Italian tax law distinguishes between different types of income, each of which is subject to its own tax rules. This system is regulated by the Testo Unico delle Imposte sui Redditi (TUIR) and forms the basis for the taxation of natural persons as well as businesses.
The classification into types of income is not merely formal in nature, but has concrete tax implications:
- different methods of calculation (e.g. flat-rate taxation and profit determination)
- different tax rates or special provisions
- various deduction options
Taxation is generally based on the so-called worldwide income principle: individuals resident in Italy must pay tax on all domestic and foreign income.
Income categories
There are a total of six types of income that form the basis of the entire system of taxes:
- Income from land and property (Redditi fondiari)
- Income from capital assets (Redditi di capitale)
- Income from employment (Redditi di lavoro dipendente)
- Income from self-employment (Redditi di lavoro autonomo)
- Business income (Redditi d’impresa)
- Other income (Redditi diversi)
Together, these categories form the total income (reddito complessivo), which forms the basis for taxation.
Income from land and property (Redditi fondiari)
This income is divided into two main categories:
- Income from land (Redditi dominicali)
- Income from buildings (Redditi dei fabbricati)
Both are generally based on the cadastral income (rendita catastale) and not necessarily on the actual income received.
Income from land (redditi dominicali)
This relates to land used for agricultural purposes, with taxation based on the cadastral income, regardless of whether actual revenue is generated or not. The income is attributed to the owner.
Income from buildings (redditi dei fabbricati)
a) Rented properties
For rented properties, a comparison is made between the actual rental income (reduced by a standard deduction, usually 5%) and the cadastral income (increased by the statutory surcharge of 5%). The higher of the two values is generally used as the tax assessment basis. In practice, this is usually the actual rental income.
Alternative: Cedolare secca
For residential property, the so-called ‘Cedolare secca’ may be chosen as an alternative, which provides for a flat-rate tax of 21% and may be reduced to 10% in certain cases.
b) Unrented properties
Unrented properties may be taxable, particularly in the case of second homes or vacant properties.
c) Commercial properties
The following special provisions apply to commercially used properties:
- the Cedolare secca does not apply
- Taxation in accordance with the general rules
- For businesses: allocation to business assets with corresponding profit calculation
Income from capital assets (Redditi di capitale)
This includes income from the use of capital, such as:
- Dividends from equity participations
- Interest on bank deposits or loans
- Income from security papers
In many cases, this income is not taxed via personal income tax IRPEF but via withholding tax (imposte sostitutive), usually at 26%, and is therefore not included in total income.
Income from employment (Redditi di lavoro dipendente)
Income from employment is one of the most important types of income under Italian tax law. It includes all remuneration received within the framework of an employment relationship. This includes, for example:
- Wages and salaries
- Bonus payments
- Non-cash benefits (fringe benefits, e.g. company car)
- Pensions
Taxable income is calculated as gross remuneration minus social security contributions (INPS). Taxation is based on the progressive personal income tax IRPEF and is normally withheld and paid directly by the employer.
Income from self-employment (Redditi di lavoro autonomo)
This category applies to freelancers and self-employed service providers whose work is primarily based on their personal expertise and who do not have a formal business structure. Typical examples include:
- doctors, solicitors
- consultants, IT service providers
- Freelancers and sole traders not engaged in commercial trade
Taxation is based on profit (income minus expenses) and is subject to the progressive personal income tax IRPEF (unless the flat-rate system is applied).
Business income (Redditi d’impresa)
This includes income from business activities, in particular:
- sole trader
- Partnerships
- Corporations
Taxation:
Profit is determined in accordance with commercial and tax law.
Sole traders: The profit is attributed directly to the trader and is subject to progressive personal income tax IRPEF (unless the flat-rate system is applied).
Partnerships: Profits are attributed to the partners in proportion to their equity participation in accordance with the principle of transparency and are taxed by them under the progressive personal income tax regime IRPEF.
Corporations, on the other hand, are separate taxable entities whose profits are subject to Corporate Income Tax IRES at company level.
Note:
Partnerships (not their partners) and corporations are also subject to the regional production tax IRAP.
Miscellaneous income (Redditi diversi)
This category serves as a ‘catch-all’ category and includes all income that cannot be clearly assigned to any of the other categories but is nevertheless taxable. Some examples are:
- Private property sales (within 5 years of acquisition)
- Capital gains from shareholdings and financial instruments
- Speculative gains (e.g. crypto-assets)
- Occasional activities
Taxation:
To determine the profit, income is calculated by deducting directly attributable costs.
The taxation itself then depends heavily on the individual case:
- Progressive personal income tax IRPEF, e.g. for occasional activities and property sales.
- Substitute tax (imposta sostitutiva), usually 26%: common for financial gains