Computing the substitute tax and knowing what is still due

Luca, a joiner, opens his VAT number in 2025 and in his second year his flat-rate taxable income reaches 26,000 €. He pays 5 %, or 1,300 euros, where a colleague who does not meet the start-up conditions pays 15 %, or 3,900 euros. Same income, same workshop: what separates them is three conditions and five years.

From revenue to taxable income

Under the flat-rate scheme, income is not worked out by subtracting actual costs from revenue. It is worked out by applying to revenue earned or fees received a fixed percentage, the profitability coefficient, set for groups of activities. Purchase invoices, however many there are, play no part in the sum.

From the income so determined you deduct the compulsory social security contributions paid, including those paid for collaborators in a family business in the circumstances the page describes. What remains is taxable income, the base to which the tax is applied.

If the contributions paid exceed the flat-rate income, the excess is not lost: the page allows it to be deducted from overall income. That is rare but possible in the first years, when revenue is modest and minimum contributions weigh more than the income they are measured against.

• Start from the revenue earned or the fees received in the year
• Multiply by the profitability coefficient of your group of activities
• Subtract the compulsory social security contributions paid in the year
• Apply the substitute tax rate, standard or reduced, to the result

The ActioFin substitute tax calculator follows exactly this sequence. It asks for revenue, coefficient, contributions paid and year of activity, and returns flat-rate income, taxable income, the rate applied and any excess contributions carried over to overall income.

The coefficient: where to read it and why it is not printed here

The profitability coefficients are set in annex 2 to Law no. 145/2018, as the Agenzia page points out. Each group of ATECO codes has its own. To find the one that applies to you, start from the ATECO code you declared when you opened your VAT number.

This course does not print the coefficient values, and the reason is one of method. The table is published as a PDF document or as an image annexed to the statute, formats our reading tools do not count as read. A figure not read on an official source does not go into ActioFin content.

For the same reason the calculator does not guess the coefficient from the ATECO code: it asks you to enter it. Read it in the annex, or have it confirmed by whoever keeps your accounts, and keep a note of where it came from. The rest of the computation is mechanical and can be checked.

One rate in place of IRPEF and the local surcharges

Taxable income bears a single tax of 15 %, which replaces the taxes that would normally apply: income taxes and the regional and municipal surcharges. There are no brackets and no tax credits to compute. Taxable income multiplied by the rate gives the tax due, and that is the whole calculation.

The absence of brackets has an effect worth understanding. Under the ordinary regime each extra euro can be taxed at a rising marginal rate. Under the flat-rate scheme the rate is the same from the first euro of income to the last, for as long as you remain in the scheme.

In a family business the substitute tax applies to income before the amounts the owner owes to a spouse and relatives, and the owner is the one who pays it. The page adds that flat-rate income always counts whenever a rule makes deductions, tax credits or benefits depend on income conditions.

That last point heads off a common misunderstanding. Flat-rate income does not vanish from the picture just because it is taxed separately. When you apply for an income-tested benefit, for yourself or your household, that income is taken into account as the rule granting the benefit provides.

The 5 % rate for newcomers

The substitute tax falls to 5 % for the first five years of activity, but only if three conditions are all met. The benefit is not automatic for anyone who opens a VAT number: it is designed for businesses that are genuinely new, not for people who merely change their legal status.

• In the three previous years you carried on no artistic, professional or business activity, not even through an association or a family business
• The new activity is in no way a mere continuation of work done before as an employee or self-employed person, compulsory traineeship aside
• If you take over someone else's activity, their revenue or fees in the previous year do not exceed the scheme's entry limit

The second condition calls for the most judgement. A bookkeeper who worked in an accountancy practice and opens a VAT number to do the same work for the same clients is continuing an earlier activity. A bookkeeper who opens a pottery studio is starting something new.

The five years are counted as years of activity from the first one. If you started in 2023, 2027 is your fifth year and the 15 % rate applies from 2028. The calculator asks which year of activity you are in and warns you when the benefit has run out.

The conditions are checked once, at the start, but the benefit lasts only while you stay in the scheme. Someone who leaves the flat-rate scheme in year three because they have crossed the thresholds does not carry the 5 % into the ordinary regime: there the IRPEF brackets apply.

