The regime forfettario (flat-rate tax scheme), also spelled forfetario with no difference in meaning, is a special tax regime that can be applied to all individual VAT numbers (Partita IVA), professionals, and sole proprietors. The governing law is Law 190/2014: over the years it has been adjusted several times, especially regarding the requirements a Partita IVA must meet to qualify.
The tax authority makes life simpler for small business owners and professionals: it cuts red tape, costs, and contribution burdens. It applies a fixed (flat) tax on a lump-sum portion of income, a portion that varies depending on the type of activity carried out. There is no VAT to pay and no expenses to deduct: everything is more streamlined.
The default regime for new VAT numbers
The flat-rate tax scheme is the natural choice for all new taxpayers who meet the set parameters. You do not need to apply for it: it is automatically in force for new individual VAT numbers that meet the eligibility criteria.
The flat-rate scheme in brief
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Requirements to qualify
Access to, and continued use of, the flat-rate scheme are tied to a precise set of conditions. Let us start with the quantitative requirements. First: the volume of revenue or fees received in the previous year must not exceed the threshold of 85,000 euros. Second, expenses for employees or collaborators cannot exceed 20,000 euros gross per year. Third, the value of the capital goods used in the activity must not exceed 20,000 euros gross of depreciation.
Then there are the qualitative requirements. Anyone who holds controlling stakes in an s.r.l. or a partnership (s.n.c., s.a.s.) carrying out activities related to that of the individual VAT number cannot access or keep the flat-rate scheme. Watch out, too, for those who carry out activities for former employers or for parties connected to them: the law excludes from the scheme anyone who mainly works for them in the two preceding years.
Final point: the scheme applies only to residents in Italy or in EU/EEA states who produce at least 75% of their income in Italy.
How the flat-rate scheme works
The key point is this: under the flat-rate scheme, the tax is calculated in a second. In Italy, income tax is normally applied according to the ordinary IRPEF brackets, which range from 23% to 43% of net income, that is, what remains after the expenses incurred are deducted.
Under the flat-rate scheme you do not pay IRPEF; instead, a single substitute tax applies, at a flat (fixed) rate of 5% or 15%. This tax is applied to a "lump-sum" income, that is, income calculated from the annual revenue received by the business and reduced by a percentage called the "profitability coefficient".
5% rate for the first 5 years, then 15%
Anyone who starts a new activity, without having carried out similar activities in the three preceding years and without having closed a VAT number recently, can benefit from the reduced rate of 5% for the first five years. In all other cases (that is, when you are not a start-up), the standard flat-rate rate is 15%, still much more favourable than traditional regimes.
Profitability coefficient
Under the flat-rate scheme, the tax is applied to the taxable income, that is, total revenue received minus costs. For simplicity, the latter are not counted: the tax authority considers only a percentage of revenue, set by law (here too, as a lump sum), which is presumed to be the profit.
This percentage is called the profitability coefficient and varies depending on the ATECO code of the activity. Flat-rate professionals and consultants, for example, have a profitability coefficient of 78%, artisans 67%, and traders 40%.
This means the tax authority will calculate the taxable base on a lower percentage of income for traders (who have lower profitability) and a higher one for freelance professionals and freelancers (who have higher profitability).
Cash basis
The flat-rate scheme is based on the cash basis, that is, only the fees actually received during the year are counted when calculating revenue, not those merely invoiced. Example: if a lawyer issues an invoice in mid-December and does not receive payment by the end of the year, that amount will not be counted as income in the tax calculation for that year, but will fall into the following one.
VAT exemption and withholding tax
Another key point that simplifies life for the flat-rate taxpayer: the VAT exemption. A VAT number (shopkeeper, artisan, professional) operating under the flat-rate scheme issues invoices without applying VAT, under Law 190/2014. This means no extra administrative burden and a cash-flow advantage (you do not need to pay or collect money on behalf of the state).
As a result, there is no possibility of deducting VAT on purchases or using it for offsetting, and invoices must always carry the exemption wording under this law. For the same reason, flat-rate taxpayers are not subject to withholding tax, that is, they do not have to withhold an amount on the invoice as an IRPEF advance, neither when they issue invoices to clients nor when they receive them from suppliers.
What can be deducted under the flat-rate scheme
A VAT number under the flat-rate scheme can deduct almost nothing. All expenses incurred for the activity, such as rent, utility bills, materials, equipment, or car costs, are not taken into account. The only genuinely deductible cost is mandatory social security contributions, that is, what is paid to INPS or to the relevant professional pension fund during the tax year.
The bureaucracy is cut to the bone, and this is an advantage, but being unable to deduct any expense can also be a downside of the flat-rate scheme. Those with high real expenses might find it unprofitable to calculate costs as a lump sum. In some cases it pays to do the math carefully, perhaps with the help of an accountant, and consider a possible switch to a simplified or ordinary regime.
INPS contributions under the flat-rate scheme
All VAT numbers are required to pay social security contributions for pension and welfare coverage. The amount changes depending on the scheme: a professional pension fund for professionals who have one (for example lawyers, doctors, journalists), the INPS Separate Management scheme for professionals without a fund, and the Artisans and Traders Management scheme for sole proprietors.
