Italy's Crypto Policy Analysis: A Duet of Taxation and Regulatory Innovation

1. Introduction 

Italy’s stance on crypto assets is generally open yet cautious. In 2021, Italy opened the doors to cryptocurrency trading, and in the following years, the country’s crypto market experienced significant growth. According to 2024 data, over 3.6 million Italians now own crypto assets, and the total market value of Italy’s crypto assets has increased by 110% over the past year. At the same time, the Italian government is highly attentive to the risks within the crypto industry, continuously enhancing regulations to manage associated risks. The Central Bank of Italy is expected to soon implement the Markets in Crypto-Assets Regulation (MiCA) to ensure effective oversight of the crypto market and protect cryptocurrency holders. In addition, the Italian government has established a relatively favorable tax policy to encourage and promote the growth of the crypto-related financial sector. 

2. Overview of Italy's Basic Taxation System 

2.1 Italy’s Tax System   

Italy’s tax system is primarily divided into two main categories: direct taxes and indirect taxes. Direct taxes include individual income tax, corporate income tax, and inheritance tax, while indirect taxes encompass value-added tax (VAT), real estate tax, registration tax, customs duties, and others. According to Article 119 of the Italian Constitution, the country's regions, provinces, and municipalities (towns) can enact regional tax laws within the scope of the Constitution and the law.   

The tax year in Italy is the same as the calendar year. Income tax and VAT returns for the previous year must be submitted by September 30 of the current year. Failure to file may result in penalties ranging from €250 to €1,000 (if no taxes are due) or 120% to 240% of the tax owed, plus interest if taxes are due. If filed within the extended deadline of the following year, the penalties range from €200 to €500 (if no taxes are due) or 60% to 120% of the tax owed, plus interest (if taxes are due).   

Generally, during each tax period, personal and corporate income taxes are paid in three installments. For example, individual income tax is paid through self-assessment, with 40% of the estimated tax for the previous year due by June 30 of the current year, and 60% due by November 30. The balance between actual tax owed and estimated taxes paid must be settled by June 30 of the following year. VAT for monthly filers must be paid by the 16th of the following month, and quarterly filers must pay by the 16th of the second month after each quarter. The tax authorities have the right to audit a taxpayer’s return within five years of the filing year. 

2.2 Main Tax Categories 

2.2.1 Individual Income Tax 

According to Italy’s Testo Unico Delle Imposte sui Redditi (TUIR), Italian tax residents must pay individual income tax on their worldwide income, while non-residents only need to pay tax on income derived from within Italy. Taxable income includes employment income, self-employment income, business income, real estate gains, investment income, and capital gains. Exempt income includes survivor pensions, accidental income, qualifying long-term investment returns, and gains from the sale of real estate held for over five years.   

A person (regardless of citizenship) is considered a tax resident if they meet any of the following criteria during the majority of the tax year: registration in the civil registry of the resident population, having a domicile or residence in Italy according to Article 43 of the Italian Civil Code. Domicile refers to the habitual residence of a person, while residence is defined as the main center of personal interests.   

When calculating individual income tax, there are no direct deductions except for alimony, medical expenses related to disabilities, social security contributions, medical insurance premiums, and charitable donations. Currently, there is no personal tax-free allowance, but taxpayers may receive tax relief depending on their family status.   

Italy’s individual income tax consists of national, regional, and municipal levels and is applied progressively. Since the 2022 tax year, Italy’s national progressive tax rates are as follows: 23% on annual income up to €15,000; 25% on income between €15,001 and €28,000; 35% on income between €28,001 and €55,000; and 43% on income above €55,000. In addition to national taxes, regional surcharges of 1.23% to 3.33% and a maximum municipal surcharge of 0.9% may also be levied. Additionally, for financial professionals, the variable portion of their compensation (e.g., bonuses, stock options) exceeding their fixed annual salary is subject to an additional 10% tax. 

2.2.2 Corporate Income Tax  

Corporate income tax in Italy applies to companies such as joint-stock companies, limited partnerships (excluding resident partnerships, whose income is taxed at the partner level), limited liability companies, cooperatives (including non-profit cooperatives), commercial entities, and other business forms. Notably, non-resident partnerships are only subject to corporate income tax.   

A company is considered a resident if, for more than half of the financial year, its registered office (as stated in its articles of incorporation), actual management, or main business is located in Italy.   

Resident companies must pay corporate income tax on their worldwide income but can elect to exempt income earned through foreign permanent establishments. Since 2017, the corporate income tax rate was reduced from 27.5% to 24%, and after the implementation of the 2019 budget law, this rate was further reduced to 15%. Additionally, Italian financial intermediaries (excluding asset management companies and brokers) and the Bank of Italy must pay an additional 3.5% income tax surcharge. 

2.2.3 Value-Added Tax 

According to Italy's VAT law, entrepreneurs, artists, and professionals are subject to VAT. Goods imported from outside the EU are also subject to VAT. Italy imposes VAT on all transactions of goods and services conducted within its borders, as well as on imported goods. VAT rates include a standard rate of 22%, and reduced rates of 4%, 5%, and 10%, depending on the goods or services.   

It is worth noting that Italy provides tax exemptions for certain financial services. According to VAT law, credit transactions by banks and credit institutions, management services provided by banks to investment funds, foreign exchange transactions, insurance services, and transactions involving stocks and bonds are VAT-exempt. However, input VAT related to these activities cannot be deducted. 

