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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: 12:12
Italian to English
+ ...
Jun 12, 2011

Hello all

My accountant here in Italy has told me that I am supposed to pay what amounts to almost 80% of my income in tax. I am in my fourth tax year here (the first under the 'regime ordinario' after three under the 'regime agevolato') and have been issuing invoices with IVA and RDA. I expect to pay income tax, IVA, national insurance and little regional and local taxes, but the amount that I am being asked to pay appears absurd. I have queried this with the accountant via email,
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Hello all

My accountant here in Italy has told me that I am supposed to pay what amounts to almost 80% of my income in tax. I am in my fourth tax year here (the first under the 'regime ordinario' after three under the 'regime agevolato') and have been issuing invoices with IVA and RDA. I expect to pay income tax, IVA, national insurance and little regional and local taxes, but the amount that I am being asked to pay appears absurd. I have queried this with the accountant via email, yet he seems to be standing by his figures, although I am going to have it out with him shortly face to face.

Is there an easy way of working out for myself roughly how much I should be paying? Your comments would be welcome - thanks in advance.

Oliver.
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Giles Watson
Giles Watson  Identity Verified
Italy
Local time: 12:12
Italian to English
In memoriam
Which tax year do the payments refer to? Jun 12, 2011

Hi Oliver,

One of the features of the Italian tax system is that in any given tax year, you are expected to pay off the balance of your tax outstanding for that year and make a substantial down payment on what you will owe in the upcoming tax year, based on your earnings in the current year.

If you were previously on a "regime forfettario", I don't imagine your were making down payments on the next year's tax so in effect, you will now have to pay nearly two years' tax
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Hi Oliver,

One of the features of the Italian tax system is that in any given tax year, you are expected to pay off the balance of your tax outstanding for that year and make a substantial down payment on what you will owe in the upcoming tax year, based on your earnings in the current year.

If you were previously on a "regime forfettario", I don't imagine your were making down payments on the next year's tax so in effect, you will now have to pay nearly two years' tax in one go. The only consolation is that next year, things should have sorted themselves out.

Please don't take my word for it, though. I'm no expert but I'm sure your accountant is.

Giles
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Tom in London
Tom in London
United Kingdom
Local time: 11:12
Member (2008)
Italian to English
Same here Jun 12, 2011

Giles Watson wrote:

One of the features of the Italian tax system is that in any given tax year, you are expected to pay off the balance of your tax outstanding for that year and make a substantial down payment on what you will owe in the upcoming tax year, based on your earnings in the current year.
Giles


It's the same here in UK.


 
Oliver Lawrence
Oliver Lawrence  Identity Verified
Italy
Local time: 12:12
Italian to English
+ ...
TOPIC STARTER
Bad year should've been last year Jun 12, 2011

Giles Watson wrote:

If you were previously on a "regime forfettario", I don't imagine your were making down payments on the next year's tax so in effect, you will now have to pay nearly two years' tax in one go. The only consolation is that next year, things should have sorted themselves out.


Thanks Giles, actually last year was the year in which I had to pay nearly 2 years' tax in one go. This year is the year when things should've sorted themselves out. My theory is that the accountant isn't that expert, e.g. that he's working on the basis of IRPEF lorda not IRPEF netta (i.e. he's forgotten the acconti from last year and the RDA that my customers have been paying for me); he also seems to think I should be paying IRAP (not that that makes all that much difference to the overall scheme of things), but I'm sure I shouldn't.


 
Heinrich Pesch
Heinrich Pesch  Identity Verified
Finland
Local time: 13:12
Member (2003)
Finnish to German
+ ...
Sounds stupid Jun 13, 2011

I can't help it but that seems absurd. And the same is true for Britain? I always heard that Britain is very entrepreneur-friendly compared to Finland, but that's a horror story.
Here we never pay in advance but put forward our approximation for the beginning year and pay according to that every month or two in installments. If business conditions change we can inform the tax-office of our changed expectations and the installments are changed accordingly. If I have paid too little or too m
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I can't help it but that seems absurd. And the same is true for Britain? I always heard that Britain is very entrepreneur-friendly compared to Finland, but that's a horror story.
Here we never pay in advance but put forward our approximation for the beginning year and pay according to that every month or two in installments. If business conditions change we can inform the tax-office of our changed expectations and the installments are changed accordingly. If I have paid too little or too much last year the balance will be achieved end of this year. So I could pay too little tax, invest the money cleverly and pay a year later, if I choose to do so.
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Catherine Bolton
Catherine Bolton  Identity Verified
Local time: 12:12
Italian to English
+ ...
In memoriam
IRAP Jun 13, 2011

Oliver Lawrence wrote:

[ he also seems to think I should be paying IRAP (not that that makes all that much difference to the overall scheme of things), but I'm sure I shouldn't.


