This is NOT an easy question! We’ll give you an overview, but you’ll really want to schedule an appointment for this one.
If you’re an American living in—or earning income from—Italy, you may be wondering how much Italian income tax you’re required to pay. The answer depends on whether you’re considered a tax resident or non-resident under Italian law. Here’s a breakdown of how it works, what rates apply, and how to avoid double taxation.
Are You a Tax Resident in Italy?
Under Italian law, you are considered a tax resident if any one of the following applies for more than 183 days in a calendar year:
- You are registered as a resident of an Italian municipality
- You maintain your habitual residence in Italy
- Your center of vital interests (economic and personal) is in Italy
If you qualify as a resident, you are subject to tax on your worldwide income in Italy. If not, you are only taxed on income sourced in Italy.
🧾 Taxes for Residents
If you are a resident of Italy, you must file an Italian tax return (Modello Redditi or 730) and declare all global income, including:
- Employment or self-employment income
- Rental income (both Italian and foreign)
- Investment income and dividends
- Pensions
- Capital gains
📊 Income Tax Rates (2024)
Italy uses a progressive tax system:
| Income Bracket (EUR) | Tax Rate |
|---|---|
| 0 – 28,000 | 23% |
| 28,001 – 50,000 | 35% |
| Over 50,000 | 43% |
Plus:
- Regional taxes: ~1.2%–3.3%
- Municipal taxes: ~0.1%–0.9%
- Social contributions: if you’re self-employed or operating a business
Fortunately, there are many tax incentives and planning strategies available that can significantly reduce your tax burden in Italy. However, it’s crucial to consider your tax situation before declaring residency or moving to Italy. Many of the special tax programs require you to apply or declare your intent in advance, before officially becoming a resident. Planning ahead can make a major difference.
⚖️ U.S.–Italy Tax Treaty
Italy has a tax treaty with the United States to prevent double taxation. As a U.S. citizen, you still must file your U.S. tax return, but you may claim a Foreign Tax Credit (FTC) on your IRS Form 1116 for taxes paid in Italy.
Additionally, you may be eligible for the Foreign Earned Income Exclusion (FEIE) (Form 2555) if you meet physical presence or bona fide residence tests.
Taxes for Non-Residents
If you are a non-resident, you are only taxed on income earned in Italy, such as:
- Rental income from Italian property
- Business or professional activity carried out in Italy
- Employment physically performed in Italy
- Italian dividends or interest
Non-residents are subject to flat withholding taxes on some types of income:
| Type of Income | Typical Tax Rate |
|---|---|
| Rental income | 21%–30% (depending on cedolare secca eligibility) |
| Dividends | 26% (may be reduced under treaty) |
| Capital gains | 26% (on Italian-sourced assets) |
Non-residents are not eligible for many tax deductions and credits available to residents. It is very important to have an accountant that understands the USA – Italy Tax Treaties. Not properly understanding both systems can result in extra taxes, double taxation or penalties.
💡 Special Tax Regimes for New Residents
Italy offers attractive tax incentives for new or returning residents. These are always changing, so check that these are still available when you read this article:
1. Impatriate Regime
Workers moving to Italy can exclude up to 70% of income (90% in southern regions) from taxation for 5 years, renewable under certain conditions.
2. €100,000 Flat Tax for High Net Worth Individuals
New residents can opt to pay a €200,000 flat tax (2025) per year on all foreign income—no matter the amount—plus €25,000 for each additional family member. Unfortunately this isn’t as good as it could be for USA Citizens because US Citizens are still subject to tax on their global income.
Key Tips for Americans
- Declare your Italian income on your U.S. tax return—you are taxed on worldwide income as a U.S. citizen.
- File FBAR and FATCA forms if you have over $10,000 in foreign accounts.
- Work with an accountant like us that specializes in Americans in Italy and Sicily
- Track residency days carefully—tax residency kicks in faster than many people realize. It’s usually better to avoid Italian tax residency.
Final Thoughts
Whether you’re living in Italy full time or simply earning rental income from a Sicilian villa, you will owe taxes in Italy—but how much depends on your residency status and type of income. The good news? With the right planning, you can avoid double taxation, take advantage of special regimes, and remain compliant in both countries.
Living la dolce vita doesn’t mean ignoring the taxman—but with good planning it doesn’t have to be stressful!
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