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, another, former regime is still in use as well. Up until 2015, people in possession of a VAT number could choose the minimum tax regime, if they met specific requirements. In this article, you'll 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tax regime, as regulated by Article 27 paragraphs 1, 2 and 7 of Italian Legislative Decree no. 98/11 and subsequently rescinded by Italian Law no. 190/14, is a tax regime for self-employed individuals who are in possession of a VAT number, whether they are a professional or a business.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 the self-employed and young entrepreneurs, by reducing the tax burden and administrative costs.

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

• People under 35 were obliged to change regime when they 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 started a business under the minimum tax regime before 2016 and have not yet turned 35 can still take advantage of it, provided that they meet the following requirements:

• Their total income earned during the year cannot exceed €30,000.
  
• They must not have purchased capital goods in the last three years of operation which exceed a maximum value of €15,000.
  
• As mentioned above, the minimum tax regime has a limited lifespan. Professionals who chose this type of accounting method and were over 35 years of age were able to apply the minimum tax regime for 5 years, while younger people can still use it until they reach the age of 35.
  
• Recruiting employees is not allowed.
  
• Professionals are not required to maintain any accounting books, but they are required to submit invoices, 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

As of 2016, the minimum tax regime was replaced by the flat-rate regime – the new favourable tax regime. A professional who still qualifies for the minimum tax regime at present may switch to the flat-rate regime once they reach 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 only benefit from a 5% tax rate for the first 5 years – in all other cases, the substitute tax is 15%.
  
• The minimum tax regime has an upper annual turnover limit of €30,000, while the threshold 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 threshold for capital objects of €15,000, while in the flat-rate regime, this limit has been removed.
  
• The minimum tax regime allows for 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 a person's ATECO code).
  
• While the minimum tax regime does not allow for the recruiting 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 include any contribution benefits. However, under the flat-rate regime, artisans and traders can obtain a 35% reduction in contributions.
  
• As of 1 January 2024, electronic invoicing is mandatory for people using the flat-rate regime, while those who are still under 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

It has not been possible to join the minimum tax regime since 2016, as it has been replaced by the flat-rate regime. To make the move from the minimum tax regime to the flat-rate regime, it is recommended that individuals 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 people who incur few costs, such as professionals.
  
• From a social-security point of view, artisans and traders should consider the effects of taking advantage of the contribution reduction.
  

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

• Individuals are exempt from withholding tax on their invoices (this exemption for the minimum tax regime was introduced with the 2011 reform).
  
• The flat-rate regime, as with 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, liquidate the tax or make any payments. As a result, this means that they are not required to file the annual VAT return and associated communications.
  
• There is no requirement to keep accounting records or to 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 businesses in Italy can no longer adopt the minimum tax regime, the flat-rate regime is certainly a viable alternative, as it simplifies the administrative burden as much as possible and also reduces the tax burden – all while retaining several advantages of the old minimum tax regime.

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