Hi Oliver,
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. So I got two nice checks in the mail last June!
You may find this interesting:
http://www.fiscooggi.it/giurisprudenza/articolo/tra-il-professionista-e-l-irap-c-e-sempre-la-struttura-organizzativa-esterna

The key part is:
In buona sostanza, la ricchezza che con l’Irap si intende tassare non può essere data dal solo impiego coordinato delle facoltà intellettive del professionista, delle sue attitudini e della sua iniziativa personale, poiché tutto questo è già tassato con l’Irpef.

I would talk to another accountant if I were you.
Catherine


 
Giles Watson
Giles Watson  Identity Verified
Italy
Local time: 12:12
Italian to English
In memoriam
Friendly taxes Jun 13, 2011

Heinrich Pesch wrote:

I can't help it but that seems absurd. And the same is true for Britain? I always heard that Britain is very entrepreneur-friendly compared to Finland, but that's a horror story.
Here we never pay in advance but put forward our approximation for the beginning year and pay according to that every month or two in installments. If business conditions change we can inform the tax-office of our changed expectations and the installments are changed accordingly. If I have paid too little or too much last year the balance will be achieved end of this year. So I could pay too little tax, invest the money cleverly and pay a year later, if I choose to do so.


The horror story is Italian, Heinrich. Perhaps Tom could tell us about how business-friendly the tax people are in the UK.

Technically, of course, we are not paying in advance in Italy. This year, we pay off the balance of 2010's tax and almost all of the notional figure for 2011 in two instalments (June/July and November/December). No problem, if all of your clients pay on the nail (that is not always the case in Italy, to put it mildly!), you don't receive single payments that straddle two or more tax years and your business doesn't have too many general ups and downs.

Most small businesses have little or no dialogue with the tax authorities. Should the taxman think they are evading, he will presume they are guilty and it will be up to them to show that they are not. It's also a good idea to keep a substantial sum tucked away so that you can pay your taxes on time as late payment tends to be expensive.

In Oliver's shoes, I think I would shop around for a new accountant


 
Marie-Hélène Hayles
Marie-Hélène Hayles  Identity Verified
Local time: 12:12
Italian to English
+ ...
Old thread on the same topic Jun 13, 2011

http://www.proz.com/forum/money_matters/83525-what_solution_for_85_taxation.html

For the record, the year after that thread was started I experienced at first hand what the OP was talking about, so my own responses should be ignored.


 
Tom in London
Tom in London
United Kingdom
Local time: 11:12
Member (2008)
Italian to English
I gave up Jun 13, 2011

This was one of the main reasons why I moved back to the UK, relegating Italy to the status of "a beautiful country to visit and to see one's Italian friends". For 20 years and more I was unable to understand why I seemed to be paying so much in so many different types of taxes and what was more, spending so much valuable time (hours, nearly every week) just discussing these matters with my accountant.

The only thing I was ever able to understand was that (this was how my accountan
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This was one of the main reasons why I moved back to the UK, relegating Italy to the status of "a beautiful country to visit and to see one's Italian friends". For 20 years and more I was unable to understand why I seemed to be paying so much in so many different types of taxes and what was more, spending so much valuable time (hours, nearly every week) just discussing these matters with my accountant.

The only thing I was ever able to understand was that (this was how my accountant explained it to me) as a non-Italian with a funny-sounding name (to Italians) I would be wise to punctiliously pay every penny of every tax, and no funny business, unlike the Italians, for whom funny business was the ordinary way of doing things.

I shall continue to follow this thread, with interest.

Marie-Hélène - that thread is so depressing. How did *you* resolve matters in the end?

I do agree that Oliver should shop around for a much better accountant. No doubt there are many Italian colleagues who can suggest names.

One problem is that translators don't have many expenses they can "scaricare". All I ever buy is paper, printer ink, occasional bits of software, etc.

[Edited at 2011-06-13 08:19 GMT]
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Mailand
Mailand  Identity Verified
Local time: 12:12
Member (2009)
Italian to German
+ ...
non-Italian with a funny-sounding name Jun 13, 2011

[quote]Tom in London wrote:

The only thing I was ever able to understand was that (this was how my accountant explained it to me) as a non-Italian with a funny-sounding name (to Italians) I would be wise to punctiliously pay every penny of every tax, and no funny business, unlike the Italians, for whom funny business was the ordinary way of doing things.

I whole-heartedly agree with this - I do have a "funny-sounding name" and now have to live up to it .....

Every year when taxes are due I do think about going back to Germany, but with two kids going to school and a husbands who managed to learn little German, it´s going to be more absurd tax laws for quite some time for me!


