As a freelancer in Italy, choosing the right tax regime can be a challenge. It can affect your financial stability, your compliance with tax regulations, and your overall business strategy. With the introduction of new tax laws and changes in the economy, it can be challenging to navigate the various options available to you. There are different tax regimes available, each with its own set of rules, requirements, and benefits.
In this article, we will explore the different tax regimes available to freelancers in Italy in 2023 and help you choose the best one for your business.
Preliminary considerations when choosing a tax regime as a freelancer
As a freelancer, choosing the right tax regime is essential to ensure compliance with tax laws and to minimize your tax liability. Here are some steps to consider when choosing a tax regime as a freelancer:
It is important you consider the following points when choosing the tax regime, before making a decision.
- Consult with a tax professional
It is always a good idea to consult with a tax professional, such as an accountant or tax attorney, before choosing a tax regime. A tax professional can help you understand the tax laws and regulations that apply to your situation and provide guidance on the best tax regime for your specific circumstances. - Monitor changes in tax laws
Tax laws and regulations can change over time, so it is important to monitor any changes that may affect your tax liability or the tax regime that you have chosen. Stay informed about any new tax laws and regulations that may impact your freelance work.
By following these steps, you can make an informed decision about the best tax regime for your freelance work and ensure compliance with tax laws.
Now, before we dive into the different tax regimes, it is important to understand some key terms and concepts related to taxation in Italy:
- Imposta sul Reddito delle Persone Fisiche (IRPEF): This is the personal income tax that individuals in Italy are required to pay on their income.
- Imposta sul Valore Aggiunto (IVA): This is the value-added tax, VAT, that is charged on goods and services in Italy.
- Partita IVA: This is the Italian term for the VAT identification number that is required for businesses to operate in Italy.
At Xolo, we have a team of experienced tax accountants for freelancers, so we can offer you a personalized service, suitable for your activity and for every phase of your journey. You will have a dedicated consultant, always available to support you, by phone or email. So, if you're a freelancer in Italy and you want to simplify your tax management, why not give Xolo a try?
Overview of Tax Regimes for Freelancers in Italy
Before we dive into the different tax regimes, it's essential to understand the concept of "regime fiscale."
Regime fiscale refers to the taxation system applied to a business entity or individual.
There are several different tax regimes in Italy, and choosing the right one can save you a significant amount of money.
The main tax regimes for freelancers in Italy are:
- Regime Forfettario Minimi (Flat-rate tax regime)
- Regime dei Minimi (Simplified tax regime)
- Regime Ordinario (Ordinary tax regime)
1. Flat tax Regime
The Regime Forfettario, also known as the flat-rate tax regime, refers to a simplified tax regime for self-employed individuals, including freelancers and small business owners. It is an Italian term that In English, is often translated as "flat-rate tax regime" for small businesses like sole traders and professionals. Under this regime, eligible taxpayers are allowed to pay a fixed rate of taxes each year, based on their type of business activity and their gross income. This tax system is designed to reduce the administrative burden and costs associated with the ordinary tax regime, like a reduction in social security contributions and a simplified bookkeeping activity as well as to make it easier for small businesses to comply with tax regulations. This flat-tax regime really encourages self-employment. However, the Regime Forfettario has certain limitations and restrictions, such as a maximum income threshold and restrictions on deducting certain expenses. It is of foremost importance to understand that the tax rate for the Regime Forfettario depends on your business activity. Some activities have a lower tax rate, while others have a higher tax rate. It is essential to understand how your business activity affects your tax rate in order to choose a regime that offers the best tax rate for your business.
For those who are starting a new business this flat-rate regime offers an even simpler tax system with lower administrative burdens, and it is an excellent option for those who are just starting their business. However, it's worth noting that this regime doesn't allow you to deduct any expenses, which can be a significant disadvantage for those with high business expenses.
Requirements:
- Having a turnover of up to €85,000 per year
- Tax payment of a fixed rate of 15% on your gross income, which includes social security contributions.
- Restrictions on expense deduction
2. Simplified tax Regime
The Regime dei Minimi refers to a tax regime for small business owners and self-employed individuals. In English, it is often translated as "simplified tax regime” for small businesses". It is a tax regime specifically designed for small businesses and freelancers with limited income. Under this regime, you pay a fixed tax of 5% on your income, provided it does not exceed €30,000 per year. This regime also offers a simplified bookkeeping system and a reduction in social security contributions. This regime is designed to simplify tax compliance for small business owners and to reduce the administrative burden associated with the regular tax system.
