This regime (Regime Forfettario) is open to taxpayers looking to get themselves registered for VAT and start a self-employed business or profession for the first time in 2017.
The scheme for small taxpayers (described as the Regime dei Minimi as well as the Regime Forfeitaro) has seen a number of changes over the years and some of the old rules apply to people who started out in earlier years. But from FY 2016 there is only on regime open to new taxpayers – the Flat–Rate Scheme.
The Flat Rate Tax Scheme is optional, so taxpayers (at least who are not already on the old scheme) should indicate advance when registering for VAT, and must confirm the option in their first annual tax return after registering, whether they wish to take the benefit of the scheme.
If they do not then they will be subject to tax on their net profit at the usual scale rates.
To benefit the following conditions must be met:
The flat-rate scheme provides for income tax at the rate of 15% tax on gross turnover reduced by the coefficient in the table above.
If a self employed teacher will pay tax on 78% of gross earnings at a rate of 15% - an effective rate of 11.7% of gross income invoiced to clients.
The rate is reduced to 5% for a new business activity – defined as one being carried out for the first time and not an extension of a previous business carried out under the ordinary regime or a prior special scheme. This means an effective rate of tax of 3.9% of turnover.
Other Advantages are:
The new regime does not provide any reduction in the rate of contributions. Social security will be applied at normal rates to the gross income reduced by the coefficient.
Social security contributions are deducible from the taxable income on a paid basis – i.e. contributions on last year’s income are deductible from this year’s taxable base, after reduction of the coefficient.
POTENTIAL DISADVANTAGES OF THE REGIME
Since you cannot deduct expenses the first thing to check is whether your tax deductible costs exceed the lump-sum deduction included in your applicable coefficient.
For many in the Italian gig economy, expenses on the whole will be limited. Given that many costs are anyway subject to statutory limitations (e.g. telephony/internet, training, vehicle costs), the flat-rate deduction will typically be more attractive.
The flat–rate scheme is therefore not appropriate for taxpayers with large cost structures, numerous employees, or who require premises or substantial plant and machinery to carry on their business.
In practical terms you should forecast the volume of turnover and expenditure to determine whether it is appropriate to apply the flat-rate scheme or stay within the ordinary system.
Another element to consider is the bureaucratic simplifications provided for by the flat-rate scheme: reduced bookkeeping and tax reporting requirements.
So for self-employed professionals, especially those starting up a new business for the first time the flat rate scheme will be attractive.
This scheme however does not make a lot of difference in social security terms. You should discuss with your customer/clients as to whether you can add on an extra 4% to your invoices to cover this, and if you are a citizen of a country other than Italy you should explore whether you are entitled to remain within your home country’s social security system, especially if you intend to remain in Italy for a short period.
After moving back to Italy from the United States in 2013, I realized how much an accounting and tax firm was needed to help expats living in Italy to comply with the local tax regulations.