When registering for a value-added tax (VAT) number in Italy, there are several elements to take into consideration. The first is choosing the type of tax regime best suited to your business. Italy offers several different types of tax regimes: ordinary, simplified, and flat-rate (although, for those who registered for a VAT number by 2015 and meet specific requirements, the so-called minimum tax regime is still available). In this article, you will find out what the flat-rate tax regime is, what the requirements are to access it, and what advantages it can bring for your business.

What’s in this article?

• What the flat-rate tax regime is
  
• Flat-rate tax regime: How it works
  
• Requirements for accessing the flat-rate tax regime
  
• Reasons for exclusion from the flat-rate tax regime
  
• Advantages of the flat-rate tax regime
  
• How to register for a VAT number under a flat-rate tax regime
  

What is the flat-rate tax regime?

The Italian flat-rate tax regime is a preferential tax regime designed for natural persons who carry out business, artistic, or professional activities. The Italian government introduced it with Law no. 190/2014 and it came into force on January 1, 2015, nullifying all the previous preferential tax regimes:

• The new business activities regime
  
• The advantageous tax regime, in force since January 1, 2012, which had absorbed the minimum tax regime
  
• The facilitated accounting regime (formerly the minimum tax regime)
  

The flat-rate tax regime serves to reduce the fiscal and administrative burden for businesses with limited earnings. It provides for a fixed rate based on earnings and simplified accounting management. Let’s take a closer look at what it entails.

Flat-rate tax regime: How it works

Tax break

The main feature of the flat-rate tax regime is the application of a substitute tax (personal income tax or IRPEF; regional and municipal surcharges; and regional business tax or IRAP) with a fixed rate of 15%, which drops to 5% for the first five years of business activity in the following cases:

• The taxpayer has not carried out any artistic, professional, or business activity in the previous three years, including in an associated or family form.
  
• The business activity performed does not in any way constitute a mere continuation of another business activity previously carried out as employed or self-employed work (excluding the compulsory internship period for practicing arts or for professions).
  
• If a business activity previously performed by another taxpayer continues, the amount of the related revenues and remuneration recorded in the tax period preceding the one in which the benefit was recognized does not exceed the limit that allows access to the regime.
  

Exemption from the application of VAT

Businesses that participate in the flat-rate tax regime are exempt from applying VAT on invoices to their customers. All they need to do is add the wording “Operation not subject to VAT pursuant to Article 1, paragraphs 54-89 of Italian Law no. 190/2014 and subsequent amendments/additions” on their invoices.

Social security contributions in the flat-rate tax regime

In addition to taxes, businesses operating under a flat-rate regime must pay social security contributions, as in any other tax regime. As far as payment of contributions under the flat-rate tax regime is concerned, there are three categories of activities to consider:

• Taxpayers registered for separate INPS (Italian National Institute for Social Security) management
  Separate INPS management concerns self-employed workers who are not part of specific professional categories. These include, for example, freelancers who are not members of an association or whose association does not have a private fund. In this case, the taxpayer must register for separate INPS management with a fixed contribution percentage of 26.23% (as of 2023) applied to the taxable income.

• Artisans or retailers
  Businesses that fall within this category must pay fixed contributions—which do not depend on turnover, and amount to €4,208.40 for artisans and €4,292.42 for retailers as of 2023—and variable contributions. If the taxable income exceeds €17,504, artisans pay 24% on the excess amount while retailers pay 24.48%. However, taxpayers who fall into this category can benefit from a 35% reduction in social security contributions due to INPS, which has also been confirmed for 2024. This reduction is not automatic, therefore the taxpayer must submit a specific request to INPS. Submitting an application for a reduction in social security contributions is only necessary in the first year. From that point forward, the tax relief will continue as long as the necessary conditions remain unchanged.

• Members of a professional association
  Flat-rate taxpayers who belong to a certain professional association pay contributions according to the regulations of the relevant social security fund.

Example of calculating the tax base under the flat-rate tax regime

In the flat-rate tax regime, it is not possible to deduct individual professional expenses to calculate the taxable base. Instead, the deduction of expenses is fixed and established by law, depending on the type of activity performed and therefore on the taxpayer’s ATECO code. Each ATECO code corresponds to a certain profitability coefficient, listed in the table maintained by the Agenzia delle Entrate (Italian Revenue Agency). The following are the main ones:

After identifying the coefficient corresponding to your ATECO code, you need to calculate the revenues for the reporting year based on the cash principle. This means that you need to consider only the revenues and remuneration actually collected in the specific tax period. If the payment of an invoice was issued at the end of 2023, but it was actually collected at the beginning of 2024, it will count among 2024 revenues.

To find taxable income, let’s say you have gross revenues of €40,000 and a profitability coefficient of 78%:

Taxable Income = (Profitability Coefficient x Gross Revenue)

(0.78 x €40,000) = €31,200 Taxable Income

Finally, it is important to note that as of January 1, 2024, electronic invoicing is also mandatory for taxpayers using the flat-rate tax regime. Here is a sample invoice under the flat-rate tax regime. Make sure to consult your accountant to ensure full compliance.

Requirements for accessing the flat-rate tax regime

To be able to access the flat-rate regime, the taxpayer must meet one subjective requirement and two objective requirements.

Subjective requirement

You must be a natural person who performs a business, artistic, or professional activity (including family businesses) and meets the established requirements. No partnerships, joint-stock companies, cooperatives, or associations may adopt the flat-rate tax regime.

