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How much tax are you actually supposed to pay in Italy?
Thread poster: Oliver Lawrence
Oliver Lawrence
Oliver Lawrence  Identity Verified
Italy
Local time: 10:05
Italian to English
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TOPIC STARTER
Thanks to you all for your comments Jun 13, 2011

My problems appear to stem from two main causes: 1) that I was initially advised to register for IVA (VAT) under the "regime agevolato" and 2) that the system is based on paying advances for next year (based on the previous year's figure), with the balance to be adjusted the following year, as M-H and Giles have commented.

The effects are that, on the one hand, when you get to the second full year, you effectively have to pay all last year's taxes at once (as you had no advance depo
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My problems appear to stem from two main causes: 1) that I was initially advised to register for IVA (VAT) under the "regime agevolato" and 2) that the system is based on paying advances for next year (based on the previous year's figure), with the balance to be adjusted the following year, as M-H and Giles have commented.

The effects are that, on the one hand, when you get to the second full year, you effectively have to pay all last year's taxes at once (as you had no advance deposit to offset from the year before) AND the deposit on next year's (which is virtually the same as last year's figure), thus two years in one. Also, when you get into the third full year, if you started under the "regime agevolato" you then have to move into the "regime ordinario", and the differences between the two regimes mean that certain substantial amounts cannot be treated as deductible in the fourth year, so the taxable base is higher that it otherwise would be. Net result: you get clobbered two years in a row.

Apparently things are set to improve considerably next year (sez my accountant, at any rate), which will be my second full year in the 'regime ordinario', and after considerable discussion with him, I can't find any reason to doubt him, although I intend to pursue this in a lot more detail to get properly to the bottom of it all.

Domestic austerity measures coming up.
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Oliver Lawrence
Oliver Lawrence  Identity Verified
Italy
Local time: 10:05
Italian to English
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TOPIC STARTER
@Catherine Jun 13, 2011

cbolton wrote:

If you're a freelancer with no employees then, no, you shouldn't be paying IRAP. My old accountant had me pay it for years and then about 4 years ago I changed accountant. He said to stop paying it because I did not fit the criteria and then he filed for a refund of what I'd already paid.


Hi Catherine, from what I've been able to establish so far, the state puts the onus on the taxpayer to prove that they are not liable for IRAP, and to do so you probably need to take legal action. May I ask what your new accountant did to demonstrate that you should not have been paying IRAP (what procedure was followed, what evidence submitted), as maybe I can get mine to do the same. TIA.


 
sailingshoes
sailingshoes
Local time: 10:05
Spanish to English
My ten cents Jun 13, 2011

I.e. all I have left after paying taxes in Italy.

Most of your income tax should have been deducted at source in your invoices (ritenuto). What you will be asked to ante up is mainly your INPS. INPS is supposedly paid towards your eventual pension in Italy, but unless you're young and plan to stay in Italy forever, your INPS is worth very little. It will eventually get you c. EUR 450 a month (adjusted obviously) minimum pension, after you pay in 27.5% of your gross income for years.
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I.e. all I have left after paying taxes in Italy.

Most of your income tax should have been deducted at source in your invoices (ritenuto). What you will be asked to ante up is mainly your INPS. INPS is supposedly paid towards your eventual pension in Italy, but unless you're young and plan to stay in Italy forever, your INPS is worth very little. It will eventually get you c. EUR 450 a month (adjusted obviously) minimum pension, after you pay in 27.5% of your gross income for years. Since this is way below the OAP state pension in many other EU countries, it's just another form of taxation for which you will see nothing much back.

Basically, if you had baddish year in 2009 and a good year in 2010, you could be in trouble. It means that your 2010 advance was based on your 2009 earnings and so will not cover what you actually owed on account of 2010. In addition your advance for 2011 will be based what you owed in INPS for 2010, so if you are having another bad year in 2011, this wil be rough. (Remember also that no expenses can be deducted from INPS payments).

An example:
- In 2009 you earned EUR 10,000. In 2010 you owe 2750 INPS plus 2750 in advance, minus your 2009 INPS advance based on 2008 earnings, minus any credits you have from your income tax (you should have some on retained tax after you calculate your deductions). But let's just assume your 2010 INPS payment is the 2750 advance.

- In 2010 your earn EUR 20,000. This means that in 2011 you owe 5500 in INPS and another 5500 as a 2011 advance. Since your 2010 advance was only 2750 (and again simplifying and leaving out transferred tax credits), you owe 2750 (the balance of 2010 INPS payments not covered by your advance) and your 2011 advance of 5500. This amounts to EU 8250 or 41.5% of your 2010 income in PENSION CONTRIBUTIONS ALONE.

