Blogs • July 9, 2025 • 14 Min

Italian Income Tax for Expats and Foreign Residents 2025

Italy’s income tax system isn’t overly complex, but it does come with layers and special regimes for newcomers. In 2025, the rules have shifted again: streamlined tax brackets, revamped residency definitions, and targeted incentives for foreign residents, pensioners, and investors. So, whether you're relocating or just keeping your finances in check, understanding how taxes work here is essential. Understanding the Italian Tax System Italy's tax system is structured to accommodate various income sources and personal circumstances. At its core is the IRPEF (Imposta sul Reddito delle Persone Fisiche), a progressive tax on personal income. In addition to the national income tax, residents may also be subject to regional and municipal taxes, which vary depending on location. Recent Reforms: Simplification of Tax Brackets: The 2025 Budget Law has streamlined the IRPEF structure, reducing the number of tax brackets to three. Incentives for New Residents: To attract foreign investment and talent, Italy offers special tax regimes for new residents, including flat tax options and benefits for pensioners. Updated Residency Rules: The introduction of a new 183-day rule affects how tax residency is determined, impacting individuals spending significant time in Italy. Income Tax Rates in Italy (IRPEF) IRPEF (Imposta sul Reddito delle Persone Fisiche) is the cornerstone of Italy’s personal income tax system. It's progressive, which means the more you earn, the more you pay. But as of 2025, the structure has been simplified. Personal Income Tax Brackets In a move to streamline the system, Italy now uses three tax brackets for IRPEF: Key Change: The previous 4-bracket system has been condensed to 3, with the 25% bracket eliminated and its income range merged into the 23% tier, a small win for middle-income earners. Regional and Municipal Tax Rates On top of IRPEF, regional and municipal taxes apply. These vary depending on where you live: Regional Tax: 1.23% to 3.33% Municipal Tax: 0% to 0.9% Each municipality sets its own rates, which are calculated on top of your national income tax. For example, living in Milan might cost more tax-wise than a small town in Puglia. Tax Calculation Methods Italy uses a self-assessment system: Employees usually have taxes withheld at source by their employer. Self-employed individuals and those with multiple income sources must file an annual return (Modello Redditi or Modello 730). Deductions, credits, and exemptions can significantly affect your final liability, especially if you're eligible for family deductions, energy-efficient renovation credits, or private pension contributions. Special Tax Regimes for Foreign Residents Italy wants you to move here, and they’re showing it through taxes. In recent years, the government has introduced several tax incentives aimed squarely at attracting foreign residents, retirees, and highly skilled professionals. If you're considering a move to Italy, these special regimes can make a serious difference in how much tax you pay. The New Resident Tax Regime If you're moving to Italy for the first time or returning after a long absence, you may be eligible for a major tax break. Under this regime, you can opt to pay a flat €100,000 annual tax on all foreign income, regardless of how much you actually earn abroad. It’s valid for up to 15 years, and you can even extend this to family members for an additional €25,000 per person. This option is especially appealing for high-net-worth individuals with global income streams who plan to live in Italy without moving all of their financial interests there. Flat Tax for New Residents (Lump Sum) Separate from the €100k regime, there’s a simplified flat tax system for individuals moving to certain parts of southern Italy ( Sicily, Calabria, Sardinia). Under this scheme, qualified new residents can pay a flat tax of just 7% on foreign pensions and other qualifying income, capped for ten years. This is particularly popular with retirees from countries with strong euro exchange rates, giving them a high standard of living for a relatively low tax cost. Pensioner Tax Benefits If you're receiving a foreign pension and considering Italy for retirement, good news: there's a special tax rate of 7% on your foreign pension income, but only if you settle in a qualifying town with fewer than 20,000 residents in southern Italy. It's a win-win: you enjoy Italy’s lifestyle and climate, and the government benefits from long-term, stable residents. If you're planning to retire in Italy and want to explore lifestyle, healthcare, and legal options beyond taxes, read our full guide to retiring in Italy. Impatriate Worker Regime Italy also offers reduced taxation for workers moving from abroad. If you relocate to Italy for work, you could benefit from a 50% tax exemption on employment income, extended to 70% for certain professionals or if you move to southern regions. The benefit lasts five years, and with certain conditions met (like having dependent children or buying a home), it can be extended for another five. This regime is tailored for professionals, academics, researchers, and managers who bring their expertise and tax contributions to Italy. Italian Tax Residency Rules Before any of those tax benefits kick in, you’ll need to understand what makes you a tax resident in Italy. Qualifying Conditions Italy treats you as a tax resident if any one of the following is true for more than half the year: You are registered with the Italian Registry of the Resident Population (Anagrafe) You have your domicile in Italy, meaning the center of your personal, professional, or economic interests You maintain your habitual abode (main living presence) in Italy You don’t need to meet all three. One is enough. This means someone who owns a home, keeps their business ties, and regularly stays in Italy could be considered a tax resident, even if they spend time elsewhere. 