In this article we will focus on the Italian Fiscal Code ("Codice Fiscale") and on the Italian Partita IVA, as both are very important Italian tax codes for American Citizens living in Italy.
For many American Citizens it's not very clear what exactly the Partita IVA is, when to use it and when to use the Italian Fiscal Code instead.
Let's see why they are different and why the Partita IVA is important for freelance jobs.
THE ITALIAN TAX CODE - CODICE FISCALE
First of all, we have already dedicated a specific article the Italian Fiscal Code ("Codice Fiscale"):
As we said in this article, the Italian Fiscal Code is an alphanumeric string of 16 digits that identifies, from a fiscal point of view, a person while she/he is in Italy.
An example of Italian Fiscal Code is the following:
RMSJHN70T01Z404P
Keep in mind that the last digit ("P" in this case) is a control letter: in case there is a misspelling in the Codice Fiscale, you'll get an error.
If the American Citizen wants to live in Italy, she/he needs the Codice Fiscale, as it's necessary in a lot of situations.
The most common situations when the Italian Tax Code is required are the following:
- open a bank account;
- purchase a house;
- purchase shares of an Italian Company;
- find a job in Italy;
- sign a rent contract;
- buy a mobile phone;
- buy a car;
- pay Estate Property Tax (IMU);
- pay income taxes;
- file the Italian Tax Return;
- apply for the Italian Identity Card.
The Italian Codice Fiscale can be acquired in person in the local offices of the Agenzia delle Entrate, or by asking your Italian Consultants: our Tax&Legal Firm can provide the Italian Fiscal Code for our Clients.
Alternatively, if the American Citizen requires it from the US, she/he can apply for the Italian Fiscal Code via a Consulate or Embassy.
THE ITALIAN PARTITA IVA
The Italian Partita IVA is a numeric string of 11 digits that identifies a person that has started a self-employment position in Italy.
Self-employment position are related to freelance jobs and independent contractor services.
An example of Partita IVA is the following:
IT03358140246
Where the prefix "IT" means ITALY.
Often, in the domestic Italian context, the Partita IVA is used without the prefix IT.
Keep in mind that also in this case the last number is a control-digit.
In the US, the most similar tax code to the Partita IVA is the EIN Number.
We have already dedicated a specific article, in Italian, to the Tax Codes in the US (Social Security Number, EIN number, etc.):
As we already know, the EIN number is the Employer Identification Number and in the US it's mostly used when:
- the business entity must hire an employee;
- the business actitivy is run through a Corporation or a Partnership.
In the US, if you start a self-employed business as a sole-proprietorship and you don't hire anyone, you don't need the EIN number and you continue to operate only with the Social Security Number (SSN).
In Italy it's different: every time a person wants to start a business as freelance or independent contractor, she/he is obliged to acquire the PARTITA IVA, even if she/he doesn't hire an employee.
WHEN TO USE THE PARTITA IVA OR THE CODICE FISCALE
The Partita IVA is different from the Codice Fiscale as:
1) The ITALIAN FISCAL CODE identifies from a tax perspective the American Citizen in Italy acting as a PRIVAT PERSON.
2) The ITALIAN PARTITA IVA identifies from a tax perspective the American Citizen in Italy acting as a SELF-EMPLOYED PERSON.
Let's see some practical examples.
EXAMPLE 1
If the American Citizen has to buy medicine while she/he is in Italy, she/he
will use the Italian Fiscal Code as medical expenses are connected to the private person and are deductible from the Italian Tax Return.
Deductions of medical expenses are eligible in Italy for every person that has tax residence in Italy. For more information on tax residence, you can see the following articles:
So in this case, the person:
- is acting as a privat person;
- the product/service that she/he is buying will give her/him a tax deduction of 19% inside the Italian Tax Return that requires an invoice or receipt with the indication of her/his Italian Fiscal Code.
EXAMPLE 2
If the American Citizen has to buy some books to resell as she/he has just opened a bookstore, she/he will give the Partita IVA to the seller.