Under the flat-rate scheme, the payment of INPS contributions depends on the type of activity carried out. Professionals enrolled in the Separate Management scheme pay a percentage of taxable income, with a rate that differs each year. Artisans and Traders, on the other hand, pay fixed annual contributions plus a variable amount calculated on income exceeding a certain threshold, split into two bands. Each year INPS publishes a circular setting the rates and thresholds for the current year.
Having a flat-rate VAT number also offers concessions on contributions: each year, by 28 February, artisans and traders (only business owners, therefore, not professionals) can request the 35% reduction on INPS social security contributions.
Reducing the amount of INPS contributions during your working life does, however, affect your old-age pension. In Italy, the more contributions you pay, the higher your future pension will be: anyone who takes advantage of the concession risks ending up with a lower pension payment.
If you have a VAT number and an employee contract
Italian law allows a worker to have a VAT number and employment at the same time, and still access the flat-rate scheme. In this case, however, the constraints are tighter.
The first requirement is that employment income, or income treated as such, did not exceed 30,000 euros in the previous year. If the worker has ended the employment relationship and opens a VAT number, they can access the flat-rate scheme.
Be careful, though: if the worker leaves their job as an employee, opens a VAT number, and mainly invoices their former employer, or that employer’s family members, they cannot access the flat-rate scheme.
Taxes and contributions: advance payments and deadlines
A flat-rate VAT number does not pay taxes month by month. Payments are made in two instalments, usually on 30 June and 30 November of the following year, after filing the tax return.
At payment time you pay both the balance of the substitute tax (5% or 15%) for the previous year and an advance (half) of the tax for the current year. Someone who opens a VAT number in March of this year, for example, will only start paying taxes in June of the following year.
For social security contributions, the deadlines depend on the type of activity carried out. Flat-rate professionals, enrolled in their fund or in the INPS Separate Management scheme, pay contributions on the same dates and in the same way as taxes (so 30 June and 30 November).
Flat-rate business owners who are sole proprietors, therefore enrolled in the Artisans and Traders Management scheme, instead have fixed and variable contributions. The fixed ones are paid in 4 instalments during the year: mid-May, mid-August, mid-November, and mid-February of the following year. The variable contributions, on the other hand, are paid together with the substitute tax, on 30 June and 30 November.
Flat-rate scheme vs simplified, ordinary, and minimum-taxpayer regimes
Compared with the alternatives, the flat-rate scheme is simpler to manage and offers a lower tax burden: fixed rates, quick procedures, less bureaucracy, but it does not allow the deduction of expenses (except mandatory contributions).
The simplified regime, for partnerships and commercial sole proprietors that do not exceed 500,000 euros in revenue for service activities, or 800,000 euros in all other cases, grants some simplifications on registers and records.
Otherwise it is fairly similar to the ordinary regime, for corporations and other businesses with revenue above the simplified regime’s limit. Here income is calculated by subtracting the expenses incurred, VAT is paid and recovered, and taxation follows the IRPEF brackets.
The minimum-taxpayer regime (regime dei minimi), no longer active since 2016, was reserved for younger taxpayers and specific cases, with a maximum duration of 5 years or until the age of 35 (those already in the regime can stay until its natural expiry).
A dedicated current account
Having a separate current account for the business is not mandatory for those who join the flat-rate scheme. Even so, good practice suggests keeping a separate account anyway, to keep income and expenses tidy, simplify the accountant’s work (or your own management of the tax return), and respond quickly to any requests from the tax authority.
A business account is an excellent solution on the operational side too. Vivid Money offers an online account with physical and virtual cards, foreign-currency sub-accounts, cashback on purchases, tools for expense control and accounting, saving and investment solutions, access for collaborators and your accountant, and much more.
FAQ
Is the flat-rate scheme a special kind of VAT number?
No. The flat-rate scheme is not a special VAT number, but a set of favourable tax and accounting rules, designed for small business owners, freelancers, artisans, and new professionals.
How long does the flat-rate scheme last?
The flat-rate scheme has no expiry date. Certain VAT numbers and sole proprietors can use the flat-rate scheme for their entire tax and accounting life, or until they lose the requirements (for example if revenue exceeds 85,000 euros). One advantage that does have a limited duration, however, is the reduced 5% taxation, which, where applicable, is valid only for the first 5 years, after which the rate moves to 15%.
What are the grounds for exclusion from the flat-rate scheme?
You automatically lose access to the flat-rate scheme if revenue exceeds the threshold of 85,000 euros, if you exceed 20,000 euros in expenses for staff or collaborators, if you carry out an activity mainly on behalf of former employers (or their family members), or if you hold controlling stakes in companies carrying out related activities. The rules can always change, so it is always worth checking the updated list from the Italian Revenue Agency (Agenzia delle Entrate).
I have decided to reopen my VAT number. Can I opt back into the flat-rate scheme?
Yes, you can reopen the VAT number and opt back into the flat-rate scheme if you meet the set requirements. If you start a new activity (one that has nothing to do with the previous one), if it is not the continuation of earlier work for the same employer or client, and if you have not had an active VAT number in the previous three years, then you can also benefit from the reduced 5% taxation for the first five years. Otherwise, you will reopen the flat-rate VAT number, but with 15% taxation.
Will the flat-rate scheme be abolished in Italy?
The International Monetary Fund (IMF) has spoken out against the flat-rate scheme and has suggested abolishing it to fight tax evasion and rising inequality. That said, there are still no clear signs of a reform, and the current government appears intent on leaving things unchanged.