That's if your 2011 earnings are at the same level as 2010. But if you slip back to EUR 10,000, you owe 83% of your income in pension contributions. This is why it's essential in Italy to avoid 'sbalzi', or fluctuations in income, and if you do fluctuate, then you have to budget for that.

The system is not really hard to understand (compared to TRADOS, for example). But it takes a few years to get into the swing of it (and to realise that you're being brought to the cleaners). I pay about 350% more tax that I would in my country of origin and will receive a pension 250% smaller than the minimum state pension in my country after contributing more than quarter of my gross income for a quarter of a century.

Tom, isn't that what they call 'sistema Italia'?
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sailingshoes
sailingshoes
Local time: 10:05
Spanish to English
Sorry Oliver Jun 13, 2011

I didn't read your case closely enough and so my lengthy INPS explanantions have only general application. Sorry!

Yes, you're right, the second year is a bummer and coming off the special regime doesn't promise much good.

My accountant gives me a one-page breakdown of everything each year. I sit with him until I'm 100% happy with each area. Once you understand that essential information, you can budget for the upcoming year, which is absolutely necessary in Italy.
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I didn't read your case closely enough and so my lengthy INPS explanantions have only general application. Sorry!

Yes, you're right, the second year is a bummer and coming off the special regime doesn't promise much good.

My accountant gives me a one-page breakdown of everything each year. I sit with him until I'm 100% happy with each area. Once you understand that essential information, you can budget for the upcoming year, which is absolutely necessary in Italy.

I have to say that the tax burden is quite depressing here. How you perceive it depends on where you come from or what you have had expereince of. In my case it's offset by the (relatively) tiny sums I pay for family healthcare, the excellent transport and edcuation I get for my kids (I'm speaking for my own municipality), and especially the childcare when they were younger.

Since I love Italian wine, I save quite a lot of excise, import and markup. However making the most of this advantange can have side effects.
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Tom in London
Tom in London
United Kingdom
Local time: 09:05
Member (2008)
Italian to English
ha ha Jun 13, 2011

sailingshoes wrote:

Tom, isn't that what they call 'sistema Italia'?


I'm afraid so. And rather than reform it, the word on the street is "evade it".


 
Eileen Cartoon
Eileen Cartoon  Identity Verified
Local time: 10:05
Italian to English
last year-next year Jun 13, 2011

I have just one question in all this. My accountant asks me for a list of the invoices I did not collect until the following year (i.e. those I didn't collect in 2010 but collected this year) and they are not included in my income for the year. Of course, those for the previous year that I received payment for in 2010 are. That actually is better than paying for what you haven't received yet.
Moreover, since I do not have the "agevolato" I pay every three months according to what I actual
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I have just one question in all this. My accountant asks me for a list of the invoices I did not collect until the following year (i.e. those I didn't collect in 2010 but collected this year) and they are not included in my income for the year. Of course, those for the previous year that I received payment for in 2010 are. That actually is better than paying for what you haven't received yet.
Moreover, since I do not have the "agevolato" I pay every three months according to what I actually billed and no estimates.
Eileen
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Giles Watson
Giles Watson  Identity Verified
Italy
Local time: 10:05
Italian to English
In memoriam
This year, next year Jun 13, 2011

Eileen Cartoon wrote:

I have just one question in all this. My accountant asks me for a list of the invoices I did not collect until the following year (i.e. those I didn't collect in 2010 but collected this year) and they are not included in my income for the year.



Hi Eileen,

Of course if you didn't collect the cash, you don't pay income tax on it (although you may have to pay IVA/VAT before you actually receive payment). On the other hand, what you did collect forms the basis for the estimate of your current year's income and this may be well out of line with how your year is actually shaping up.

As Heinrich has explained, in Finland you can have a word with the tax authorities and readjust your payments if you think you will earn less. You can pay less in Italy, too, if you think your income will have dropped significantly, but the penalties are swingeing if you get your estimate wrong.

BTW are you sure that the quarterly payments you refer to are not IVA (VAT)? We're talking here about IRPEF (income tax) and INPS (national insurance), which are generally paid in two whacks about now and towards the end of the year, and are a different matter entirely.

In any case, there's nothing particularly odd about the mechanics of taxation in Italy. The manner in which the system is applied, however, particularly but not only to the self-employed, is extremely rigid and frequently excessive.


 
Holly Nathan (X)
Holly Nathan (X)  Identity Verified
Italy
Local time: 10:05
Italian to English
what do you mean Oliver? Jun 14, 2011

Oliver Lawrence wrote:

Also, when you get into the third full year, if you started under the "regime agevolato" you then have to move into the "regime ordinario",


Oliver what do you mean "you then have to move into the regime ordinario"? I presumed you had moved into the ordinario because you had started earning too much to stay in the regime dei minimi but this makes me think it was because you can only stay in the regime dei minimi for a couple of years. Is this something else that I wasn't told? Sweat sweat.........