- H4 Pay fix taxes of 5% on your income
- H4 Do not exceed €30,000 per year
3. Ordinary Tax Regime
The "Regime Fiscale Ordinario" is an Italian term that refers to the ordinary tax regime, which is the standard tax regime for businesses and self-employed individuals in Italy. In English, it can be translated as the "ordinary tax system". Under this regime, taxpayers are required to keep detailed records of their income and expenses, and their tax liability is calculated based on their net income. The tax rates vary depending on the level of income, and taxpayers are required to file annual tax returns and pay taxes on a quarterly basis. Unlike the "Regime dei Minimi", there are no fixed amounts or simplified tax rules under the ordinary tax regime. The tax rates vary depending on the level of income, and taxpayers are required to file annual tax returns and pay taxes on a quarterly basis.
Unlike the flat-rate and simplified tax regimes, there are no fixed amounts or simplified tax rules under the ordinary tax regime. However, taxpayers are allowed to deduct certain expenses, such as business-related expenses and depreciation, which can reduce their tax liability.
The Ordinary Regime is a good option for freelancers with high business expenses or complex financial situations. However, it can be more complex and time-consuming to manage, and you may need the help of an accountant or tax professional to ensure compliance.
- Keep detailed records of one’s income and expenses
- Pay taxes based on one’s actual income
- Tax rate varies depending on the income bracket ranging from 23% to 43%
- Pay social security contributions based on one’s income
How to choose the best Tax Regime for your business
Now that you have a better understanding of the different tax regimes available to freelancers in Italy, the next step is to determine which one is best for your business. There are several factors to consider when making this decision because choosing the correct tax regime is an important decision for expats coming to Italy as freelancers, as it can impact their financial situation and their ability to grow their business. By considering factors such as income level, business expenses, administrative burden, growth potential, and future plans, one can make an informed decision about which tax regime is best for the business.
It is also recommended to seek the advice of a tax professional or accountant, who can provide additional guidance and help you navigate the complex tax regulations in Italy. With Xolo, you can simplify this process and choose the tax regime that's best for your business. Xolo's all-in-one platform makes it easy to understand the different tax regimes available in Italy, and provides the tools you need to manage your taxes, invoicing, and bookkeeping. Plus, with Xolo, you can focus on growing your business and leave the administrative tasks to the experts
Here are some factors to consider when making the decision:
- Income level: If your income is relatively low (below €85,000), the Regime Forfettario may be the best option as they offer lower tax rates and simplified reporting requirements. However, if your income is higher, the Regime Ordinario may be more advantageous as you can deduct actual expenses.
- Expenses: If your business has significant expenses that can be deducted for tax purposes, the ordinary tax regime may be more advantageous than the flat-rate or simplified tax regimes. Under the ordinary tax regime, you can deduct a wide range of expenses, including business-related travel, equipment, and office expenses, which can reduce your tax liability. However, if your expenses are relatively low, the Regime Forfettario may be more advantageous as you can deduct a fixed percentage of your income.
- Profession: The fixed percentage for expenses under the Regime Forfettario varies depending on your profession. Some professions have a higher fixed percentage, making this regime more advantageous for those professions. It is essential to consider the type of services offered and the expected income. The tax regime for a freelancer offering professional services differs from that of a freelancer providing technical services.
- Tax credits and benefits: Freelancers should consider the tax rates and deductions applicable to each tax regime. This information can be obtained from the Italian Revenue Agency or a tax consultant. Depending on the personal circumstances, one may be eligible for certain tax credits or benefits under one regime but not under another. It's important to research and compare the different regimes to see which one offers the most advantages for the specific situation.
- Administrative burden: Another important factor to consider is the administrative burden associated with each tax regime. it is important to evaluate the level of administrative burden that comes with each tax regime. Some regimes require frequent reporting and accounting, while others have simplified procedures. The flat-rate and simplified tax regimes are designed to reduce the administrative burden for small businesses, as they require less record-keeping and reporting than the ordinary tax regime. However, the downside is that these regimes may not allow for as many deductions and exemptions as the ordinary tax regime.
- Growth Potential: If you are looking to grow your business and increase your income over time, the ordinary tax regime may be a better option, since you don’t have fixed income thresholds and limits on deductions. With the ordinary tax regime, you have more flexibility in terms of deductions and exemptions, which can help you reduce your tax liability as your income increases. Recently though, at the end of 2022, the revenue limit for the flat-rate regime increased from 65.000 to 85.000 Euro making it an excellent option to choose from in respect of the ordinary tax regime. But it is of utmost importance to highlight that the growth potential can also be considered when starting a new business as a freelancer and, in that case, the flat-rate regime would be the best choice especially for what a freelancer would benefit from, for the first five years.