 
Nicholas Stedman
Nicholas Stedman  Identity Verified
Italy
Local time: 12:12
French to English
Lets have some precise figures please Jun 13, 2011

There are numerous long forum entries complaining about how much tax one has to pay in different countries, particularly Italy.
It seems that the worse thing for translators in Italy is that they are absolutely in the hands of their accountant (Commercialista) who knows all the rules and there is no way they can themselves calculate in advance what they have to pay or what to do to increase their income.
In France by comparison there are excellent software programs that do everythin
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There are numerous long forum entries complaining about how much tax one has to pay in different countries, particularly Italy.
It seems that the worse thing for translators in Italy is that they are absolutely in the hands of their accountant (Commercialista) who knows all the rules and there is no way they can themselves calculate in advance what they have to pay or what to do to increase their income.
In France by comparison there are excellent software programs that do everything for you (even send in your tax forms automatically) so there is absolutely no need to have an accountant. There are also freelance associations that give you help on all the details, website that calculate all your charges for you (http://www.entrepriseindividuelle.info/Calc_CharSoc.php) and you can always have a chat over the phone with your tax inspector.

It would be great to have some precise figures about how much the tax burden actually is in Italy. Actual percentages and not just heated discussion.
In France for instance your social charges come to about 25 % of your turnover. Then you have income tax which is relatively low at about 15-20 %. + local taxes of a few percent: total 40-48 %.

PS: I used to complain a lot about the situation in France, but I'm now seeing the good side even in comparison with the UK!
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Tom in London
Tom in London
United Kingdom
Local time: 11:12
Member (2008)
Italian to English
Oliver- you may find this link useful Jun 13, 2011

http://britishexpats.com/forum/forumdisplay.php?f=77

 
Heinrich Pesch
Heinrich Pesch  Identity Verified
Finland
Local time: 13:12
Member (2003)
Finnish to German
+ ...
Surprising indead Jun 13, 2011

Since Italy was ruled almost 60 years by "bourgeois" parties I would have expected that taxation would be light on business compared to our "socialist" countries in Northern Europe.
If you want to have figures, freelancers here pay income tax, where all sources of income are put together into one figure.
I get pension about 18000 Euro/y and pay for that roughly 3000 Euro, which is reduced automatically.
My income from translation work is put on top of the pension, this year I
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Since Italy was ruled almost 60 years by "bourgeois" parties I would have expected that taxation would be light on business compared to our "socialist" countries in Northern Europe.
If you want to have figures, freelancers here pay income tax, where all sources of income are put together into one figure.
I get pension about 18000 Euro/y and pay for that roughly 3000 Euro, which is reduced automatically.
My income from translation work is put on top of the pension, this year I declared to expect 16000 Euro income from business. So I pay six times 800 Euro tax this year.
If I see that business is growing, I will phone and tell them a new figure so I can pay more during the remaining months.

For 34000 Euro income I pay 8000 Euro tax = 23,5 percent. But for every additional Euro I earn I have to pay 47 percent.

After my first taxation year as freelancer I decided I don't need an accountant. Depending on how well you keep your excel sheet filling in the taxation form takes an hour or two each year. In addition we have to fill in on-line a form for VAT each month and every third month. If I have paid more VAT than customers pay me I get the balance back every quarter.
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Marie-Hélène Hayles
Marie-Hélène Hayles  Identity Verified
Local time: 12:12
Italian to English
+ ...
Figures for Italy Jun 13, 2011

(Subject to correction by people who have more of a clue than I do)

Income tax (IRPEF) depends on how much you earn. The baseline is 20%, which is paid on all income from 0 upwards. From 15,001 it becomes 27%, from 28,001 38%, and from 55,001 41%. The top rate is 43%, payable from 70,00
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(Subject to correction by people who have more of a clue than I do)

Income tax (IRPEF) depends on how much you earn. The baseline is 20%, which is paid on all income from 0 upwards. From 15,001 it becomes 27%, from 28,001 38%, and from 55,001 41%. The top rate is 43%, payable from 70,001 upwards.
source: http://crisi-finanziaria.myblog.it/archive/2010/02/19/irpef-2010-aliquote-scaglioni-calcolo-detrazioni.html

So the income tax is actually not excessive.

The other major expense is pension contributions (INPS). There is a horrendously complicated system in Italy which would be far too difficult to explain fully in a few words. Suffice to say that the contributions you pay depend on whether or not you're employed or self-employed and, if you're self-employed, your profession (one of the reasons we complain so much - it's an extremely unfair system). 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.

That actually doesn't sound too bad, which leads me to wonder if either the other taxes and contributions are higher than I thought, or if it's simply the way we have to pay them (in advance based on projected earnings) which makes them so difficult to manage. I suspect it's the latter.





[Edited at 2011-06-13 11:33 GMT]
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Nicholas Stedman
Nicholas Stedman  Identity Verified
Italy
Local time: 12:12
French to English
Many thanks Marie Hélène Jun 13, 2011

for giving some precise figures. I have been spending increasingly long periods in Italy for several years and am finally taking the plunge and becoming a resident of Italy so all the negative comments in the Proz fora about the Italian tax system have been rather discouraging. From your figures the situation doesn's seem much worse than in France and apparently you can deduct more expenses in Italy!

 
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