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Italy Approves Self-Employed Tax System Change

by Ulrika Lomas,, Brussels

02 March 2015

The Italian Government has responded to protests in Italy over the new reduced tax regime introduced for self-employed individuals from January 1 this year, announcing that all taxpayers will be allowed the option of being taxed under either the old or new regime.

Both the new and old regime offers a flat rate of tax on turnover, replacing the individual income tax (federal, regional, and local), value-added tax, and the regional tax on production. However, protests began immediately after Parliament's approval of the 2015 Budget over the perceived lower benefits for some taxpayers under the new regime compared with previous arrangements.

The new 15 percent fixed tax regime is seen to be complicated, with eligibility dependent on a business's annual turnover. Maximum turnover caps range from EUR15,000 (USD16,840) to EUR40,000, depending on the sector in which the self-employed person is engaged. Next, the flat tax rate applies to a notional amount of that business's turnover, again depending on the sector, ranging from 40 percent to 86 percent.

The tax rate of the previous system had been fixed at five percent and was simply based on an individual's business turnover, up to a maximum of EUR30,000. However, the option was not available to those over 35 years of age.

Under the 2015 Budget law, self-employed individuals that were subject to the old regime could already elect to continue to be taxed under that regime, unless they were over 35 years of age.

Italy's recently approved 2015 milleproroghe decree, which provides for the annual renewal of a package of government measures, has now stipulated that that option should be freely available to all eligible taxpayers, who will be able to choose whether to enter into the old or new regime, for this year at least.

In addition, the pre-tax reduction to employment or business income for eligible graduates who retake Italian residency and domicile has been extended to 2017. Under the tax break, tax applies to just 30 percent of the income of men and 20 percent for women.

TAGS: individuals | artisans | tax | business | value added tax (VAT) | law | budget | corporation tax | self-employment | legislation | tax rates | Italy | legislation amendments | individual income tax

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