3 Top Tax Tricks in Italy with the Forfait Regime for 2024

With Italy’s attractive forfait regime, the year 2024 heralds a new era for freelancers and small business owners looking to optimize their tax situation. Understanding the nuances of this tax system can lead to significant savings and a healthier financial status. Here are three top tax tricks under Italy’s forfait regime that savvy professionals are leveraging for the fiscal year 2024.

1. Embrace the Initial 5% Advantage

The forfait regime is a boon for professionals starting in Italy, offering a mere 5% tax rate for the first five years. Although this rate is set to increase to 15% in 2024, those who have planned ahead can still reap substantial benefits. By structuring your finances around this low introductory rate, you can maximize your savings and invest in growing your business or personal wealth.

2. Stay Under the Radar with ATECO Codes

In Italy, the forfait regime calculates tax based on a percentage of your income, determined by your ATECO code. By wisely choosing your business’s ATECO code, you can ensure you’re only taxed on a fraction of your actual earnings. This allocation of deductible percentages varies per ATECO code, so selecting the right one could mean paying an effective tax rate as low as 1% to 2.5% after deductions.

3. Exploit the €85,000 Threshold

Although there’s an €85,000 income ceiling to benefit from the forfait regime, there are scenarios where you can exceed this limit and still enjoy the perks. For instance:

**Scenario 1:** If you’re a full-time employee earning less than €30,000 annually, you can simultaneously run a side business under the forfait regime.

**Scenario 2:** Should your business income surpass €85,000, consider opening a parallel Srl (limited liability company) to keep enjoying low taxation on your forfait-regime earnings.

**Scenario 3:** Create a partnership between yourself and your company to channel profits without incurring corporate-level taxes.

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Leveraging Partnerships and Srls

A strategic partnership with an Italian company or establishing an Srl (Società a responsabilità limitata) can be a game-changer. With the right setup, you can benefit from a fixed 26% tax on revenues or even achieve total tax exemption under specific ATO codes. This approach can be particularly advantageous in the following scenarios:

For entrepreneurs who have reached the €85,000 threshold, forming a partnership or establishing an Srl allows for the distribution of profits in a way that can minimize the overall tax burden. This strategy requires careful planning and adherence to Italian corporate laws but can lead to significant tax savings.

Social Contributions: The 9% Secret

In the forfait regime, employers shoulder the entire social contribution, leaving employees to pay only 9% of this amount. This significantly reduces the tax load for employees and is a compelling reason for businesses to consider hiring under this regime, as it not only benefits the employee but also reduces the company’s overall social security costs.

Total Tax Exemption: Know Your ATECO Code

Certain ATECO codes allow for total tax exemption, making it imperative to understand which activities qualify for this benefit. For instance, some codes related to innovative startups or specific technological sectors may offer total exemption or additional benefits. By aligning your business activities with these codes, you could significantly reduce your taxable income.

The Effective Tax Rate: Between 1% and 2.5%

After applying all deductions and exemptions available under the forfait regime, many taxpayers find their effective tax rate sits between 1% and 2.5%. This is an incredibly low rate compared to standard taxation and provides a substantial incentive for small businesses and freelancers to optimize their tax strategy.

Conclusion: Plan Ahead for 2024

As we approach 2024, it’s crucial for professionals in Italy to understand these tax tricks within the forfait regime. Whether you’re just starting out or looking to expand your business while minimizing your tax obligations, these strategies can provide significant financial benefits.

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