Question: What are the taxes applicable to Italian legal fees?
Answer: Italian lawyers’ invoices are subject to 4% pension tax. The fee amount +4% pension tax is then subject to Value Added Tax (VAT), except for clients who do not have EU residency (for individuals) or a registered office (for entities), with some exceptions.
When VAT applies, the VAT rate for legal services is 22%. Therefore the total tax paid by a client, when VAT applies, is 26.88% of the applicable fee. For example, for a legal fee of EUR 1,000, the client pays EUR 1,268.80.
Under certain circumstances, invoices issued by Italian lawyers are not subject to Italian VAT regardless of client’s residency/address. There are two key circumstances when this might occur:
- When Italian lawyers start their career or when their total professional income does not exceed a certain threshold, they can opt for some beneficial tax exemptions. Under some of these tax exemptions, invoices are not subject to VAT until the provided requirements are met (time and/or annual professional income threshold).
- Likewise, Italian VAT does not apply to Italian legal services when invoiced to (i) a client who is not an EU resident or (ii) an EU VAT subject who is not an Italian resident and does not have Italian registered tax representation.
As an exception to the above mentioned no-VAT rule for non EU residents, Italian legal services are generally subject to VAT when they refer to some types of Italian real estate matters, in general when a property title transfer is involved. Therefore, if the legal services refer, for example, to assistance to draft a real estate transfer contract, the legal fees are subject to VAT regardless of client’s residency/address.
Our legal team has extensive experience in assisting international clients with Italian legal matters. You can schedule a consultation with one of our bi-lingual lawyers through the link below.
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