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Understanding Italian Taxation and Payslips

For companies with employees abroad, payroll and taxation are a top priority to make sure that the correct rates are being applied for withholding.  This will hold true for both local residents and expats who are on assignment in Italy

Any employee who remains in Italy longer than 183 days in a given year will be considered a tax resident, and potentially subject to tax on worldwide income.  Non-residents will only pay tax on income earned in Italy.

If you are new to hiring in Italy, how will you know the correct rates and payroll rules to apply for your employees?  This guide will give you the basics, but keep in mind that most of the tax documents and payslips will be in Italian and so local resources may be necessary.

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Individual Income Tax in Italy

The tax on individuals in Italy is the Personal Income Tax, which includes national, regional and municipal rates.  Both locals and expats are subject to the same tax rates on any income earned in Italy.

Types of Taxable Compensation in Italy

There are many compensation items that are subject to income tax including:

  • Base salary, bonuses, commissions
  • Employer contributions/allowances for rent, school tuition, relocation expenses, accommodation and company cars

There are deductions that can be used for income levels up to EUR55,000, but after that they will not apply.

Income Tax Rates in Italy

  • The national progressive income tax rate in Italy for individuals ranges from 23% to 43% based on compensation level.
  • Regional income tax depends on residency and ranges from 1.23% to 3.33%.
  • Municipal tax is 0 to 0.8%.

Withholding Tax in Payroll in Italy

The withholding of tax in payroll should follow the rates and withholding guidelines for each employee.  Italy uses a monthly PAYE scheme, and if the employment income is the sole taxable income, no other filing or reporting is required.

Client Case: Translating an Italian Payslip

We had a client with an employee in Italy who needed an explanation of their payslip as it was all in Italian, and there were many different items listed.  This is an understandable problem for expatriates who may be working in Italy without command of the local language.

We replied with the following breakdown and translation of the payslip:

Item Explanation
Paga Base Base salary provided by the CBA (part of gross monthly salary)
Conting Contingency provided by the CBA (part of gross monthly salary)
3’Elemen 3rd Element (provided by the CBA- part of the gross monthly salary)
Ind. Funz. Function Indemnity provided by the CBA for Cadres (part of the gross monthly salary)
Sup. Ass Superminimum Absorbable – Additional part of the salary to reach the gross monthly salary established by the employee and employer
Anticipo Retribuzione Monthly Salary / Payroll days / Daily rate
Assenza assunti/dimessi It’s relative to the pro-rated part of the salary not paid in case of new hiring or terminated employees
Retr. E.B.I.T. It’s figurative on the payslip. It refers to the salary on which the Ebit (Ente Bilaterale ) contributions are applied.
Contributo Quadrifor Training Institute relative to Cadres (part relative to the employee)
QU.A.S. Dipendente Integrative Health Insurance (part relative to the employee)
FIS D. Lgs. 148/2015 olt 15 dip Additional s.s. contributions (Inps) (part relative to the employee)
Ente Bilaterale Commercio Bilateral board of Trade Sector (it’s an Institute which deals with the employees training)
Imponibile IRPEF Taxable income
IRPEF lorda Gross taxes
Detrazioni lav. Dip. Tax deductions
Ritenute IRPEF Net taxes
Retribuzione utile T.F.R. The salary used for the TFR calculation
Quota T.F.R. TFR accruals which will be paid in case of termination
Imp. INAIL Salary on which Inail rate (Institute covering accident at work) will be applied
Voce Tariffa 0722 It’s only showed on payslip. It’s linked to the Inail risk percentage
Imp. INAIL Salary on which Inail rate (Institute covering accident at work) will be applied
Voce Tariff 0723 It’s only showed on payslip. It’s linked to the Inail risk percentage

Do you need more information about Italy?

If the payroll and tax rules in Italy seem complex, you might have additional questions such as:

How are non-taxable expense reimbursements handled in payroll?

Is it necessary to include all of the payslip items listed even if they don’t apply for an employee?

How to handle excess tax withholding at the end of the tax year?

These are the types of issues we solve for our clients, as well as challenges with employment law, immigration and employee benefits abroad.  We make international employment simple.

 Need more information about employing in a new country? Learn more about:

 

 

Looking to hire an employee in Italy? Get in touch.

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