How to calculate taxes under the Flat-Rate Regime – The Ultimate Guide!

Have you always dreamed of a freelance career? Feeling restricted in your employee role? Want more control over your time and income? Then opening a VAT number and choosing the flat-rate tax regime might be just what you need. But before you dive in, it’s crucial to understand the difference between your gross income (what you invoice) and your net income (what you actually take home after taxes and contributions).

Don’t worry—while it may sound complicated at first, calculating your taxes is simpler than it seems. Let’s start from the beginning by breaking down the flat-rate regime step by step.

What is the Flat-Rate Regime?

First things first: let’s clarify the type of tax regime we’re talking about. In Italy, there are two main types—the standard regime and the flat-rate regime (also known as the simplified regime). In this article, we’ll focus exclusively on the flat-rate regime, which is often the most advantageous option for those starting a self-employed business.

The flat-rate regime was introduced in 2015 to replace the “minimum regime” and is designed for individuals starting out on their own.

To qualify, freelancers and sole proprietors must meet certain criteria—most importantly, not exceeding the annual revenue limit of €85,000, as defined by the 2023 Budget Law (Law No. 197/2022).

The flat-rate regime offers significant advantages, both financially and administratively. The main appeal is a reduced tax rate, but many still find it tricky to calculate their actual net income from their gross revenue. Remember: you don’t keep everything you invoice—taxes and pension contributions must be deducted.

In this guide, we’ll walk you through how to accurately calculate your taxes under the flat-rate regime, including how to handle INPS contributions.

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How tax calculation works under the flat-rate regime

Taxes in the flat-rate regime are calculated based on four key elements, which we’ll explain in detail below:

1. ATECO Code – a classification code assigned when you open your VAT number, based on your business activity
   
   
2. Profitability Coefficient – a fixed percentage (depending on your activity) used to determine the taxable portion of your income
   
   
3. Substitute Tax Rate – either 5% or 15%, depending on eligibility
   
   
4. Social Security Contributions – contributions to INPS or another relevant pension fund based on your profession
   
   

1. The substitute tax in the flat-rate regime

The main tax under this regime is known as the "substitute tax"—it replaces all other taxes from the standard regime, such as IRAP, IRPEF, and local surcharges. The substitute tax is a flat 5% or 15%, depending on your case:

• 5%: For the first 5 years if you start a new business (startup)
  
  
• 15%: Standard rate for all other cases
  
  

This rate is applied only to your taxable income, not to your total revenue.

📊 Why is this advantageous? Under the standard regime, IRPEF alone starts at 23% and can reach 43%. So having a single flat rate of 15% is a huge cost saver.

2. How to calculate gross and taxable income

You don’t pay taxes on your full income. Instead, you calculate a taxable income, based on a profitability coefficient. This coefficient automatically includes an allowance for business expenses—you don’t deduct actual expenses individually like in the standard regime.

3. Profitability Coefficient & ATECO Code

Each activity has an ATECO code assigned when you open your VAT number, which determines the profitability coefficient—a fixed percentage used to calculate taxable income.

Some common coefficients:

• 78%: Professional, scientific, technical, educational, financial, and health-related services
  
  
• 40%: Retail and wholesale trade
  
  
• 86%: Construction and real estate
  
  

You can find your ATECO code on the Italian Revenue Agency website, through your accountant, or via your local Chamber of Commerce.

4. How to calculate taxable income

Once you know your profitability coefficient, calculating your taxable income is easy. Multiply your annual gross income by your coefficient.

🧮 Example:

• Gross income: €40,000
  
  
• Coefficient: 78%
  → Taxable income = €31,200
  
  

The remaining 22% is considered your assumed business costs and is not taxable.

💡 Note: In the flat-rate regime, only received payments (cash basis accounting) are considered—not invoices issued. So only what hits your bank account counts toward your annual income.

5. How to calculate INPS contributions

Contributions vary depending on your work category:

• Sole proprietors (individual businesses): must register with the IVS for artisans and merchants, with a fixed annual contribution of approx. €4,500, based on a minimum income of €18,555 (2025 figures). Paid in 4 installments (May 16, Aug 20, Nov 16, Feb 16).
  
  
  • If your income exceeds the minimum, you pay an additional:
    
    
    • 24% on the excess (artisans)
      
      
    • 24.48% (traders)
      
      
• Freelancers:
  
  
  • If your profession has a dedicated pension fund (e.g. Inarcassa for architects, ENPAP for psychologists), you pay into that.
    
    
  • If not, you’ll register with Gestione Separata INPS, paying 26.07% of your revenue in 2025 (rate changes yearly).
    
    

6. Final step: calculating taxes

After calculating your INPS contributions, subtract them from your gross taxable income to get your net taxable income. Then apply your substitute tax rate (5% or 15%).

🧮 Example continued:

• Taxable income: €31,200
  
  
• INPS (26.07%) = €8,134
  
  
• Net taxable income = €23,066
  
  

Now apply the substitute tax (e.g., 15%):

• 15% × €23,066 = €3,460 in taxes owed for the year
  
  

✅ Don’t forget: every year you’ll also pay advance payments (acconti) for the current year, calculated based on the previous year’s taxes:

• 100% of the substitute tax
  
  
• 80% of INPS contributions
  
  

If you expect to earn less, or if you’ve closed your VAT number, you can opt for a predictive estimate or even eliminate advances entirely.

Are expenses deductible under the flat-rate regime?

One of the trade-offs of this simplified system is that you can’t deduct actual business expenses, since they’re already factored in via the profitability coefficient.

This means the flat-rate regime may not be ideal if you have high business costs. In that case, the standard regime may be better, even though it has higher taxes, because you can deduct all eligible expenses.

💡 Special case: Family businesses under the flat-rate regime Only the business owner pays the 15% substitute tax, and it’s calculated on total income before shares are allocated to family members. Contributions paid on behalf of dependent collaborators may also be deductible.

How to pay your taxes

Once you’ve calculated your taxes and contributions, how do you pay them?

Payments are made using the F24 form, based on your annual tax return. You can split payments into up to 7 installments, with the main deadlines being:

• June 30: balance for the previous year + first advance
  
  
• November 30: second advance
  
  

Need help managing your taxes?

Now you know how to calculate your taxes and contributions in the flat-rate regime using your ATECO code, profitability coefficient, and INPS contribution rate.

But if you still have doubts, want to be 100% sure of your calculations, and prefer to have everything under control, join our platform and let Xolo take care of it!