What the scheme spares you: VAT and withholding

A flat-rate taxpayer charges no VAT to customers and, in return, recovers none of the VAT paid on purchases. For a private customer the invoice is therefore cheaper; for the flat-rate taxpayer VAT on purchases becomes a cost, already covered by the flat allowance built into the coefficient.

• No VAT charged on invoices and no recovery of VAT on purchases
• No periodic VAT settlement or payment and no annual VAT return
• No duty to record invoices issued, takings or purchases
• No duty to keep accounting records for income tax purposes
• Outside the synthetic tax reliability indicators (ISA)
• No withholding tax suffered on your own fees, once a statement is given to the withholding agent

The last point matters above all to professionals. Under the ordinary regime a client acting as withholding agent keeps back a ritenuta d'acconto on the fees. The flat-rate taxpayer does not suffer it, but must give the client a statement confirming that the income is subject to the substitute tax.

The other way round, a flat-rate taxpayer does not withhold tax on the fees they pay, except on employment and similar income. In the income tax return, however, they must report the tax code of anyone paid without withholding and the amounts involved.

What the scheme does not spare you

The list of simplifications is long, which is why people tend to read it as an exemption from everything. It is not. Some obligations remain exactly as they are for other VAT-registered people, and some arise precisely because you are a flat-rate taxpayer.

• Compulsory social security contributions, owed according to the fund you belong to
• Numbering and keeping purchase invoices and customs documents
• Certifying takings
• Completing invoices for transactions on which you are liable for the tax, and paying that VAT
• Issuing and receiving electronic invoices for domestic transactions, and reporting cross-border ones
• Filing the income tax return and paying the balance and advances of the substitute tax

Social security contributions are the heaviest item. How much they come to depends on the fund you are registered with and on rules that INPS or your professional fund publish each year. This course does not quantify them: the circulars that set them are PDF documents we could not read.

The practical advice holds even without figures. Before opening, ask INPS, through its portal, or your professional fund which minimum contributions and percentages apply to you. It is often they, and not the substitute tax, that decide how much you actually keep.

For transactions where the flat-rate taxpayer is the one liable for the tax, such as some purchases from foreign suppliers, the invoice must be completed with rate and tax and the VAT paid by the 16th day of the second month after the calendar quarter. The VAT exemption covers your sales, not these transactions.

The flat-rate taxpayer's invoice

On electronic invoicing the simplifications page carries two sentences that do not agree. One recalls an old exemption, with a reward for those who invoice only electronically; the other lists issuing and receiving electronic invoices for domestic transactions among the obligations that remain.

The Agenzia's own guide to electronic invoicing for flat-rate taxpayers explains how to issue one through the Sistema di Interscambio, and our SdI electronic invoice guide builds on it. If you are unsure about your own situation, check it with the Agenzia before issuing paper invoices.

In practice, the web procedure asks you to select the flat-rate tax regime, a zero VAT rate with the nature code for transactions not subject to VAT in other cases, and a reason quoting article 1, paragraphs 54 to 89, of Law no. 190/2014. That reference is what explains to the customer why no VAT appears.

A professional adds a second reason stating that the transaction is not subject to withholding tax, along with the details of their pension fund. If the invoice is subject to stamp duty, the virtual stamp is switched on and the 2 euros of duty are included in the document total.

Whether an invoice is subject to stamp duty depends on conditions the Agenzia publishes in its instructions. We do not give the amount threshold here, because we have not read it on a served official page. The Fatture e Corrispettivi portal also offers a pre-filled template for flat-rate taxpayers.

Paying the tax: balance and advances

The substitute tax is reported in the income tax return and paid with form F24, just like IRPEF, as a balance for the previous year and advances for the current one. For flat-rate taxpayers the page on paying IRPEF sets out an instalment rule of its own.

If the total owed does not exceed 206 euros, it is paid in one go by 30 November. Above that, the advance is split into two equal instalments, due on 30 June and 30 November. That differs from the ordinary taxpayer, whose first instalment is smaller than the second.

In the first year of activity there is no previous year's tax on which to base an advance. The bill arrives a year later, when the balance for the first year is joined by the advances for the second. That is a cash moment to plan for, especially if contributions fall due at the same time.