 
Oliver Lawrence
Oliver Lawrence  Identity Verified
Italy
Local time: 10:05
Italian to English
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TOPIC STARTER
regime agevolato/dei minimi/ordinario - @Holly Jun 14, 2011

Holly Nathan wrote:

Oliver what do you mean "you then have to move into the regime ordinario"? I presumed you had moved into the ordinario because you had started earning too much to stay in the regime dei minimi but this makes me think it was because you can only stay in the regime dei minimi for a couple of years.


Hi Holly,

What my accountant told me was that the "regime agevolato" (which according to him is different from the "regime dei minimi") only applies for 3 tax years, so come the fourth year you have to move into the "regime ordinario" whether you like it or not, regardless of income; the "regime ordinario" is then where you'll stay for the rest of eternity. He may not have said the bit about eternity, but I think the gist is the same.

HTH
Oliver.


 
Holly Nathan (X)
Holly Nathan (X)  Identity Verified
Italy
Local time: 10:05
Italian to English
oh Jun 14, 2011

Oliver Lawrence wrote:

What my accountant told me was that the "regime agevolato" (which according to him is different from the "regime dei minimi") only applies for 3 tax years, so come the fourth year you have to move into the "regime ordinario" whether you like it or not, regardless of income; the "regime ordinario" is then where you'll stay for the rest of eternity. He may not have said the bit about eternity, but I think the gist is the same.

HTH
Oliver.


Oh, agevolato isn't minimi, then? Well, that's "good" news (i.e. one less thing I have to think about).
Good luck with all those lentils.


 
Angie Garbarino
Angie Garbarino  Identity Verified
Local time: 10:05
Member (2003)
French to Italian
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May I know you contry of origin? Jun 14, 2011

sailingshoes wrote:

I pay about 350% more tax that I would in my country of origin and will receive a pension 250% smaller than the minimum state pension in my country after contributing more than quarter of my gross income for a quarter of a century.


As I am planning to leave Italy just to spend the 3rd part of my life with peace of mind, (I am not joking, I am really thinking to leave Italy, just need to decide where).

Tom, isn't that what they call 'sistema Italia'?


Yes, that's it,


 
dropinka (X)
dropinka (X)  Identity Verified
Italy
English to Italian
+ ...
I may be wrong Jun 14, 2011

Marie-Hélène Hayles wrote:
Translators and interpreters generally fall into the category of "gestione separata", for which the INPS contribution is I believe currently 27.6% of net salary (i.e. after the IRPEF and any other taxes have been deducted).

I'm going to ignore other taxes for now, because I'm hazy on what they are, apart from IRAP (a regional business tax) which we shouldn't be paying anyway, although many of us do or have done in the past. I don't think they amount to a great deal, anyway.

So just taking account of IRPEF and INPS:
Let's assume an income, net of expenses, of 55,000 (because it means I don't have to do too much in the way of calculation).
IRPEF = 17220 (taken from the above link)
INPS = 55000 - 17220 = 27780 * 27.6% = 10427.28

Total = 17220+10427.28 = 27647.28

So on an income of 55,000, I'd end up with 27,352.72 in my pocket.

but I think it's the other way round. You calculate INPS on the net income and then IRPEF on the net income minus INPS.

Claudia


 
Angie Garbarino
Angie Garbarino  Identity Verified
Local time: 10:05
Member (2003)
French to Italian
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Well Claudia Jun 14, 2011

Wrong calculation or not, the final amount in Marie Helen pocket is correct, I experienced about the same and my Husband even worse.

 
dropinka (X)
dropinka (X)  Identity Verified
Italy
English to Italian
+ ...
46,19% (instead of 50,27%) Jun 14, 2011

Prof. Angie G. wrote:
Wrong calculation or not, the final amount in Marie Helen pocket is correct, I experienced about the same and my Husband even worse.

Provided that what I wrote is correct (INPS is calculated on the net income and IRPEF is calculated on net income minus INPS), you get to pay 46,19% (IRPEF + INPS) of a 55,000 euros net income -- not 50,27%. Still a high percentage, I know... but I felt it was right to point it out for the sake of information.

Claudia

[Edited at 2011-06-14 08:25 GMT]


 
Angie Garbarino
Angie Garbarino  Identity Verified
Local time: 10:05
Member (2003)
French to Italian
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My apologies Claudia Jun 14, 2011

Sorry if I gave you the impression to be arrogant, forgive me, it is tax time here, as you know, and I am particularly disappointed about the matter.

My apologies again

A big hug!


 
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