The Italian Taxation System

Taxation of an individual's income in Italy is progressive. In other words, the higher the income, the higher the rate of tax payable. In 2006 the tax rate for an individual is between 23%-43%.

In addition to direct taxation - IRPEF (Personal Income Tax), there is also local tax IRAP (a regional tax on ‘productive activity exercised’). However, local tax is not payable by a foreign resident who is employed in Italy.

There are reduced rates of tax and tax exemptions available to certain income earners. The standard rate of Italian corporate tax (IRPEG) in 2006 is 33%. In addition a regional tax ranging from 0.9% to 1.4% is levied under IRPEF together with a municipal tax on income of up to 0.7%.

The Tax Year runs from 1st January to 31st December. Individuals meeting the Italian permanent residency criteria are taxed on their worldwide income and gains and are required to file a tax return unless their only income is from employment.