Italy Small Business Tax Guide 2026 — Regime Forfettario

Overview of Small Business Taxation

Italy offers several tax regimes for small businesses and self-employed individuals, designed to simplify compliance and reduce the tax burden for smaller operators. The most popular is the regime forfettario (flat-rate regime), which provides a simplified alternative to the ordinary IRPEF + IVA system. Other options include the regime ordinario (ordinary regime) for larger businesses and the regime dei minimi (minimal regime — largely replaced by the forfettario).

The choice of regime depends on the business's revenue, the nature of the activity, and the owner's preference for simplicity versus the ability to deduct expenses. The forfettario regime is generally the most advantageous for small businesses with revenue below €85,000, while the ordinary regime is mandatory above that threshold.

Regime Forfettario (Flat-Rate Regime)

The regime forfettario is a simplified tax regime designed for sole proprietors (ditte individuali) and self-employed professionals (lavoratori autonomi). It replaces the progressive IRPEF system with a flat substitute tax and provides significant simplification of accounting and VAT obligations.

Eligibility Conditions (all must be met): (a) Annual revenue or compensation under €85,000 (adjusted every 3 years for inflation — confirmed at €85,000 for 2026), (b) Total employee and collaborator costs under €20,000 per year (gross amounts, excluding social contributions), (c) Capital expenditure on tangible assets under €20,000 at the end of the previous year, (d) No purchases of goods for resale exceeding 50% of total revenue (except for certain categories where the percentage is higher), (e) No participation in partnerships (S.n.c., S.a.s.), associations, or trusts (as a partner or associate), (f) Not having been in the ordinary VAT regime in the previous year (unless specific transition rules apply), (g) The business must not consist primarily of the provision of personal services in the real estate sector (a restriction added to prevent abuse).

Tax Rate: A flat 15% substitute tax (imposta sostitutiva) replaces IRPEF, regional surcharges, and municipal surcharges. For the first 5 years of activity, a reduced rate of 5% applies if: the taxpayer did not carry on any business activity in the previous 3 years, and the new activity is genuinely new (not a continuation of a previous activity under a different legal form).

Calculation of Taxable Income: Taxable income is not calculated as gross revenue minus expenses (as in the ordinary regime). Instead, it is calculated as gross revenue × profitability coefficient. The coefficient varies by business category (ATECO code): (a) Professionals (lawyers, accountants, consultants, architects) — 78%, (b) Retail trade, bars, restaurants — 40%, (c) Construction and real estate — 86%, (d) Manufacturing — 67%, (e) Wholesale trade — 62%, (f) Transportation and storage — 67%, (g) Information technology services — 67%, (h) Other services — 67%. For example, a consultant with €60,000 revenue would have taxable income of €60,000 × 78% = €46,800, paying 15% × €46,800 = €7,020 in substitute tax (plus INPS contributions).

VAT Treatment: Forfettario taxpayers: do not charge IVA on their invoices (the invoice is marked "IVA non esposta — regime forfettario"), cannot recover input IVA on purchases (the IVA paid on business expenses is a cost), are exempt from all VAT filing obligations (no periodic VAT returns, no annual VAT return), and must still include the partita IVA number on invoices but do not apply IVA. The absence of IVA charging means that the forfettario taxpayer cannot issue an invoice with IVA, even if the client requests it. For B2C transactions this is straightforward. For B2B transactions, the client (a VAT-registered business) cannot recover input IVA on the forfettario invoice — this is a disadvantage when dealing with other VAT-registered businesses that prefer to deal with ordinary-regime suppliers (so they can recover the IVA).

Ordinary Regime (Regime Ordinario)

Businesses that do not meet the forfettario conditions or opt out voluntarily are subject to the ordinary tax regime: Subject to IRPEF at progressive rates (23%, 33%, 43%) plus regional and municipal surcharges on business income, with full deduction of actual business expenses (no coefficient), charge IVA at the applicable rates (22% standard, 10%/5%/4% reduced) on invoices, recover input IVA on business purchases, subject to all VAT filing obligations (LIPE quarterly/monthly, annual VAT return, e-invoicing mandatory), subject to IRAP (3.9% regional production tax — forfettario taxpayers are exempt from IRAP), and must maintain full accounting records (double-entry bookkeeping, inventory, balance sheet). The ordinary regime is mandatory for businesses with annual revenue above €85,000.

