2025 flat-rate tax guide: costs and requirements

The flat-rate tax scheme (regime forfettario, sometimes written forfetario—both are correct) is a simplified tax regime available to individual VAT holders, including freelancers and sole proprietors. It was introduced under Law 190/2014 and has undergone several updates—especially concerning eligibility criteria.

View the official legislative text (in Italian) via the Normattiva portal.

This scheme is designed to make life easier for small business owners and professionals by reducing bureaucracy, cutting costs, and lightening the contribution burden. It applies a flat tax rate to a portion of income calculated using standard profitability coefficients based on your business activity. There’s no VAT to pay and no deductible expenses—everything is streamlined.

The default regime for new VAT holders

For new individual VAT holders who meet the legal requirements, the flat-rate scheme is applied automatically. There’s no need to submit a formal request—it’s the default tax regime for eligible new businesses.

Quick overview of the flat-rate tax scheme

• A tax regime for natural persons (freelancers and sole proprietors)
• Automatically applied to new individual VAT holders who meet the access criteria
• Revenue is calculated using the cash principle (when payment is received)
• Taxable income is calculated using a standard profitability coefficient, depending on your sector (ATECO code)
• A substitute tax is applied to the taxable income:
• 5% for the first 5 years (if certain conditions are met)
• 15% afterwards
• No VAT to charge on invoices, and no VAT deductions on purchases
• The only bookkeeping requirement is to keep all invoices and relevant documents

Summary

1. Eligibility criteria
2. How the flat-rate tax scheme works
3. What can you deduct under the flat-rate scheme?
4. Social security contributions (INPS) under the flat-rate scheme
5. If you have both a VAT number and a salaried job
6. Taxes and contributions: advance payments and deadlines
7. Flat-rate scheme vs simplified, ordinary, and “Minimi” regimes
8. Do you need a dedicated business account?
9. FAQ

Eligibility criteria

Access to—and continued use of—the flat-rate tax scheme is subject to a specific set of conditions.

Let’s start with the quantitative requirements:

1. Annual revenue (or compensation) from the previous year must not exceed €85,000
2. Personnel expenses—including employees and collaborators—must remain below €20,000 gross per year
3. The total value of business assets used in operations must not exceed €20,000, before depreciation

Then there are the qualitative requirements:

• You cannot use the flat-rate scheme if you hold controlling shares in an s.r.l. or a partnership (s.n.c., s.a.s.) that performs business activities similar to those covered by your VAT number
• You are also excluded if your business mainly serves former employers or related entities and has done so in the two years prior—this is to prevent false self-employment

Lastly, this scheme is only available to residents of Italy or of EU/EEA countries who generate at least 75% of their income in Italy.

How the flat-rate tax scheme works

Here’s the key concept: taxation under the flat-rate scheme is quick and straightforward.

In Italy, income tax is typically calculated using progressive IRPEF tax brackets, ranging from 23% to 43% of net income (i.e. earnings after deductible expenses). But under the flat-rate scheme, IRPEF doesn’t apply. Instead, there’s a single substitute tax, charged at a fixed rate of either 5% or 15%.

This rate is applied to a flat-rate taxable income, which is calculated by reducing your gross annual revenue using a legally defined percentage called the profitability coefficient.

5% rate for new businesses, 15% for others

New businesses can benefit from a 5% tax rate for the first five years, as long as:

• They haven’t performed similar business activities in the past three years
• They haven’t recently closed a previous VAT registration

In all other cases, the standard flat-rate 15% tax applies—still significantly lower than traditional tax rates.

What is the profitability coefficient?

Instead of calculating real expenses, the tax office assumes an average level of profitability depending on your type of activity. This is expressed through the profitability coefficient, which is used to determine your taxable income.

Examples by ATECO code:

• 78% for freelancers and consultants
• 67% for artisans
• 40% for retailers

So, for a retailer, only 40% of gross income is taxed, while a freelancer is taxed on 78%—reflecting assumed differences in operating costs.

Cash-based accounting

The flat-rate scheme follows the cash principle: you are only taxed on income that is actually received during the year—not on amounts merely invoiced.

Example: If a lawyer issues an invoice in December but doesn't receive payment until January, the income counts for the following tax year.

No VAT and no withholding tax

Another major benefit is the VAT exemption. Sole proprietors, artisans, and professionals under this scheme issue invoices without charging VAT, as set out in Law 190/2014.

This simplifies bookkeeping and improves cash flow, since there’s no need to collect or remit VAT on behalf of the state. However, this also means:

• You can’t deduct VAT on purchases
• You can’t offset VAT
• Your invoices must include a disclaimer stating VAT exemption under the relevant law

Flat-rate taxpayers are also exempt from withholding tax. That means they don’t:

• Apply IRPEF prepayments on invoices sent to clients
• Deduct IRPEF in invoices received from suppliers

What can you deduct under the flat-rate scheme?

If you’re under the flat-rate tax scheme, very few expenses are deductible. Costs related to your business—such as rent, utilities, materials, equipment, or even vehicle expenses—are not considered when calculating taxable income.

