Income taxes and Social Security in Italy
Income taxes in Italy are calculated with a progressive rate. This rate ranges from 23% to 43% for the main national tax for individuals («IRPEF»); regional and local additional taxes are provided for (ranging 1% – 3%, roughly).
The fiscal year for individuals runs from January 1 to December 31.
People spending more than 183 days in Italy are obliged to pay taxes to the Italian Government, including incomes earned worldwide.
The social security contributions are due to the Italian authorities if the working activity is carried out in Italy («lex loci laboris»).
Social security contribution for employees are (roughly):
- 10% charged to employees
- 30% charged to the company.
The tax base is given by all the gross amounts received by the employee within his/her employment, deducted his/her quota of social security contributions.
Many exceptions and special rules are also provide for.
Bureaucratic identity in Italy
Any individual working in Italy must have an Italian tax code («codice fiscale»).
Employers must have:
- A tax code («codice fiscale»);
- An INAIL code
- An INPS code
Gross, net, cost
Any employer in Italy must acknowledge that talking about salary means distinguishing among gross, net and cost:
- Gross salary: is the amount agreed in the employment contract. This is the base of any analysis. The yearly salary is usually split in 13 or 14 monthly instalments. Furthermore, the employer must accrue a monthly amount (equal to about 7,41% of the monthly gross salary) to a fund for the employee’s severance pay, called «TFR»
- Net salary: the employee must pay income taxes, a quota of the social security contributions and other. These amounts are withheld by the employer from his/her gross salary and paid to the relevant bodies. The amount which remains is the net salary in the pockets of the employee
- Cost of the salary: is the total amount that a company spends (directly or indirectly) on an employee. The employer must pay the gross salary (deducted withholdings) to the employee, a quota of the social security contributions and other amounts charged to the employer to INPS, INAIL and other relevant body. All these amounts are the cost for the employer
The monthly net salary and the monthly cost will be almost never the same month by month. This happens because of the several withholdings and charges which are not the same every months.
Therefore, to agree a monthly net salary with an employee makes a non-sense. Because the parties must take into account.
Benefits and allowances
Sometimes the employers may also grant to employees one or more benefits.
Benefits are advantages for the employee different by money.
A benefit may be a company car that the employee may use for personal purposes too; or the rent of the house; or personal insurances; etc.
Such benefits (or their value) can be considered as full salary for the tax and social security contribution calculations unless they are regulated by a special legal rule which allows a different (and more favourable) calculations. The most common benefits have their special rule.
Out-of-pocket expenses reimbursements
Some time the employee pays him/herself some service or good necessary to carry out his/her work: for example a ticket for a train. In this case, the employer will reimburse such expense without any charge to the tax and social security calculations.