Freelancing in Italy: what you need to know

Freelancing in Italy: tax brackets

Once you have sorted out your visa, you will need to register as a freelancer. In Italy, this professional profile is usually associated with the dreaded words “partita iva”. Why are they dreaded? And what is a “partita iva”? A partita iva is a VAT number, an individual string of numbers that identifies each business and each freelancer for taxation purposes. Having your own VAT number, as opposed to being hired by a company, means you will have you pay for your own taxes, VAT and social security in advance. Now, if you are relatively new to your own field as you start freelancing in Italy, that might be a problem. While social security is a fixed payment, taxes are paid on assessments of future income that might not necessarily be realistic. As a fresh starter, you might not have many clients, or you might have to price your services too low to make your own business viable for the first year. This means that you will have to tap into your savings to support yourself as you grow your business. Adding tax payments on earning you are unlikely to reach for your first year on top of all that is not an appealing prospect. Is there a way around this? Of course there is.

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Withholding tax: the first step to start freelancing in Italy

As we have established, registering your own VAT number can be costly, even if you are eligible for the lowest tax bracket in the category. If you are not sure that will be a viable option for you, or you have not been able to estimate how many clients you will have in your first year and what your revenue will be, you might want to start with something easier and safer. Welcome to the magical world of the ritenuta d’acconto. This tax regime, which translates as Withholding Tax, is applicable to contractors who provide occasional professional services for up to 5000 Euros per year before tax. Income in this case is generally taxed at 20%, but rates may vary depending on the source of said income (e.g. Royalties and copyright, shares in third party income, intellectual property etc). How does this work? Put it simply, the client paying for the professional service acts in lieu of the taxman, by paying the professional the net income and paying the difference (i.e. the taxes) within their own tax revenue. It may sound complicated when you first hear of it, but the principle is pretty simple: if you don’t think you are going to earn enough to justify having your own VAT number and filing your own tax return, then you may invoice your clients for the gross amount including taxes, and they will pay you the net amount you are owed and take care of the tax part in your stead. Depending on where you are from and what international conventions exist between Italy and your home Country, income generated under this regime may or may not be subject to further taxation. Make sure you check with your local embassy before you start freelancing in Italy!

The next step to freelancing in Italy

What happens when you are definitely going to earn more than 5000 € per year by freelancing in Italy, but you are still not sure you will be able to thrive within the standard tax bracket? You can up your game by one step, moving from withholding tax to a lump sum VAT regime. This option has been available since 2015 and it offers lower taxation and social security costs. The tax rate for this bracket is 15% for freelancers and small companies and 5% for startups. To be eligible for this regime, your earnings must fall within 25.000 € and 50.000€ per year (different brackets apply to different professional profiles and the taxable amount is calculated by taking into account your professional expenses: be sure to check that with your accountant).

Launching your business or freelancing in Italy: it’s easier than it looks

If the prospect of freelancing in Italy seems scarier, once your dream of making a living by sitting with your laptop on a seaside terrace and drinking white wine, to the prospect of having to find your way around Italian bureaucracy, take a deep breath and don’t worry. There are plenty of associations, professionals and institutions that will happily take care of the more complex aspects and iron out the kinks for you. Italy is a rapidly evolving market, and if you find the right way of employing your know-how and experience, you will find yourself in a lively and productive business environment, with plenty of opportunities for growth.

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