183-Day Rule Here’s where things get more clear-cut. Italy officially introduced a 183-day rule to align with international standards. If you’re physically present in Italy for more than 183 days in a year, even if you're not officially registered, the tax authorities may still consider you a resident for tax purposes. This rule is particularly relevant for digital nomads, remote workers, or those who split time between countries. If you spend more than half the year in Italy, expect to file taxes here, even if your income is generated elsewhere. Important note: once you're deemed a resident, Italy taxes your worldwide income unless you qualify for one of the special regimes we covered earlier. Tax Benefits for Investors and Entrepreneurs Italy is now also rolling out the welcome mat for investors, entrepreneurs, and startup founders. Whether you're launching a business or moving capital into the country, there are tax tools designed to ease the transition and encourage long-term growth. Investment Incentives Private investors bringing funds into Italy may benefit from capital repatriation incentives, reduced taxation on foreign dividends, and, in some cases, exemption from certain capital gains if investments are structured properly. These benefits are especially appealing to non-domiciled individuals using Italy as a strategic base for wealth diversification. The government also supports foreign direct investment through tax credits and public funding in sectors like technology, green energy, tourism, and infrastructure, often tied to job creation or regional development. Start-up Tax Benefits Italy offers generous incentives for innovative startups, especially those registered under the “Startup Innovativa” scheme. These include: Corporate tax exemptions for the first few years Reduced social security contributions for founders and staff Access to public grants, incubators, and co-investment programs Foreign founders are also eligible for facilitated visa pathways under Italy’s “Startup Visa” program, giving entrepreneurs a fast track to residency with fewer red tape hurdles. Business Tax Advantages Founding a company in Italy can open the door to several tax deductions, including on R&D expenses, digital transformation, and employee training. The Patent Box regime (which was revised recently) allows reduced taxation on income derived from intellectual property developed in Italy. And for businesses operating in southern regions, additional tax credits apply, particularly for hiring local staff, expanding facilities, or investing in equipment. These are aimed at reducing the north-south economic divide while encouraging long-term regional development. Double Taxation Agreements If you’re earning income from outside Italy, or if you’re an expat with ties to another country, you’ll want to understand how Italy handles double taxation. The good news: Italy has a wide network of international tax treaties designed to protect you from paying tax on the same income twice. International Tax Treaties Italy has signed over 100 double taxation agreements (DTAs) with countries worldwide. These treaties determine: Which country has primary taxing rights Which types of income are taxed where (e.g., employment, dividends, royalties, pensions) How residency is defined when both countries claim you For example, if you earn rental income in the UK but live in Italy, the UK might tax the income at source, but Italy could still consider it part of your worldwide income. The treaty ensures you won’t be taxed twice on the same earnings. Tax Credit Systems In most cases, Italy uses a foreign tax credit system. This means: You pay tax abroad (e.g., in the U.S.) You report that income on your Italian return You then deduct the tax already paid abroad from your Italian tax bill The credit is usually limited to the amount of Italian tax due on that same income. So if the foreign tax rate is higher, the difference isn’t refunded, but you’re at least protected from double payment. Reporting Requirements Even if you're not taxed twice, you are required to report all foreign income and assets. Italy has strict disclosure obligations for: Overseas bank accounts Real estate outside Italy Financial investments held abroad This includes filing the RW section of your tax return and, in many cases, paying IVAFE (foreign asset tax) or IVIE (foreign real estate tax). Penalties for non-compliance can be significant, so transparency is key. Filing Taxes in Italy Whether you're employed, self-employed, or receiving income from abroad, you’ll likely need to file an Italian tax return. While the system has been moving toward simplification, filing still requires a solid understanding of deadlines, forms, and documentation, especially if you have multiple income sources. Who Needs to File? You’re generally required to file if: You’re self-employed or have freelance income You have rental income, capital gains, or income from abroad You receive income from multiple sources, even within Italy You want to claim deductions or credits that aren’t applied automatically If you're employed with a single Italian employer and no other income, your taxes may be withheld and finalized through your payroll, and you might not need to file unless you want to reclaim deductions. Forms and Methods There are two main ways to file: Modello 730— typically used by employees and retirees; easier and pre-filled in many cases. Modello Redditi — used by freelancers, business owners, or those with foreign income, property, or more complex situations. Filing can be done online through the Agenzia delle Entrate (Italian Revenue Agency) portal, via a tax assistance center (CAF), or through a commercialista (tax advisor). Many expats choose to work with a professional due to language barriers and Italy’s documentation-heavy process. Deadlines The Italian tax year aligns with the calendar year (January–December). Key dates include: April–June: Pre-filled tax forms available June 30: Main filing deadline for Modello 730 November 30: Final deadline for Modello Redditi (in most cases) Payments are usually split into two installments, one in June and one in November, with options for partial payments and deferrals. Other Important Italian Taxes IRPEF might get the spotlight, but it's not the only tax you'll deal with in