In this case, the person:
- is acting as a self-employed person;
- needs an invoice (and not the usual "scontrino" receipt, see example 3) from the seller of the books in order to be able to deduct the cost of the books bought from the revenues of the books sold: she/he will need to keep the accountancy books in order to determine the income that comes from the start up.
EXAMPLE 3
If the same person of example 2 occasionaly goes inside another bookstore and she/he finds a book that she/he likes, she/he will buy it without giving any tax code as the person:
- is acting as a privat person;
- the product that she/he is buying will not give her/him any tax deduction.
EXAMPLE 4
If the same person has to sign a rent contract, she/he will give:
- the Italian Fiscal Code, if she/he lives in the apartment rented: the use is designated to the privat person;
- the Partita IVA, if the space rented is destinated to the bookstore: the use is designated to the self-employment activity.
The conclusion is that the Partita IVA must be used EVERY TIME there is a sale or a purchase that is connected with the business activity of a Freelance or of an independent contractor.
Whenever only the privat person is involved, she/he must use the Codice Fiscale.
WHICH ENTITIES REQUIRE TO HAVE AN ITALIAN PARTITA IVA?
It's important to note, that every entity that does a business activity in Italy needs a PARTITA IVA: in fact, IVA is the "IMPOSTA VALORE AGGIUNTO" (VAT) that must be applied by every business entity when they sell their goods and services, with some exceptions, like in the case of Regime Forfettario, see the following link:
The Partita IVA is thus necessary for the following business entities:
- SOLE PROPRIETORSHIP
The technical names for a sole-proprietorship in Italy are:
IMPRESA INDIVIDUALE, that must be registered in the Chamber of Commerce;
LIBERO PROFESSIONISTA, not obliged to the registration in Chamber of Commerce.
The difference between Impresa Individuale and Libero Professionista depends on the type of business activity that is done.
- PARTNERSHIP
The technical name in Italy is "Società di Persone" and they are identified with the following suffixes:
SS - Società Semplici
SNC - Società in Nome Collettivo;
SAS - Società in Accomandita Semplice.
- CORPORATION
The technical name in Italy is "Società di Capitali" and they are identified with the following suffixes:
SRL - Società a Responsabilità Limitata;
SPA - Società Per Azioni;
SAPA - Società in Accomandita per Azioni.
THE OPENING OF THE PARTITA IVA: WE CAN HELP YOU
It's also important to understand that the Partita IVA is not only necessary to do a business activity in Italy, but that it's fundamental to open the Partita IVA BEFORE you start your self-employment actitivy, as the opening of the Partita IVA is, officially, the moment in which the person has started her/his self-employment business activity.
This passage of TIMELY opening the Partita IVA seems too formal for US standards but it's very important and it's often underestimated from American Citizens: when the Partita IVA is open, the self-employment business exists and it must (generally) apply IVA (Italian VAT, that has a percentage of 22%) to the sales and it can start the deductions of costs that are related to the business activity.
Another point that is important to understand is that the Partita IVA must be opened in a specific way through the Agenzia delle Entrate, but you need an Italian Dottore Commercialista (like our Firm) to be able to deal with it.
We usually make an assessment with the Client, then study the case and finally suggest what is the best tax option for the Client, like Regime Forfettario or Regime Impatriati: for more information on Regime Impatriati see the following link:
and also these articles:
There are several variables that must be indicated inside the Form for the opening of the Partita IVA:
1- the date of the opening of the partita IVA: remember that you have to communicate the opening in 30 days from the day you have started the business.
2- the specific code for your business activity (Codice ATECO);
3- what are the Tax options that are most suitable for your case;
4- if you need Social Security coverage in Italy or in the US connected with freelance job.
Regarding point n. 4, remember that US Citizens or Double Citizens can make a specific election of coverage and pay Social Security in the US and not in Italy even if they are tax residents in Italy and even if they live and work in Italy. For more information on thie election, see also this article:
CONTACT US FOR MORE INFORMATION
If you need more information on the Italian Fiscal Code or the opening of a Partita IVA, you can send an email to:
enrico.povolo@dottcomm.net
or make a phone call to the following number:
+39 0444 322987
Enrico Povolo