Becoming a self-employed worker and opening a value-added tax (VAT) number is an important decision in a professional’s life. There are several tax and accounting regimes to choose from in Italy: ordinary, simplified, and flat-rate. However, still in effect is a regime that those holding a VAT number could choose in Italy until 2015 if specific requirements were met; this is the so-called minimum tax regime. In this article, you will find out what the minimum tax regime is, the differences between the minimum and flat-rate tax regimes, and the benefits of switching from the minimum to the flat-rate tax regime.

What’s in this article?

• What is the minimum tax regime?
  
• How the minimum tax regime works
  
• Differences between the minimum tax regime and the flat-rate regime
  
• Points to consider when moving from the minimum tax regime to the flat-rate regime
  

What is the minimum tax regime?

The minimum tax regime, as regulated by Article 27 paragraphs 1, 2, and 7 of Italian Legislative Decree no. 98/11 and subsequently rescinded by Italian Law no. 190/14, is a tax regime for those holding a VAT number who are self-employed (professional or business). First introduced in 2007, it was then amended in 2011 and discontinued in 2016. Providing taxation at a reduced rate of 5%, it was created with the aim of supporting new business startups, particularly for the self-employed and young entrepreneurs, by reducing administrative costs and tax burden.

At present, it is no longer possible to join the minimum tax regime, but those who opened their VAT numbers before 2015 would be entitled to access it if they met specific requirements, the most important of which were as follows:

• For those younger than 35 years old, you were obliged to change regime when you reached the age of 35.
  
• For those over the age of 35, the minimum tax regime had a maximum duration of 5 years.
  

How the minimum tax regime works

People who began a business under the minimum tax regime before 2016 and have not yet turned 35 can still take advantage of it, provided they meet the following requirements:

• The total income earned during the year cannot exceed €30,000.
  
• The purchase of capital goods in the last three years of operation must not exceed a maximum of €15,000.
  
• As mentioned above, the minimum tax regime has a limited lifespan: professionals who had chosen this type of accounting method and were over 35 years of age could apply the minimum tax regime for 5 years; younger people, on the other hand, can still use it until they reach the age of 35.
  
• Hiring employees is not allowed.
  
• You are not required to maintain any accounting books, but you are required to invoice, number invoices correctly (with sequential numbering), and include clauses stating the accounting method adopted.
  

Differences between the minimum tax regime and the flat-rate regime

Beginning in 2016, the minimum tax regime was replaced by the flat-rate regime, the new favorable tax regime. A professional who still qualifies for the minimum tax regime at present may switch to the flat-rate regime upon reaching the age of 35, or if they no longer qualify to remain in the minimum regime. Let’s consider the main differences between the minimum tax regime and the flat-rate regime:

• The minimum tax regime provides for a 5% substitute tax (of income tax, regional and municipal surtaxes, and IRAP) for the entire duration of the regime, while new businesses adopting the flat-rate regime can benefit from a 5% tax rate only for the first 5 years—while in all other cases, the substitute tax is 15%.
  
• The minimum tax regime has an upper annual turnover limit of €30,000, while the ceiling for the flat-rate regime was raised from €65,000 to €85,000 with the Italian Budget Law of 2023.
  
• The minimum tax regime has a maximum expenditure ceiling for capital objects of €15,000, while in the flat-rate regime, this limit has been removed.
  
• The minimum tax regime allows the deduction of expenses, while in the flat-rate regime, this is fixed and established by the regulations according to the type of activity carried out (and according to one’s ATECO code).
  
• While the minimum tax regime does not allow the hiring of personnel, under the flat-rate regime, it is permitted to use collaborators as long as their gross annual compensation does not exceed €20,000.
  
• The minimum tax regime does not have any contribution benefits, while under the flat-rate regime, it is possible to obtain a 35% reduction in contributions for artisans and traders.
  
• As of January 1, 2024, electronic invoicing is mandatory for those in the flat-rate regime, while those who are still in the minimum tax regime are not subject to this requirement.
  

Points to consider when moving from the minimum tax regime to the flat-rate regime

As of 2016, it is no longer possible to join the minimum tax regime, which has been replaced by the flat-rate regime. In order to make the move from the minimum tax regime to the flat-rate regime, it is recommended that you consult a tax advisor. There are several points to consider before weighing up the advantages of the move. Let’s take a look at the main ones:

• The impact of the increase in the replacement tax from 5% to 15%.
  
• The difference in establishing taxable income. Under the flat-rate regime, it is no longer possible to deduct business expenses, but the deduction of expenses is set at a fixed proportion depending on the type of business. Accordingly, the move can be cost-effective for those who incur few costs, such as professionals.
  
• From a social security point of view, the impact of the opportunity to take advantage of the contribution reduction, which artisans and traders should consider.
  

It is helpful to be aware that many of the advantages that the minimum tax regime had remain unchanged in the flat-rate regime. Here are the most important ones:

• You are exempt from withholding tax on your invoice (this exemption for the minimum tax regime was introduced with the 2011 reform).
  
• The flat-rate regime, like the minimum tax regime, also exempts those who participate in it from applying VAT on invoices to their clients. As a result, they do not deduct VAT on purchases, do not liquidate the tax, do not make any payments and—as a result—are not required to file the annual VAT return and communication.
  
• There is no requirement to keep accounting records or submit annual financial statements.
  
• In both cases, the taxation is a substitute tax (of IRPEF, VAT, IRAP, IRES, and additional municipal and regional taxes).
  

Although a business is now no longer able to adopt the minimum tax regime, the flat-rate regime is certainly a viable alternative for businesses as it simplifies the administrative burden as much as possible and reduces the tax burden—all while retaining several advantages of the old minimum tax regime.

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