration, in which the taxpayer must detail all their tax information and submit it to the Agenzia delle Entrate (the Italian Revenue Agency).
The agency's website provides the declaration templates to be used by taxpayers. Depending on the types of income, there will be the following declaration model options:
Model 730 (simplified declaration model): wage earners, pensioners, among other categories.
Taxpayers must submit this declaration electronically by September 30 of the subsequent year to the calendar year in question.
Those falling into this category who fail to file the declaration within the deadline will have to submit the Redditi PF.
Redditi PF model:
Those required to declare in the Redditi PF model are:
Those who received business income, including in the form of equity participation;
Those who received income from self-employment for which a VAT number is required;
Those who received "other" income not included among those declarable on Form 730;
Those who received capital gains from the disposal of qualified interests or from the disposal of non-qualified interests in companies;
Those who received income from trust funds as beneficiaries;
Non-residents in Italy;
Must also submit one of the following declarations: VAT, Irap, Model 770;
Must file the declaration on behalf of deceased taxpayers.
Taxpayers must submit this declaration electronically by November 30 of the subsequent year to the calendar year in question.
*An important difference between both models is that in model 730, the debit is deducted directly from the payroll, whereas in Redditi PF, the taxpayer must pay it through model F24.
Progressive Tax Table
The tax to be deducted directly from the source, i.e., from the salary, was previously applied as follows:
Bracket I: 23% for incomes up to 15,000 euros;
Bracket II: 27% for incomes between 15,001 and 28,000 euros;
Bracket III: 38% for incomes between 28,001 and 50,000 euros;
Bracket IV: 41% for incomes between 55,001 and 75,000 euros;
Bracket V: 43% for incomes over 75,000 euros;
However, the government in 2021/2022, aiming to reduce tax evasion and simplify the country's tax system, decided to reduce the tax brackets and decrease the tax burden (by reducing the rate) for most of the Italian population, i.e., those earning from 15,000 to 50,000 euros.
As a result, the updated tax rates are as follows:
Salary Range (euros) | Tax rates |
0 - 15,000.00 | 23% |
15,001.00 - 28,000.00 | 25% |
28,001.00 - 50,000.00 | 35% |
Above 50,000.00 | 43% |
What deductions can be made?
Some possible examples of deductions include the following:
Supplementary health contributions;
Medical expenses;
Donations (religious institutes, non-profit organizations, universities, etc.);
Among others.
Does Italy have a social security agreement with Brazil?
Yes.
The two countries have an International Social Security Agreement, meaning the contribution time in each country is counted for the granting of retirement, pension, and benefits, both in Brazil and Italy.
Furthermore, this agreement also allows access to the Italian public health system through the issuance of CDAM - Certificate of Entitlement to Medical Assistance, on the GOV.BR website.
This benefit applies to retired Brazilians, pensioners, and active contributors to the Brazilian Social Security System (INSS), such as employers, employees, self-employed individuals, and voluntary contributors.
Mosaico Experience
Illustratively, we would like to mention a case in which our team had the opportunity to contribute to the resolution of a problem involving income in Italy. A client who resided in the UK had been receiving rental income from Italy for years and, due to a lack of knowledge of the legislation, did not declare this income to HMRC. The authority discovered the situation and initiated an investigative process. Consequently, Mosaic was requested to assist this client. The solution presented for this case was the offsetting of taxes already paid in Italy during this period against the amount owed to HMRC, with fines being applied to the residual amount. This procedure is known as a foreign tax credit. We also accounted for property-related expenses as deductions.
Additionally, we assist individuals with Italian income in filing their Income Tax in Brazil or completing their Definitive Departure Declaration from the country. Need tax guidance? Schedule a consultation with one of our specialists.
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