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Italy To Alter Controversial New Self-Employed Tax System

by Ulrika Lomas, Tax-News.com, Brussels

06 February 2015


Italian Prime Minister Matteo Renzi has indicated that the new reduced tax regime introduced for Italian self-employed individuals with effect from January 1, 2015, will be improved, following protests concerning the lower benefits offered compared with the previous regime.

The new 15 percent fixed tax regime is available for self-employed individuals, including entrepreneurs and sole traders. Eligibility depends on a business's annual turnover, with maximum turnover ranging from EUR15,000 to EUR40,000, depending on the sector in which the business is engaged. It replaces their liability to individual income tax (federal, regional, and local), value-added tax, and the regional tax on production.

The taxable amount, as a proportion of turnover, is predetermined by the authorities, depending on the industry in which the business is engaged. Under the system, the 15 percent rate applies to between 40 percent and 86 percent of a business's turnover, depending on the sector.

The new regime has drawn criticism from those classified as professionals, as the EUR15,000 threshold is considered too low, and the pre-determined notional profit margin for this sector, on which the 15 percent rate applies, is the highest for professionals at 78 percent of turnover.

Major grumblings have also been heard when comparing the new regime with the tax rate of the previous system, which was fixed at five percent and based simply on individuals' business turnover up to a maximum of EUR30,000. In addition, self-employed individuals that are already subject to that regime may elect to continue to be taxed under that regime – an option that is not available to those over 35 years of age.

Renzi has already called the new fixed rate regime "a resounding own goal" for his Government and has confirmed his willingness to change its terms. It appears that the first opportunity to do that will be within the framework of the draft tax reform law (delega fiscale), which is to be reissued by the Government after a Cabinet meeting on February 20.

In addition, during that meeting, it is expected that the Government will also look to reduce the incidence of the programmed hikes in self-employed social security contributions from the present 27 percent to 33 percent by 2018. Those substantial increases have also prompted protests.

TAGS: individuals | tax | business | value added tax (VAT) | law | entrepreneurs | professionals | self-employment | legislation | tax rates | Italy | tax breaks | individual income tax

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