A Comparative Guide to Canadian and Italian Taxation for Business Professionals

Taxation Systems

In Canada, the tax system operates on a residency-based model, with residents taxed on their worldwide income, while non-residents are taxed only on income earned in Canada. Canada employs a progressive tax system, with tax rates ranging from 15% to 33% for different income brackets.

Similarly, Italy operates under a residency-based taxation system, with residents subject to taxation on their global income. Italy’s tax system is also progressive, with tax rates ranging from 23% to 43% for varying income levels. Deductions and credits are available for certain expenses, such as healthcare and education.

Social Contributions

In Canada, social security contributions are mandatory for both employees and employers, covering benefits such as pensions, medical care, and unemployment insurance. Contribution rates vary depending on the region and employment type.

Contrastingly, in Italy, social contributions are compulsory for both employees and employers, encompassing benefits such as healthcare, unemployment benefits, and pensions. Contribution rates fluctuate based on income level and employment type.

Business Taxes

In Canada, businesses are subject to corporate income tax at federal and provincial levels, with combined rates ranging from approximately 26% to 31%. Additionally, businesses may be subject to other taxes such as payroll taxes and sales taxes.

Similarly, in Italy, businesses are subject to corporate income tax at a standard rate of 24%. Regional and municipal taxes may also be levied on businesses.

Value Added Tax (VAT)

 In Canada, the Goods and Services Tax (GST) is a federal value-added tax levied at a rate of 5% on most goods and services. Some provinces also impose a Provincial Sales Tax (PST) or Harmonized Sales Tax (HST) at varying rates.

Likewise, in Italy, VAT is a consumption tax imposed on the value added to goods and services at each stage of production or distribution. The standard VAT rate is 22%, with reduced rates available for specific goods and services.

Tax Incentives in Italy

Italy extends attractive tax incentives to foreigners considering relocating to the country for work-related purposes. These incentives include tax relief measures for both employees and freelancers, with different regulations for those who moved before December 31, 2023, and after January 1, 2024.

Under the new taxation law effective from 2024, the tax relief percentage has been reduced from 70% to 50% of the taxable income. For individuals who relocated before the end of 2023, a 70% reduction in taxable income is still applicable. Additionally, there’s an opportunity for further tax relief if the worker chooses to transfer their tax residence to certain regions, where a 90% exemption can be obtained instead of the standard 70%.

Another notable incentive is the “Regime Forfettario” or flat-rate tax regime, allowing eligible individuals to pay a flat tax of 15% on their gross income for specific professional activities. This regime is particularly advantageous for self-employed professionals and freelancers.

You might also be interested at:

• Taxes in Italy
• Italy income tax calculator
• Italian tax consultant
• Italy tax incentives for foreigners

Relocation Considerations

Professionals contemplating a move from Canada to Italy should thoroughly assess the tax implications of their relocation, including potential tax treaties between the two countries to mitigate double taxation.

Italy provides special tax regimes, such as the “Regime Forfettario,” aimed at simplifying taxation for certain professionals. However, eligibility criteria and benefits should be carefully evaluated.

In conclusion, while both Canada and Italy possess progressive tax systems, they also exhibit distinct characteristics and nuances. Business professionals considering a move from Canada to Italy should seek professional tax advice to navigate these differences effectively and optimize their tax planning strategies