Starting a Business: Tax & other rules.
How to become a freelancer in Italy.
I cannot believe it is already March! Getting your logo designed, figuring out who your clients are and building a website are the fun things to get done when you are starting a business. The next step is making sure that the financial side of the business is all correctly set up. In Italy it is important to get it professionally done because believe me there is no easy option.This month I am going to be having a conversation with Paolo from Studio Rigo — Tax and Accounting.
As Paolo says it is very dangerous to be getting your tax and accounting information from various Facebook pages. Let’s be honest, ask a question on an online forum and you will get answers differing as wide as east is from the west! My hope is that this series will help to answer your questions, most importantly, accurately.
So to start off, in this months series, the financial side of becoming a freelancer. I’ll be asking Paolo some questions and he’ll give me the easy answers. This weeks podcast link will be listed below.
First up. How do I register as a freelancer in Italy?
First you need your Codice Fiscale, the Italian unique code to identify every individual. It’s something close to the Social Security Number in US or the National Insurance Number in UK.
The Codice Fiscale is necessary to, for example, request residency in Italy, to sign a rent lease, to sent up a bank account and to get a VAT number. Without it, basically you can’t do much in Italy.
You can get your Codice Fiscale personally which is always best or you can delegate someone to do it on your behalf. You can get your CF from your local consulate, embassy or any Italian Tax office.
Yes, I got mine in Montepulciana and it was so easy — although I did take an italian friend with me to do the talking. It really took all of 5 minutes! What is the second step?
The next step is to get a VAT number, in Italy it is called a “Partita Iva”
Applying for it is basically the same as when you applied for your CF, but, like the CF, but must choose the activity code, that qualifies your business. There are different codes for different activities and this can be a bit complicated and it is better to have your accountant do it for you.
Once that you get your individual “Partita Iva” you are officially a self employed or, in other terms, a freelancer.
Tell me about the Italian tax calendar? How does it work?
The Italian tax year is starts from January 1st and ends on December 31st, and income is taxed, usually, the cash basis. The tax filling deadline is November 30th of the following year (Modello Redditi).
There are also two different deadline for tax payments: the first tax deadline is June 30th, while the second one is November 30th. Also in Italy you pay taxes in advance (40% of the past year tax on June, 60% on November)
What do you mean that the tax deadline is 30 Nov for the following year? Do you mean tax is paid upfront?
Deadline is about filing taxes of the past year . So on June 2021 you will file your taxes for 2020 .
What if you missed the tax filling deadline?
The italian tax authority shows very little sympathy with late returns and a return filed after the deadline could cost you a minimum general penalty of € 250.00 and it can go up to from 120% to 240% of any tax liability resulting from the return itself.
Wow, that just confirms why it is important to have a professional doing your finances. Now, I’d like to ask you for some pros and cons of being a freelancer in Italy
Now that you have became resident in Italy you must pay taxes to Italy on your worldwide income.
Shew, that could prove expensive!
Hold on, there few benefits waiting for you! New tax residents of Italy could benefit of a 70% tax free income for 5 years as long as they are employed or self-employed in Italy.
There are some conditions which are:
- Be a new tax resident of Italy
- Not be a tax resident of Italy in the previous years
- Have a college degree or be a high skilled worker
- Remain in Italy for at least two tax years
Another benefit comes with the so called “Regime forfettario”. Only individuals Partita Iva, so freelance working is included, can access it main conditions are:
- you cannot make more than € 65,000.00 in revenue/income
- you cannot have other sources of income exceeding € 65,000.00
- you cannot entertain business with your previous employer
If you fit them all, you will pay only the 5% tax on your income for the first 5 years; from the 6th year on the tax rate is increased to 15%.
What are the possible cons to this?
Of course there are also cons of being a freelance in Italy namely:
- The tax office can audit your business and personal income.
- Individual VAT carries unlimited liability for his/her business, so consider the personal wealth at risk, so, in case of any mixed input money on your bank account , it’s hard to split between business and personal expenses
- Your individual credit score cannot be split from the business one to the personal credit score. So if your business suffers, your personal credit score is bad as well.
Ok, so that sounds interesting and makes having a business in Italy worthwhile. Is this also available to non residents who have italian businesses?
Unfortunately it’s only for new residents.
My next question is about the importance of having an italian bank account. Do I need an Italian account in order to do business in Italy?
Yes, you do need an italian bank account in order to pay your taxes and transfer money from you to the tax office. You have two best ways to pay, you can pay at the local post office or at every bank in cash (up to € 1,000.00 from July 2021) or you can pay through your home banking.
So the best advice for you, as you can see, is having and using an italian bank account with your Codice Fiscale: you will be able to check all the payments and you will have the proof of payment, in case of any audit letter from the Tax office.
I have heard about the Modello F24 form that one needs to keep in order to claim and pay tax, what is it?
Modello F24 is the tax form used to pay almost every tax. This form allows you to offset tax credits and tax debits, as well as identify every single tax you pay with a different tax code given by the Tax office.
Thank you Paolo for this important information, I look forward to our conversation next week.
Remember, Paolo’s podcaste about this weeks topic is at https://soundcloud.com/studio-tributario/freelance-intro. Take a listen and join us next week for the next topic in our series.
Jacci Rudling from JacciR Design in conversation with
Paolo Rigo from Studio Rigo.
Contact him on studiorigo@gmail.com if you’d like more information about setting up your italian business.