- Future Plans: Finally, you should consider your future plans for your business when choosing a tax regime. If you plan to expand your business into new areas or hire employees, the ordinary tax regime may be a better option. With the ordinary tax regime, you have more flexibility in terms of structuring your business and managing your finances, which can be helpful as your business evolves, but if you are starting a new business, then the flat-rate tax regime with its tax payment of a fixed rate of 15% on your gross income, which includes social security contributions. The flat-rate regime is even more advantageous for freelancers starting a new business with its fixed 5% payment rate on your gross income for the first five years.
It is crucial to understand the long-term implications of each tax regime. This includes considering the possibility of changing services, growth of income, and potential for international expansion.
Freelancer: how to manage accounting
Have you made the decision to become a freelancer and open the VAT number? You will need to know more about some aspects of your new tax framework: without a doubt, accounting is fundamental, among others.
Have you ever heard of ordinary accounting, simplified accounting, and accounting book entry? Do you know how they work, what are their limits and obligations, what are their advantages and disadvantages? Do you know how you can switch from one type of accounting to another and how to properly keep the accounts if you adhere to the flat-rate scheme? Do you know how to manage a corporate bank account if you are a freelancer?
In this guide we will try to deepen all these aspects and to better illustrate everything a freelancer needs to know about accounting management. Before going into more detail, let’s start from the beginning: when you open the VAT number, that is, when you start an economic activity both professional and business, you are faced with different obligations. One of these is precisely the obligation to keep accounting records, which in practice consists in the annotation of all the individual economic and financial transactions that the self-employed person performs over time.
The self-employed person may choose between two types of accounting management, the simplified and the ordinary: this choice is not made arbitrarily, but on the basis of certain specific factors, such as whether or not to join the preferential tax system, the volume of business generated, the legal form that the professional activity takes.
Simplified and ordinary accounting have the same function (keeping track of the main economic movements in order to avoid tax evasion and to have a clear picture of the financial situation of the activity)but they differ in some respects and have different obligations, limits and advantages: let’s analyze them in detail to understand when it is convenient to use one type of management and when the other.
Getting informed and acquiring the basics is important but having a reliable ally at your side that can simplify your life is just as important! Join Xolo and you can always count on a simple and intuitive platform to manage your accounting and the advice of our accounting and tax experts!
Accounting requirements for freelancers
Before going into more detail, let’s start from the beginning: when you open the VAT number, that is, when you start an economic professional activity, you are faced with different obligations. One of these is precisely the obligation to keep accounting records, which in practice consists in the annotation of all the individual economic and financial transactions that the freelancer performs over time.
The freelancer may choose between two types of accounting management, the simplified and the ordinary one and the choice is made on the basis of certain specific factors, such as whether or not to join the preferential tax system, the volume of business generated, the legal form that the professional activity follows.
Simplified and ordinary accounting have the same function (keeping track of the main economic movements in order to avoid tax evasion and to have a clear picture of the financial situation of the activity) but they differ in some respects and have different obligations, limits and advantages: let’s analyze them in detail to understand when it is convenient to use one type of management and when the other.
Getting informed and acquiring the basics is important but having a reliable ally at your side that can simplify your life is just as important! Join Xolo and you can always count on a simple and intuitive platform to manage your accounting and the advice of our accounting and tax experts!
Ordinary and simplified accounting: which to choose from freelancers
In the following paragraphs we will consider ordinary and simplified accounting, highlighting the main differences between the two types of accounting regime.
Ordinary accounting
The ordinary accounting system is the system that provides for the recording of all the facts and economic movements relating to the management and administration of the company, the capital company or the cooperative. It does that analytically, and it traces everything inside and outside the company (customers, suppliers, banks etc.)
Obligations
The Ordinary scheme is always adopted by everybody as a choice within the tax return, but becomes mandatory in the following cases:
• for cooperatives
• for companies with limited liability
• for individual companies and for companies in person who have exceeded in the previous year the ceiling of € 400,000 in turnover (for the provision of services, as could be for example the business of real estate consulting) or € 700,000 in turnover (for the sale of goods and in general for all other cases)
Accounting entries
The ordinary accounting system provides for keeping track of all accounting records, and in particular:
• VAT registers (ie the invoice and fees register issued and the purchase register)
• accounting book
• inventory book
• inventory records
• auxiliary records (that is, all payments, receipts and everything related to "mastrines")
• register of depreciable assets
On the other hand, the simplified accounting system, provides for the following entries:
• VAT registers
• register of depreciable assets
Simplified accounting
Simplified accounting is a system that records the economic facts and movements related to the management and administration of the individual firm or company in person, analytically but more "lightened" than ordinary accounting. There are prerequisites for access to this type of scheme, in the absence of which it is mandatory to use ordinary accounts.
