If you’re an American earning income in Italy—whether freelancing, consulting, or running a short-term rental business—you’ll likely need a Partita IVA. When you open one, you must choose a tax regime: forfettario or ordinario. This is completely different from anything similar in the US.
What is a Partita IVA (P.Iva)?
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The closest U.S. equivalent to a Partita IVA (P.IVA) would be a Sales Tax Certificate, but the systems are fundamentally different. Italy operates under a Value Added Tax (VAT) system, not the U.S. sales tax model.
Functionally, a Partita IVA is similar to a sole proprietorship under U.S. common law. When you register a business with the Agenzia delle Entrate, you’re essentially registering the business in your own name and receiving authorization to operate commercially.
The Agenzia delle Entrate will not open a P.Iva for a non-resident individual. Non-residents will need to operate through another type of entity, usually by forming a Srl.
As part of the registration, you must select one or more ATECO codes, which are similar to NAICS codes in the U.S. However, unlike NAICS codes, ATECO codes in Italy are not just descriptive—they can also determine your eligibility for certain activities or incentives. For example, there are specific codes for different types of retailers, distributors, technicians, or installers. Choosing the wrong code can make you ineligible for grants, tax credits, or sector-specific authorizations.
In the U.S., business categories and operations tend to be more informal and decentralized. In contrast, the Italian system is more regulated and codified, with a stronger emphasis on clearly defined categories and activities.
The two accounting models:
Regime Forfettario (Flat-Rate Scheme)
The Regime Forfettario was created in an order to bring more businesses out of the grey economy and into the tax system. It greatly increases simplicity in administration and accounting but offers substantial drawbacks for business owners that are used to maximizing deductions. When speaking to individuals about the forfettario regime, often times they have never had a regular accounting system and often aren’t aware of how much they’re leaving on the table.
The forfettario regime is designed for individuals earning under €85,000 annually. It offers a simplified tax structure:
- Tax is applied to a fixed percentage of your income (called coefficiente di redditività), not your actual profit. For most services, this is 78%. This replaces deductions. When used efficiently especially in businesses with very few expenses it can be very powerful.
- A flat tax rate of 15% applies (5% for new businesses for the first 5 years if eligible). This is a huge incentive.
- No VAT obligations: you do not charge or deduct VAT.
- No detailed bookkeeping is required. But electronic invoicing is still mandatory in Italy.
- Depending on your profession you will also need to make mandatory minimum INPS (Social Security) payments. These can be relatively proportionate or very high depending on your ATECO code. To learn more about INPS/Social Security Read our Article.
Example: On €40,000 of income, you’d be taxed on €31,200 (78%), paying €1,560 if using the 5% rate.
Best suited for freelancers and small service providers with low expenses who want simple compliance.
Regime Ordinario (Standard Accounting)
This is the traditional regime, similar to U.S. self-employment taxation. It’s based on actual profit (income minus expenses) and requires full bookkeeping:
- Progressive income tax (IRPEF) ranging from 23% to 43%.
- VAT must be charged on invoices and paid quarterly.
- Full deductions allowed for business-related expenses.
- Requires an accountant and quarterly filings.
This regime is appropriate if you exceed the forfettario income limit, have significant expenses, or invoice clients who require VAT.
U.S. Tax Considerations
Even if you pay Italian tax, U.S. citizens must report all global income. Fortunately, foreign tax credits or the U.S.–Italy tax treaty typically prevent double taxation. The forfettario regime can simplify reporting to the AdE but if you don’t maintain good records this may complicate claiming the business deductions in the US. Since P.Iva is considered self employment income it usually qualifies for the Foreign Earned Income Exclusion (FEIE) which has an exclusion limit of $130,000 (2025) per qualifying individual. This means that all income under that limit will only be subject to Italian tax rates, but unfortunately they will still need to be itemized on Schedule C as if it was a going concern in the US.
Conclusion
For new or part-time professionals in Italy, the forfettario regime is usually the simplest and most tax-efficient option. As your business grows or your expenses increase, the ordinario regime may become more advantageous.
If you’re unsure which is best for your situation, it’s worth consulting a commercialista familiar with both Italian and U.S. tax obligations. If you couldn’t guess who that is, it’s us. Schedule an appointment!
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