INPS Contributions for Small Business Owners

Forfettario taxpayers enrolled in the Gestione Artigiani e Commercianti (artisans and merchants): Contributions are calculated on the taxable income determined by the forfettario coefficient (same base as the substitute tax). The rate is approximately 24% on income up to the threshold (~€18,000) and 25% on income above the threshold. Minimum annual contribution applies (~€3,900 for artisans, ~€3,500 for merchants).

Gestione Separata INPS: Forfettario professionals enrolled in the Gestione Separata: Rate is 25% (no minimum if income is below €5,000). No minimum contribution if income is below €5,000, but no pension accrual for those years. The INPS contributions are deductible from the forfettario taxable income (they reduce the taxable base for the substitute tax only indirectly — they are deducted before the coefficient is applied in some interpretations, but in practice the contributions are paid from after-tax income).

Exemption from IRAP: Forfettario taxpayers are exempt from IRAP (the regional production tax), unlike ordinary-regime businesses which pay 3.9% (or higher in some regions). This is a significant saving, especially for businesses with high labour costs (IRAP is not deductible for labour costs, so labour-intensive businesses benefit significantly from this exemption).

Transitioning Between Regimes

From Forfettario to Ordinary: If your revenue exceeds €85,000 in a tax year, you must transition to the ordinary regime from the following tax year. If you exceed €100,000, the transition is immediate (you are considered in the ordinary regime from the date the threshold is exceeded). The transition requires: start charging IVA on invoices, start filing VAT returns, change accounting method (from simplified to ordinary), and start paying IRAP (if applicable). There are transitional rules to avoid double taxation on receivables/payables.

From Ordinary to Forfettario: You can voluntarily opt into the forfettario regime at the start of any tax year, provided you meet all the eligibility conditions. A taxpayer who has been in the ordinary regime may need to wait until the following year to transition (changes during the year are not permitted). Some carry-forward items (e.g., VAT credits, tax losses) from the ordinary regime period need to be managed carefully when transitioning.

FAQs

Can I have employees under the forfettario regime?

Yes, but with strict limits. The total cost of employees and collaborators must not exceed €20,000 per year (this is the gross salary + employer social contributions + any other costs like TFR, insurance, etc.). If you exceed this limit, you lose eligibility for the forfettario regime and must switch to the ordinary regime. The €20,000 limit applies to: employees (dipendenti), collaborators (co.co.co. — coordinated and continuous collaboration contracts), and associates in associazione in partecipazione (limited partnership). It does not include: occasional workers (lavoratori occasionali — under €5,000), interns, or apprentices within certain limits.

What expenses can a forfettario taxpayer deduct?

Forfettario taxpayers do not deduct actual expenses in the traditional sense. Instead, the profitability coefficient automatically accounts for expenses. For example, a consultant with a 78% coefficient is deemed to have 22% expenses. Whether the actual expenses are 10% or 40% of revenue, the taxable income is always 78% of revenue. This means: businesses with high actual expenses relative to revenue are disadvantaged (they would be better off in the ordinary regime where actual expenses are fully deductible). Businesses with low actual expenses are advantaged (they get a higher notional expense deduction than their actual expenses). The forfettario regime is therefore most beneficial for service businesses with low overheads (consultants, IT professionals, designers) and less beneficial for businesses with high input costs (retail, manufacturing, hospitality).

Should I choose the forfettario or ordinary regime?

The choice depends on several factors: (a) Revenue level — if above €85,000, the forfettario is not available. (b) Expense level — if your actual deductible expenses are significantly above the implicit coefficient allowance (e.g., a retailer with 70% cost of goods sold but a 40% coefficient only allows 60% deemed expenses), the ordinary regime may be better. (c) Client base — if most of your clients are VAT-registered businesses, they may prefer to deal with an ordinary-regime supplier (so they can recover input IVA). (d) Tax rate — the 15% (or 5%) flat rate is much lower than the progressive IRPEF rate for higher-income taxpayers. For a consultant with €70,000 revenue and 78% coefficient, the substitute tax is 15% × €54,600 = €8,190, while under the ordinary regime, the IRPEF on €70,000 (after deductions) would be approximately €15,000-€18,000. The forfettario saving can be substantial. (e) Simplicity — the forfettario significantly reduces compliance costs (no VAT filings, no IRAP, simplified accounting). A commercialista for a forfettario taxpayer typically costs €400-€800 per year, compared to €1,000-€2,000 for an ordinary-regime taxpayer.

Disclaimer

This guide is for informational purposes only and does not constitute tax advice. Small business tax rules are complex and subject to frequent change. Consult a qualified commercialista or tax advisor for advice specific to your situation. Rules and thresholds for 2026 are based on legislation enacted by June 2026.