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THE TAX SYSTEM IN ITALY
The Italian Tax System is mainly codified in a general Tax Law (in Italian: Testo Unico per le imposte sui redditi) which is updated each year by an annual Finance Act (in Italian: Legge Finanziaria).
The main topics of this Tax Law are:
Taxes in Italy are generally referred to by acronym, and are divided in two types:
Other taxes (indirect taxes) such as tax on goods, services, imports (VAT), Regional production tax (IRAP), municipal property tax on buildings and agricultural lands (ICI), etc.
TAX NUMBER (CODICE FISCALE)
Italian and foreign citizens who open a bank account, to sign a work contact or to receive electrical power or a telephone connection, need their Italian Tax number (in Italian: codice fiscale). To apply the Tax number foreign citizens need a valid Stay Permit and Passport.
The application of Tax Number must be made to the Italian Tax Authority (Agenzia delle Entrate) in the city where the foreign citizen resides. Its local tax offices manage the applications for Tax number.
TAXES FOR INDIVIDUALS
Individuals are liable for tax on their income as an employee (in Italian: lavoratore dipendente) and on income as a self-employed person (in Italian: lavoratore autonomo).
IRE (in Italian: Imposta dei Redditi): This is the personal income tax to which partners who are physical persons are subject. It’s assessed by percentage of earnings according to tax brackets. All individuals, whether resident or non-resident, are subject to this income tax.
Other (indirect) taxes
IVA (in italian: Imposta sul valore aggiunto): This is imposed on all transactions involving goods and services. This tax is paid by an entrepreneur on goods and services received and can normally be credited against the tax payable on their own turnover, so that in effect only the value added is taxed.
IRAP (in Italian: Imposta regionale sulle attività produttive): This is a tax which in 1998 incorporated various others. This tax is paid by the entrepreneurs and corporate bodies, in each tax period according to the net value produced in the given regional Authority’s territory. The percentage payable differs for capital stock companies and partnerships. The ordinary rate is 4,25%; for public bodies it’s 8,5%. IRAP is not deductible from income tax.
CONVENTION AGAINST THE DOUBLE TAXATION
According to article 128 of Italian Tax Code, non-resident citizens can agree to the Conventions against the double taxation.
The Conventions against the double taxation are international bilateral agreements and grant solutions to those corporations and individuals that suffer tax treatments on an item in the same time period: i.e. double taxation. This convention settles sharing of the taxation power between two states when such a case occurs. The goal of this agreement is to promote the exchange of good and services, the inflow of capital, technology, and persons without the burden of double taxation, on the one hand, and the prevention of fiscal evasion through administrative assistance between contracting parties on the other.