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Personal income tax (IRPEF, Imposta sul Reddito delle Persone Fisiche)

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Personal-income-taThis tax is personal and progressive.
The requirement for this tax is the possession of income, in cash or in kind, falling into one of the categories provided by law. The tax period corresponds to the calendar year.

Persons liable for tax
The following subjects are liable for tax:
• natural persons resident in the Italian territory with reference to the entire income owned;
• natural persons not resident within the Italian territory only with reference to the income produced in Italy.
According to the Italian Law, Italian residents are natural persons who, for most of the tax period, meet at least one of the following conditions:
• they are registered in the registers of the population resident in the national territory;
• they are domiciled in Italy (domicile to be understood as the center of interests, including moral and company interests);
• they are resident in Italy (habitual abode).
Tax assessment basis
Tax is applied to the overall income, i.e. the sum of the income of each category, minus any losses deriving from the practice of arts or professions and/or commercial businesses.
The relevant categories include:
• land income, relating to land and buildings located in the Italian territory;
• capital gain;
• income from employment;
• income from self-employed;
• company income;
• sundry income, included income earned from not usual activity of business, arts or professions.
Once the gross income has been determined, any deduction provided by law is applied in order to reduce the tax base.
Deductions are usually equal to 19% of the charges listed in the Italian Tax Code incurred by taxpayer.
The gross tax is computed by applying the increasing rates on the income increases of the net overall income.
The rates currently in force (2018) are as follows:
Regional and municipal IRPEF surtax
In addition to the tax calculated, two additional payments have to be made in favor of the local authorities (Re- gion and Municipality) in which the taxpayer is resident:
• a regional surtax between 1.73% and 3.33% (established by the regional government on a yearly basis),
• a municipal surtax comprising of a first rate established each year by the state and applied throughout the national territory and a second rate not exceeding 0.8% p.a. established by the individual munici- pality (under some circumstances the rate could rise by a further 0.3%).
Tax on income of non-residents
The personal Income Tax (IRPEF) is applied to resident and non-resident individuals. Resident individuals are taxed on a world-wide basis, while non-resident individuals are taxed on the income produced in Italy on a ter- ritorial basis.
The following income is deemed to be produced in Italy:
• income from land and buildings;
• capital gain paid by the State, resident persons (entities or individuals) or permanent establishment of foreign entities in Italy, except interest and other income derived from bank/post deposits and cur- rent accounts;
• income from employment produced in Italy;
• income from self-employment related to activities performed in Italy;
• business income from activities performed in Italy through a permanent establishment;
• other income from activities performed and assets located in Italy, capital gains derived from the sale of participation in resident entities (exceptions: e.g. non-qualified participations in listed companies; income from listed bonds, other similar securities and derivatives);
• income from participation in transparent Italian entities (e.g. partnerships).
The Tax base is equal to the aggregate amount of the overall income produced in Italy as indicated above, ex- cluding exempt income and income subject to withholding tax, or final withholding tax.
It should also be noted that, the income as indicated above, produced in Italy by non-resident companies and other entities, including trusts, with or without legal personality, are subject to corporate tax (IRES).
The income realized by non-resident companies is qualified as business income and includes:
• capital gains and capital losses relating to assets used in business activities performed in Italy (even if not realized through permanent establishments);
• dividends paid by resident entities;
• income derived from activities performed and assets located in Italy;
• capital gains derived from the sale of participation in resident entities;
• land income, relating to land and buildings located in the Italian territory.
It shall be pointed out that the tax treaties override statutory provisions, therefore the taxpayer could require the related application when they are more favorable.

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