Latest update: 02/02/2023
The flat-rate scheme is a favourable tax scheme for natural persons engaged in business, arts or professions.
Who can access the flat-rate scheme
The flat-rate scheme is available to taxpayers who met all the following requirements in the previous year:
- They received revenues or fees not exceeding EUR 85 000 per year (the previous amount of EUR 65 000 was amended by the 2023 Budget Law). If several activities are carried out under different ATECO codes, the sum of revenues and fees for the different activities carried out must be taken into account
- They incurred total gross expenses not exceeding EUR 20 000 for ancillary work, work by employees and fees for staff, including on a project basis, including sums paid on a profit-sharing basis to associates contributing solely work and sums paid for work performed by the entrepreneur or their family members.
Anyone starting a business can also access the flat-rate scheme by declaring in their VAT return that they presume to meet the requirements.
Causes of termination of the flat-rate scheme
The flat-rate scheme will cease to apply from the year following the year in which any of the eligibility requirements is no longer met or one of the reasons for exclusion applies.
However, if revenues/fees exceed EUR 100 000, the scheme will cease to be effective from the year in which this threshold is exceeded and, in this case, VAT is due on the transactions by which the ceiling is exceeded.
Causes of exclusion
The flat-rate scheme is not available to:
- natural persons using special VAT regimes or flat-rate schemes for determining income
- non-residents, with the exception of those residing in one of the Member State of the European Union or in a State party to the Agreement on the European Economic Area which ensures an appropriate exchange of information and who produce in Italy at least 75% of their total income
- persons who carry out exclusively or principally transactions involving the sale of buildings or parts of buildings, building land or new means of transport
- persons carrying on a business , art or profession who simultaneously participate in partnerships, professional associations or family businesses or who directly or indirectly control limited liability companies or joint ventures in which they carry on economic activities directly or indirectly related to those carried out individually
- individuals whose activity is exercised principally for employers with whom they are involved in an ongoing employment relationship or with whom they have had an employment relationship in the two previous tax periods or for persons directly or indirectly associated with such employers, with the exception of those who start a new business after having completed the period of compulsory training for the exercise of the arts or professions
- persons who in the previous year received income from employment and/or assimilated work in excess of EUR 30,000, unless the employment relationship in the previous year has ceased (provided that no pension income or employment income from another employment relationship was received in that same year).
Income and taxation
Persons applying the flat-rate scheme determine their taxable income by applying the profitability coefficient provided for the activity carried out to the amount of revenue earned or remuneration received (Annex 2 - pdf to Law No 145/2018).
Compulsory social security contributions are deducted from the flat-rate income, including those paid on behalf of the employees of the family business who are tax dependent or, if not tax dependent,, if the owner has not exercised the right of recourse from the employees themselves. A single tax of 15% is applied to the taxable income replacing the ordinary taxes (income tax, additional regional and municipal surcharges, IRAP).
In the case of family businesses, the substitute tax applied on the income gross of the the remuneration due by the owner to his or her spouse and family members of his or her family, is payable by the entrepreneur.
Income subject to the flat-rate scheme is always relevant when, for the entitlement to or determination of deductions or benefits, even of a non-tax nature, the rules refer to the possession of income requirements.
Greater benefits for those starting a new business
The substitute tax is reduced to 5% for the first 5 years of activity if certain conditions are met:
- the taxpayer has not, during the previous 3 years, carried out any artistic, professional or business activity, including in an associated or family form
- the activity to be undertaken does not constitute, in any way, a mere continuation of another activity previously carried out in the form of employment or self-employed activity, except for the period of compulsory practice for the exercise of arts or professions
- if an activity previously carried on by another person is continued, the amount of the relevant revenues and fees realised in the tax period in the tax period preceding that in which the benefit is recognised does not exceed the limit allowing access to the scheme.
Law No 197 of 29 December 2022 on the estimated state budget for the 2023 financial year and the multiannual budget for the 3 year period 2023 to 2025