Your tax liabilities in Italy will depend on whether you are considered resident or not.  If you remain resident in your own Country will only be liable for tax on your Italian source income.   If you become resident in Italy then you will be subject to tax on your worldwide income.

You will be considered resident in Italy if you:

   1. spend more than 183 days cumulatively a year in the country, and
   2. satisfy any of the following conditions:
      (a) your habitual abode is in Italy;
      (b) your centre of vital interests (social, professional and economic base) is in Italy;
      (c) you are registered in the Population Registry as living in Italy

Income Tax

Personal income tax (Imposta sul Reddito delle Persone Fisiche – IRPEF) is levied on:
    * Income from employment and self-employment
    * Business income
    * Income from real estate
    * Investment income (dividends and interest)
    * Capital gains
    * Miscellaneous income


The tax year is the calendar year, with income tax returns for the previous year due by 30th June (paper returns) or 31st July (electronic returns).  

Advance tax payments must be made each year, equal to 99% of the preceding year’s liability. 40% must be paid by 16th June and the remainder by 30th November.

The tax rates for 2008 are:

Additional regional and municipal taxes apply on taxable income as calculated for income tax purposes.

Various deductions are available, including social security contributions, alimony payments, 41% of renovation expenses for the main home up to €48,000, and a main residence deduction. Your liability may also be reduced by an amount equal to 19% of certain expenses, including interest up to €3,615 per year for the property paid to EU lenders on mortgages for purchase of a residential home; specialist and general medical fees exceeding €129; funeral expenses up to €1,549 and life and health insurance premiums up to a maximum of €1,291.

Rental Income

Any rental income from Italian property is liable for tax regardless of your residency position.  85% of the income is taxed at the progressive scale tax rates (a flat 15% deduction is allowed in lieu of actual expenses). There is also tax on deemed income based on the cadastral (registered) value – except for the main home. It is mandatory to register any rental contracts with the authorities. The registration charge is currently €167.

Capital gains on real estate

If you sell your property after five years of ownership the gain is free from tax.   If you sell within five years you can choose to have it taxed as ordinary income at the scale rates or at a fixed rate of 20%.  If the property is your main habitual home (prima casa) and you reinvest the proceeds in another main home within one year, you do not have to pay any tax even if you owned it less than five years.  This obviously does not apply to non-residents.
 
Inheritance and gift tax

This tax has been reinstated after being abolished.  It applies to residents on their worldwide assets and to non-residents on their Italian assets.  The taxable basis is related to the value of the assets and the relationship with the donor.
 
Wealth tax

There is no wealth tax in Italy.
 
Municipality Tax on Real Estate (ICI)

The ICI (imposta comunale sugli immobili) is imposed on the ownership of real estate. Rates range from 0.4% to 0.7% of the “cadastral value” of the real estate.  This valuation is usually lower than market value.

Local Taxes

There are sometimes small separate local taxes such as for the collection of refuse TARSU (tassa per lo smaltimento dei rifuiti solidi urbani). The rate applicable depends on the size of the property and the number of individuals living in the property.