The only deductible cost is mandatory social security contributions, i.e. payments made to INPS or your sector-specific pension fund during the tax year.

While this simplified setup reduces administrative overhead—a clear benefit—it also comes with a downside: you can’t offset real expenses. For businesses with high actual operating costs, the flat-rate method may be less advantageous.

In these cases, it’s worth doing the math (ideally with support from a tax advisor) to assess whether switching to a simplified or ordinary regime would result in lower tax liability.

Social security contributions (INPS) under the flat-rate scheme

All individual VAT holders are legally required to contribute to social security for pension and welfare coverage. The amount and structure of contributions depends on the category you belong to:

• Professionals with a dedicated pension fund (e.g. lawyers, doctors, journalists): contribute to their specific fund
• Professionals without a pension fund: contribute to the INPS Separate Management Scheme (Gestione Separata)
• Sole proprietors (e.g. artisans, traders): contribute through the INPS Artisans and Merchants scheme

How contributions work under the flat-rate scheme

In the flat-rate scheme, the method of contribution depends on your business type:

Professionals under Gestione Separata pay a percentage of their taxable income, with the rate updated annually

Artisans and traders pay:

• A fixed base amount each year
• Plus a variable percentage on income exceeding a certain threshold

These thresholds and rates are published each year in a circular by INPS.

Contribution discounts for sole proprietors

Sole proprietors (not professionals) in the flat-rate scheme may benefit from a 35% discount on their INPS contributions. This must be requested annually by 28 February.

Important: Reducing INPS contributions over time can impact your future pension. In Italy, your pension amount is directly linked to how much you contribute. Using the 35% reduction may result in a lower pension payout in retirement.

If you have both a VAT number and a salaried job

Italian law allows individuals to hold a VAT number and be employed at the same time—and still qualify for the flat-rate tax scheme. However, there are stricter conditions in these cases.

The main requirement is that your employment income (or equivalent) in the previous year must not exceed €30,000.

If you terminate your employment and then open a VAT number, you may still be eligible for the flat-rate scheme.

Important: If you leave your job and then invoice mainly your former employer—or their relatives or related businesses—you cannot access the flat-rate scheme. This rule is designed to prevent the misuse of VAT numbers to mask continued employment.

Taxes and contributions: advance payments and deadlines

Under the flat-rate scheme, VAT holders don’t pay taxes monthly. Instead, payments are made in two instalments, typically due on 30 June and 30 November of the following year, after submitting the annual tax return.

At that point, you’ll pay:

• The balance of the substitute tax (5% or 15%) for the previous year
• An advance payment (usually 50%) of the substitute tax for the current year

Example: If you open your VAT number in March, your first tax payment will be due in June of the following year.

Social security contribution deadlines

Contribution deadlines depend on the type of business activity:

Flat-rate professionals (with their own pension fund or enrolled in INPS Separate Management) follow the same payment dates as for income tax: 30 June and 30 November

Flat-rate sole proprietors (enrolled in the INPS Artisans and Merchants scheme) pay:

• Fixed contributions in four instalments: mid-May, mid-August, mid-November, and mid-February (of the following year)
• Variable contributions—calculated on income above a threshold—are paid alongside income tax: 30 June and 30 November

Flat-rate scheme vs simplified, ordinary, and “Minimi” regimes

Compared to other options, the flat-rate scheme is easier to manage and offers lower tax pressure: fixed tax rates, faster procedures, less bureaucracy. However, it does not allow expense deductions—except for mandatory social security contributions.

The simplified regime is available to partnerships and sole proprietors engaged in commercial activities who do not exceed:

• €500,000 in revenue for service-based businesses
• €800,000 in all other cases

This regime includes some simplifications in terms of record-keeping and accounting requirements.

Beyond that, it functions similarly to the ordinary regime, which applies to limited companies (società di capitali) and businesses exceeding the simplified regime's revenue thresholds. In both simplified and ordinary regimes:

• Taxable income is calculated by subtracting actual expenses
• VAT must be charged and can be reclaimed
• IRPEF applies based on progressive income brackets

The now-defunct “minimi” regime, discontinued in 2016, was designed for young or new entrepreneurs. It offered tax benefits for a maximum of five years or until the taxpayer reached 35 years of age. Those who were already enrolled in this regime can continue to use it until its natural expiration.

Do you need a dedicated business account?

If you're under the flat-rate tax scheme, having a separate business account is not mandatory. However, best practices strongly recommend keeping your personal and business finances separate. Doing so helps:

• Organise income and expenses
• Simplify accounting (especially if you file taxes yourself or work with an accountant)
• Quickly respond to any queries from the tax authorities

From an operational standpoint, a business account is also a smart move.

Vivid Money offers a fully digital business account with:

• Physical and virtual cards
• Multi-currency sub-accounts
• Cashback on purchases
• Expense tracking and accounting tools
• Saving and investment features
• Secure access for collaborators or your accountant

All in one place—fully online, and built to keep your business finances in check.