Taxes in Italy: Updates for 2024

Introduction

The Italian Council of Ministers approved the budget bill, along with a legislative decree containing urgent economic measures and tax policies. Two legislative decrees are also under examination for international taxation reforms and the first phase of Personal Income Tax (IRPEF) reform. The Prime Minister Giorgia Meloni and the Minister of Economy and Finance Giancarlo Giorgetti presented the second budget, emphasizing the need to be "serious, prudent, and responsible" in the complex current situation. The budget defers some reforms but introduces the new IRPEF, tax wedge cut, deductions for hiring and the abolition of ACE benefiting low to middle-income taxpayers.

Taxation Takes Priority

Tax policies take precedence in this budget. The central features include the confirmation of a one-year extension for the reduction in the fiscal wedge and the consolidation of the first two IRPEF tax brackets, which form the heart of the budget. The new income tax slabs are as follows:

• up to 28,000 euros, a rate of 23%;

• for incomes over 28,000 euros up to 50,000 euros, a rate of 35%;

• for incomes over 50,000 euros, a rate of 43%.

Furthermore, the threshold for the salary income tax exclusion is raised to 8,500 euros, aligning it with the existing threshold for pensioners. The IRPEF reform for 2024 is estimated to cost around 4.1 billion euros. According to the Ministry of Economy and Finance (MEF), the simultaneous implementation of the reduction in social security contributions and the new income tax rate will lead to an increase in net wages for employed individuals of up to 1,298 euros per year (for gross annual incomes of 27,500 euros).

Deductions for Hiring and ACE Abolition

As explained by Il Sole24Ore, substantial tax deductions will be provided to employers who hire employees on permanent contracts in 2024, with benefits varying depending on the group they belong to: eligible young people, women, and previous beneficiaries of the citizenship income will receive preferential treatment. For companies and self-employed individuals, the tax deduction for new permanent employees hired will be 120%. For enterprises that hire "disadvantaged" workers, including women of any age with at least two children under the age of eighteen or young people looking for a job but currently unemployed, the deduction will be 130%.

The increase in hiring tax deductions in 2024 coincides with the removal of the ACE (Aid for Economic Growth) tax incentive, originally introduced in 2011 to promote increased equity capital. Its elimination will result in a return to a taxable income framework.

Budget Funding

Approximately 15 billion euros will come from the fiscal wedge and IRPEF reforms, with an extra 8 billion euros dedicated to healthcare improvements to reduc waiting lists and offer tax-exempt overtime pay to medical professionals. Therefore, tax revenue must be improved to at least partially offset the costs. A global minimum tax on multinational corporations is projected to generate 2-3 billion euros in revenue. Ministries are urged to present proposals to Giancarlo Giorgetti for a 2 billion euro savings goal in a comprehensive spending review. Giorgetti emphasizes that all ministries must make sacrifices, cutting 5% from discretionary expenses, except for regions and local authorities. Additional revenue is anticipated from gaming and adjustments to online taxation.

Additionally, the Minister of Economy and Finance expressed optimism that the privatization of ITA Airways would yield returns in 2024. The process is still in the pre-notification phase, but he hopes that formal notification will be made by the end of October, following which hundreds of requests from the Directorate-General for Competition in EU could pave the way for the completion of the operation.

Conclusion

The Italian Council of Ministers has approved a budget that emphasizes tax reforms, extending the fiscal wedge reduction and restructuring the IRPEF tax brackets. It introduces hiring incentives while abolishing the ACE incentive. However, the reform is not yet confirmed as it must be approved by both houses of the Italian Parliament, which could make additional modifications and adjustments. Further information regarding tax policies for 2024 will be provided.

At PHC Advisory, we can offer you full support on matters regarding doing business in Italy and Asia, or any other issues your business may face. If you would like to know more about policies relevant to your business in Italy or Asia, please contact us at info@phcadvisory.com.

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