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    03.02.2023

    The main tax changes in 2023 Budget Law on self-employed, employed and similar work


    With the recent approval of Law No. 197 of 29 December 2022 (“2023 Budget Law”), a number of important measures relating to the taxation of self-employed, employed and similar work have been introduced into our legal system, which are summarised below.

     

     

    1. Flat-rate regime for the self-employed (Article 1, paragraph 54, of 2023 Budget Law)

    As concerns the favourable tax regime for self-employed people (“flat-rate regime”), regulated by Article 1, paragraphs 54- 89, of Law No. 190 of 23 December 2014, Article 1, paragraph 54, of 2023 Budget Law, from which natural persons engaged in business and professional activities can benefit, has raised to €85,000 the threshold of revenues earned or remuneration received, adjusted per year, which allows for the application of the 15% flat-rate tax in lieu of the progressive rates provided for under the standard regime.

     

    The loss of the requirements for accessing the scheme or the occurrence of a reason for exclusion – as defined below – will involve the flat-rate scheme ceasing to apply from the year following the year when any of the aforesaid circumstances occurs; however, if the revenue earned or the remuneration received exceeds the threshold of €100,000, the flat-rate scheme will cease to be effective from the tax period in which the threshold is exceeded.

     

    As concerns the access requirements, it should be noted that the flat-rate regime is applicable where, with reference to the previous tax year, in addition to compliance with the aforementioned threshold of revenues earned or remuneration received, costs not exceeding EUR 20,000 were incurred for:

    • ancillary work;
    • employees;
    • co-workers (see Article 50, paragraph 1, c) and c-bis) TUIR);
    • profits paid on a profit-sharing basis to associates contributing solely work;
    • sums paid for work performed by the entrepreneur or his/her family members.

    In addition, royalties received as copyright contribute to the EUR 85,000 threshold only if inherent to the professional's self-employed activity.

     

    As concerns the conditions for exclusion, it is worth noting that the flat-rate scheme shall not apply in case of:

    • persons subject to special VAT regimes (e.g. travel agencies or resellers of second-hand goods);
    • persons having tax residence abroad (with the exception of residents in EU/EEA countries who generate at least 75% of their total income in Italy);
    • persons carrying out business activities involving, exclusively or predominantly, the sale of buildings or portions thereof, building land or new means of transport;
    • persons carrying on a business, trade or profession, who simultaneously carry on activities such as:
      • participation in partnerships, professional associations or family businesses;
      • direct or indirect control limited liability companies or joint ventures engaged in economic activities directly or indirectly related to those carried out by persons engaged in business, the arts or professions;
    • persons carrying on business predominantly for employers with whom there are, or were, employment relationships in place in the two previous tax periods or with persons directly or indirectly associated with them;
    • persons who received income from employment and/or similar work in the previous year in excess of the threshold of €30,000 (however, the threshold does not have to be verified if the employment relationship has ceased).

    The flat-rate scheme has no duration limit, so it can be applied as long as the requirements are met and the conditions for access are verified.

     

     

    2. Incremental Income Tax (Article 1, paragraphs 55 to 57 of 2023 Budget Law)

    The 2023 Budget Law has introduced a substitute tax on IRPEF and surcharges equal to 15% for the portion of business or self-employment income relating to 2023 in excess of the highest of the previous three-year period, so-called “incremental flat tax”.

     

    The above measure concerns individuals with business and/or self-employment income who do not benefit from the flat-rate scheme under Law No. 190 of 23 December 2014.

     

    For the purpose of calculating the income increase amount, it is necessary to take into account the difference between the business and/or self-employment income earned in 2023 and the same higher income amount stated in the tax periods from 2020 to 2022, and to reduce it by an amount equal to 5% of the higher amount of income in that three-year period. The increase in income that may benefit from the 15% substitute tax shall in no case exceed EUR 40,000.

     

    The application of the 15% flat tax on the incremental income for 2023 is not relevant in terms of advance tax payments (IRPEF and surcharges) for 2024 tax period. Therefore, assuming that the historical method of calculating advance payments is applied, the tax for the previous period is the one that would have been determined in case of non-application of the incremental flat tax.

     

    The incremental flat tax shall only apply to the 2023 tax period.

     

     

    3. Performance and profit-sharing bonuses (Article 1, paragraph 63 of 2023 Budget Law)

    The 2023 Budget Law provides for a reduction from 10% to 5% of the substitute tax rate on the amounts paid in 2023 to employees of the private sector as performance or profit-sharing bonuses.

     

    Employees of the private sector with a fixed-term or an open-ended employment contract (including temporary workers) and holders, in the year preceding the year in which the bonuses are received, of employment income not exceeding EUR 80,000 are eligible for such tax relief; para-subordinate workers and public-sector workers are excluded from it.

     

    The payment of performance bonuses is linked to increases in productivity, profitability, quality, efficiency and innovation under company collective agreements, which also provide for measurement and verification criteria that make it possible to establish whether or not there has been an improvement in company performance over a predetermined period of time.

     

    Therefore, in order for substitute tax to apply, it is necessary that an increase in at least one of the objectives of productivity, profitability, quality, efficiency and innovation has been realised over a reasonable period of time, and that this has been verified and measured objectively by means of indicators identified in advance within the contract.

     

    Variable bonuses up to a maximum of EUR 3,000 gross per year are eligible for the preferential rate. Such amount must be considered gross of the substitute tax and net of mandatory social security deductions.

     

    Finally, it should be recalled that Article 1, paragraph 184, of Law No. 208 of 28 December 2015 provided for the possibility of wholly or partially replacing the bonus  with corporate welfare goods and services, excluded, within certain limits, from the formation of employee’s income.

     

     

     

    This article is for information purposes only and is not, and cannot be intended as, a professional opinion on the topics dealt with. For any further information please contact Paolo Rampulla and Pierantonio Carpenzano.

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