Obligations
The main obligation of those who adhere to the simplified accounting system is therefore to keep the following entries:
• VAT registers, in particular the register of invoices issued with the corresponding amount: invoices must be issued and kept in chronological order, from the oldest to the most recent, and must be registered within 60 days of the completion of the transaction or the provision of services
• the register of purchases
• the register of depreciable assets
• the single book of work (only in case there is the presence of employees)
If you are a freelancer struggling with the management of your accounts you will undoubtedly have found in this guide the key information to understand its operation: but if you still have some doubts about ordinary accounting and simplified accounting, on the flat-rate scheme and the need for a company current account, do not hesitate to contact Xolo experts. Sign up now and discover how easy it can be to manage your VAT ID!
How to properly keep accounts in the flat-rate scheme
As anticipated, a facilitated tax regime was introduced in Italy in 2015: the flat-rate regime, to which freelancers and self-employed workers usually adhere, provided they meet the prerequisites necessary to access it: the main one is constituted by the maximum annual turnover limit, set at 85,000 € by the last Budget Law 2023 n. 197, published on 29 December 2022 in the Official Gazette. The advantages of this type of scheme, unlike the ordinary one, are essentially found in a considerable reduction in taxes (which in this case vary from 5% for the first five years for start-ups up to a maximum flat-rate of 15%) and, in fact, in accounting management obligations.
Returning to the main topic of this guide, therefore, freelancers under a flat-rate regime can undoubtedly enjoy the simplified accounting system: their only obligation, in fact, is to issue and keep all invoices in chronological order, with progressive numbering and stamp duty – remember that from July 2022 also freelancers have the obligation to issue electronic and no longer paper invoices.
Bank account for freelancers
Those who choose to be a freelancer often make the decision to open a current account dedicated exclusively to their professional activity, separate from the personal current account: this is not mandatory by law (although in the past the government has tried to make it so), but undoubtedly it offers some advantages. First of all, the fact that cash flow can be better monitored and managed and business expenses can be easily checked, distinguishing them from those personal and last but not least, simplify the tax return and the relations with the Revenue Agency, since the freelancer’s income is established on the basis of the cash principle.
The result is a better management of both current accounts, the personal and business one, having the guarantee not to confuse the profits that serve the professional activity with those necessary for their private and personal life.
Obligation to have a bank account using the flat-rate regime
As mentioned in the previous paragraph, to date, there is no legal obligation for self-employed professionals who adhere to the flat-rate scheme to open a company current account: this obligation exists and is in force only for those who adhere to the ordinary accounting system, so as we have seen for companies with share capital and for individual firms, professional companies and companies of people who have exceeded the annual limit of € 400,000 in revenue.
A tip: if you open a corporate current account, it is good that you don’t open a joint account with another person (for example children or spouse), in order to avoid future problems of account management and in the tax return.
In addition, a company current account must be able to allow certain specific transactions and provide certain services such as:
· Have the possibility to issue the electronic payment of the F24 form for contributions and taxes
· Be able to ensure the payment receipt by customers
· Guarantee the home banking service, the mobile deposit and possibly not provide for any monthly fee, interest rate or commission for operations
· Have an excellent and practical customer service, ready to respond quickly to every need.
Any doubts on the right tax regime in Italy? Rely on Xolo!
As a freelancer in Italy, choosing the correct tax regime is an important decision that can impact your financial situation and your ability to grow your business. There are several tax regimes available to freelancers, each with its own advantages and disadvantages for your business in 2023.
In conclusion, selecting the best tax regime for freelancers in Italy in 2023 requires careful consideration of the above factors and it can therefore be a daunting task.
That's where Xolo can help!
Xolo is an all-in-one platform that helps freelancers and self-employed individuals in dealing with their admin. Xolo is much more than an accounting service. Xolo is the trusted partner for every freelancer and free professional in a flat rate regime in Italy, with an all-in-one solution to manage invoicing, accounting, taxation and to finally make independent work simple.
How do we do it? Thanks to a mix of technology and qualified tax advice able to give back to every freelancer time and energy to dedicate to the development of their business and its projects!