Objective requirements

The objective requirements for accessing the flat-rate tax regime are as follows:

• Annual turnover limit: You must have an annual turnover limit of €85,000 (the previous limit of €65,000 was raised by the 2023 Budget Law). To verify whether you have exceeded the limit, you should consider the accounting regime applied in the year in question. If you perform several activities under different ATECO codes, you should add up the specific revenues/remuneration relating to the different activities performed. If you have opened a new business, you must reduce the €85,000 limit in proportion to the number of months of activity. This means that you will have to divide 85,000 by 365 (the number of days in a full year) and multiply the result by the number of days of actual activity. Let’s say that you started your new business on November 1, 2024: the compensation limit to meet in 2024 will therefore be €14,205, or (85,000 ÷ 365) x 61.
  If you exceed the €85,000 limit, but do not go beyond €100,000, you still remain in the flat-rate tax regime for the current year. You just need to pay the required substitute tax and you can continue to enjoy the simplifications and tax breaks. However, the following year, you will not be eligible for the flat-rate tax regime, and you will have to adopt the ordinary regime. If you exceed the €100,000 threshold, you will be immediately disqualified from the flat-rate tax regime and you will have to start applying VAT beginning with subsequent invoices.

• Spending limit: The spending limit for employees or ancillary work must not exceed €20,000 gross per year. The threshold includes remuneration for employees and collaborators, and profit sharing for associates with contribution of labor only.

Reasons for exclusion from the flat-rate tax regime

In addition to checking that you meet the requirements for accessing the flat-rate tax regime, you must also make sure that you do not fall within some specific cases, under penalty of exclusion from the benefits of this tax regime. Unlike the requirements to access or to stay in the flat-rate tax regime, which make reference to the year preceding the one in which the favorable regime is to be applied, the causes of exclusion apply with reference to the same year of application of the regime, with the exception of the case referred to in letter d-bis of paragraph 57.

According to the causes of exclusion, the following subjects cannot access the flat-rate regime:

• Natural persons who adopt special regimes for VAT purposes or flat-rate income determination regimes.

• Parties who do not reside in Italy. The only exception is for those who reside in one of the member states of the European Union or in a country that adheres to the European Economic Area Agreement—which ensures an adequate exchange of information—and those who generate at least 75% of their total income in Italy.

• Parties whose activities exclusively or predominantly concern the sale of buildings or portions thereof, building land or new means of transport.

• Parties who perform business, artistic, or professional activities while participating in partnerships, professional associations, or family businesses—or parties who directly or indirectly control limited liability businesses or joint venture associations, carrying out the same economic activities directly or indirectly as the former.

• Natural persons who carry out their activity mainly for employers with whom employment relationships are ongoing or have existed in the two previous tax periods, or for entities directly or indirectly attributable to such employers, with the exception of individuals who start a new activity after completing the compulsory internship period for practicing arts or for professions.

• Parties who in the previous year received employment income and/or similar for amounts exceeding €30,000. If you exceed this limit, you will still be able to access the regime if, in the previous year, you ceased to be employed and did not establish new employment relationships or receive pension income.

Advantages of the flat-rate tax regime

Below is a summary of the main advantages of the flat-rate tax regime:

• The tax rate is subsidized: You pay a fixed tax rate of 15%—or 5% for five years if starting a new business.

• VAT is not applied to the sale of products and services: This constitutes a competitive advantage for business-to-consumer (B2C) businesses adhering to the flat-rate tax regime, as they will be able to sell their product or service at a cheaper price compared to their competitors.

• No requirement to keep accounting records: It is not mandatory to keep accounting records, unlike under the ordinary tax regime.

• Artisans and retailers INPS reduction: Artisans and retailers who join the flat-rate tax regime can request a 35% INPS reduction.

• Expenses are determined on a flat-rate basis: This could be convenient for businesses that incur few costs, such as professionals.

• Accounting costs are lower: Lower accounting costs can help businesses allocate saved resources to initiatives aimed at growing the business.

• Exclusion from the application of ISAs: Businesses are excluded from the application of the synthetic indexes of fiscal reliability, thus easing administrative and tax obligations.

How to register for a VAT number under a flat-rate tax regime

Here are the main steps to register for a VAT number under the flat-rate tax regime:

• The first step to register for a VAT number under a flat-rate tax regime is to identify the ATECO code associated with the activity carried out, based on the classification of economic activities (explore the complete list of ATECO codes).
  
• You will then need to fill out the AA9/12 form to register for a VAT number, available on the Italian Revenue Agency website, and select the flat-rate tax regime.
  
• After filling out the form, you can send it electronically on the Italian Revenue Agency’s website or, alternatively, you can visit one of its offices in person.
  
• After you have sent your request, you will need to wait for your VAT number to be assigned to you. This 11-digit number will be your VAT number for the entire duration of your business activities. Alternatively, you can appoint an accountant to take care of registering for a VAT number under a flat-rate tax regime on your behalf.
  

If you have already registered for a VAT number under the ordinary or simplified tax regime, but you meet the requirements to benefit from the flat-rate tax regime, the transition is even easier: you will not need to notify the Italian Revenue Agency. This is because the flat-rate regime is considered a natural regime. All you need to do is start keeping your accounts and issuing invoices according to the methods defined for this regime.

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