Italian tax law recognises two key points in time at which income and expenses become "taxable" under tax law: the cash principle (Italian: principio di cassa) and the accrual basis principle (Italian: principio di competenza). Both principles determine in which tax year income is taxed or expenses are deducted – and are therefore of great practical importance for entrepreneurs, freelancers and private individuals in Italy.
While the cash principle is based on the actual date of payment, the accrual basis principle is based on the economic occurrence of income or expenditure – regardless of cash flow.
This distinction is important because it has a direct impact on the tax base, accounting and accrual accounting.
Under the cash principle (Italian: principio di cassa), income and expenses are recorded at the time when payment is actually made.
In Italy, the cash principle applies in particular to:
Advantages
Example
An architect issues an invoice in December 2025 that is not paid until February 2026. According to the cash principle, the fee is taxable in 2026 because that is when the payment is received.
The accrual principle (Italian: principio di competenza) records income and expenses in the year to which they economically belong, regardless of when payment is made.
It forms the basis of double-entry bookkeeping and is mandatory for corporations.
Typical application in Italy
The accrual principle applies to:
Advantages
Example
A company receives an invoice for € 10,000 for consulting services rendered in November and December 2025, but which will not be paid until February 2026.
→ Recognition in 2025, because that is when the economic expense was incurred.
The choice or specification of the cash or accrual principle influences:
For most taxable individuals, the system is prescribed by law and cannot be freely chosen. In individual cases (e.g. change from simplified to regular accounting), transitional rules must be observed in order to avoid double taxation or unaccounted costs.
| Criterion | Cash principle | Accrual basis |
|---|---|---|
| Decisive | Payment | Economic affiliation |
| Typical users | Freelancers, flat-rate taxpayers | Companies with accounting |
| Complexity | Low | Higher |
| Focus | Liquidity | Period-based result |
| Impact on taxes | Only upon payment | Independent of cash flow |