Italy. The country applies several other taxes that can affect residents, property owners, and even casual investors. Here are the key ones to know: Value Added Tax (IVA) IVA is Italy’s version of VAT, a consumption tax applied to most goods and services. The standard rate is 22%, with reduced rates of 10% and 5% for essential items like food, healthcare products, and public transport. Some items, like medical equipment or books, may be zero-rated. As a consumer, you see IVA included in most prices, but if you run a business, freelance, or operate as a sole trader, you’ll need to register, collect IVA, and report it quarterly. Property Tax (IMU) If you own real estate in Italy, you may be subject to IMU (Imposta Municipale Unica), a municipal property tax. It doesn’t apply to your primary residence in most cases (unless it’s a luxury category), but second homes, vacation properties, and rental units are usually taxed. Rates vary by municipality but expect to pay between 0.76% and 1.06% of the cadastral value. Local councils have leeway to adjust rates and apply exemptions, so it’s worth checking the rules in your specific location. Capital Gains Tax Capital gains on investments, such as stocks, bonds, and cryptocurrency, are taxed at a flat rate of 26%. Real estate gains are also taxed, but only if the property is sold within five years of purchase (with some exceptions). Keep in mind: Italy doesn’t have a personal capital gains allowance like some other countries do, so even small gains are reportable. Also, losses can be carried forward to offset future gains, but only under specific rules. Tax Optimization Strategies Paying taxes in Italy doesn’t mean you can’t plan smartly. The system offers plenty of legal ways to reduce your taxable income, protect assets, and manage wealth more efficiently. The key is knowing what’s allowed and keeping things clean and compliant. Legal Tax Planning Methods Italy recognizes a wide range of allowable tax planning strategies, especially if you’re self-employed, managing investments, or relocating. These include: Structuring foreign income to fall under special regimes (like the €100k flat tax) Choosing where to take up residency based on local tax rates and incentives Timing the sale of property or assets to take advantage of exemptions or lower rates For business owners, incorporating in a specific region or reinvesting profits into R&D or equipment can also lead to tax credits or deferrals. Tax Deductions and Credits Italy offers dozens of deductions that can lower your taxable income. Some of the most commonly used include: Medical expenses School and university fees Home renovation and energy-efficiency improvements (the famous “bonus casa” and “eco-bonus”) Private pension contributions Dependent family members You can also access credits for hiring certain types of employees, donating to charities, or using public transportation, but you’ll need receipts, documentation, and often an Italian digital ID (SPID) to process everything. Wealth Management Considerations If you hold substantial assets, especially across multiple countries, working with a tax advisor is crucial. Italy’s foreign asset reporting laws are strict, and the penalties for non-compliance are steep. But with proper planning, you can: Legally shield assets through trusts or holding companies Avoid double taxation through treaty structuring Make use of inheritance and gift tax thresholds (which are more favorable than in many other EU countries) Many foreign residents also explore residency options in regions with lower IMU rates, better local tax incentives, or access to additional family benefits, making tax optimization a part of their lifestyle planning, not just their accounting. FAQs About Income Tax in Italy 1. Do I have to pay taxes in Italy if I live there for less than 183 days? Not always, but possibly. Even if you’re in Italy for less than 183 days, you might still be considered a tax resident if your main home, financial interests, or family ties are based there. Registration with the Anagrafe (resident registry) also counts. 2. What is the flat tax option for new residents moving to Italy? If you're relocating and haven’t been a tax resident in Italy for the past 9 years, you can opt to pay a flat €100,000 per year on all foreign income, regardless of how much you earn. It’s valid for up to 15 years and is extendable to family members at €25,000 each. 3. Is foreign income taxed in Italy if I live there? Yes, once you're deemed an Italian tax resident, you’re taxed on worldwide income. However, if you qualify for a special regime (like the flat tax or pensioner exemption), foreign income may be taxed differently or even excluded from IRPEF. 4. What are the 2025 IRPEF tax brackets? Italy now has a simplified three-tier system: 23% on income up to €28,000, 35% for €28,001–€50,000, and 43% on anything above €50,000. Additional regional and municipal taxes may also apply depending on where you live. 5. How does Italy avoid double taxation with other countries? Italy has over 100 tax treaties in place. If you pay tax abroad on certain income, you can often claim a credit against your Italian tax bill. This helps prevent being taxed twice, but you still need to report the income properly. References EY. (2025, February 5). Italian 2025 Budget Law tax measures — a summary. EY. Retrieved from https://www.ey.com/en_gl/technical/tax-alerts/italian-2025-budget-law-tax-measures-a-summary:contentReference Graber & Partner. (2025, June 24). IRPEF (income tax in Italy) - tax brackets & rates in Italy. Graber & Partner. Retrieved from https://www.graber-partner.com/en/lexicon/22-irpef-income-tax-in-italy-tax-brackets-rates-in-italy.html:contentReference IMI Daily. (2025, January 28). Court Ruling Paves Way for Double Tax Relief for Italy Residents. IMI Daily. Retrieved from https://www.imidaily.com/opinion/court-ruling-paves-way-for-double-tax-relief-for-italy-residents/:contentReference PwC. (2025, February 5). Italy - Individual - Taxes on personal income. PwC Worldwide Tax Summaries. Retrieved from https://taxsummaries.pwc.com/italy/individual/taxes-on-personal-income:contentReference