2.2.4 Financial Transaction Tax 

Italy’s financial transaction tax applies to the transfer of ownership of shares and participatory financial instruments issued by companies registered in Italy, with a tax rate of 0.2%. Additionally, derivative instruments whose underlying securities are shares or participatory instruments of Italian companies, or whose value is closely linked to such securities, are also subject to financial transaction tax. Unless specific exemptions apply, this tax is imposed at a fixed rate based on the nature and nominal value of the derivative. For over-the-counter transactions, the tax is capped at €200, while transactions carried out on regulated markets or multilateral trading facilities benefit from a reduced rate, typically one-fifth of the normal rate. Both parties to the transaction are liable for the tax, which is usually collected by financial intermediaries. This tax policy serves as a useful reference for managing crypto taxation, laying a solid foundation for improving Italy’s crypto asset tax system. 

2.2.5 Digital Transaction Tax  

This tax applies to digital advertising targeted at users of a digital interface, the provision of a multilateral digital interface that allows users to interact with other users (facilitating the sale of goods or services), and the transmission of collected user data and activity-generated data. Total revenue from these activities (excluding VAT and other indirect taxes) is subject to a 3% tax. Revenue derived from services provided to entities controlled by the supplier, entities controlling the supplier, or entities under common control with the supplier is exempt from the digital services tax. This law helps create a more equitable and orderly market environment, providing strong legal support for the future development of Italy’s financial and crypto industries and driving high-quality growth. 

2.2.6 Financial Asset Tax   

Since 2020, Italy has imposed a foreign financial asset tax on residents (including partnerships and non-commercial institutions). This tax targets financial products, bank accounts, postal accounts, and savings accounts held abroad, with a tax rate of 0.2% of their value. If these financial assets are managed by Italian intermediaries, an additional stamp duty must be paid. According to Law No. 201 of 2011, Italian residents must pay taxes on their foreign financial assets, with tax calculated based on market value, or nominal value if the market value is unavailable. For bank accounts, postal accounts, and savings accounts, a fixed tax of €34.20 is levied per account. The financial asset tax provides valuable guidance for the taxation of cryptocurrencies and has had a significant impact on improving the crypto asset tax policy framework. 

3. Italy's Cryptocurrency Tax Policy 

3.1 Overview of Italy's Cryptocurrency Tax Policy 

In its 2023 budget announcement, the Italian tax authorities introduced a new tax regulation specifically targeting cryptocurrencies. This regulation defines crypto assets as “digital representations of value or rights, transferred and stored electronically using distributed ledger technology or similar technology,” a definition that encompasses almost all types of digital assets, including stablecoins, NFTs, governance tokens, utility tokens, and more. Notably, the 2023 Italian budget framework also introduced significant changes, including new rules for capital gains tax and the first-ever alternative value tax on cryptocurrency profits. These changes mark a new era in Italy’s cryptocurrency tax management. These two taxes are the primary taxes applicable to crypto assets, and cryptocurrencies are exempt from VAT in Italy. 

3.2 Cryptocurrency Tax System 

3.2.1 Income Tax 

The following are considered taxable events under Italian tax law: selling crypto assets in exchange for fiat currency, converting between cryptocurrencies, using cryptocurrency for payment, receiving cryptocurrency as payment for goods or services, gifting cryptocurrency, receiving cryptocurrency through mining, receiving wages in cryptocurrency from an employer, earnings from staking, and receiving airdropped cryptocurrencies. Additionally, profits from the sale of investment cryptocurrencies are also taxable. 

Capital gains from cryptocurrencies are classified as miscellaneous income. Italy subjects capital gains from any digital assets based on blockchain technology to tax if the profits exceed the €2,000 threshold. The capital gains tax rate is set at a flat 26%, and the taxable capital gains are calculated as the difference between the sale price of the cryptocurrency and its purchase price. Furthermore, if capital losses exceed €2,000, they can be fully deducted from capital gains in subsequent accounting periods, but not beyond the fourth period. However, taxpayers must clearly record the cost or purchase value, or else the cost will be treated as zero. 

Whether profits are obtained through trading, mining, or staking, if they exceed the set threshold, they will be taxed similarly. Notably, the tax obligation arises only when the crypto assets are actually disposed of, such as through sale or exchange; unrealized capital gains are not subject to immediate taxation. According to current regulations, exchanging one cryptocurrency for another does not constitute a taxable event. As for cryptocurrencies obtained through mining or staking, Italy has not yet provided a specific tax framework, so these may be classified as "miscellaneous income" alongside other cryptocurrencies. 

3.2.2 Alternative Value Tax 

To encourage greater transparency in reporting crypto assets, the Italian government introduced an innovative alternative value tax policy in 2023. This policy provides a more favorable tax rate to incentivize crypto asset investors to voluntarily declare their crypto holdings. 

Under this policy, crypto investors benefit from a simplified tax process. They no longer need to keep detailed records and declare each cryptocurrency transaction throughout the year. Instead, they can simply report the current valuation of their portfolio at the beginning of each year (on January 1). This change significantly reduces the tax burden on crypto investors, allowing them to manage their tax affairs more easily. 

The standard tax rate under this policy is set at 14%. This rate applies specifically to the capital gains realized within the portfolio during the year, rather than the total value of the portfolio. This means that investors only need to pay taxes on the gains made within a year, not on the entire portfolio value. Compared to previous policies, the alternative value tax offers a more favorable rate, creating a more flexible and beneficial tax environment for crypto investors. 

Moreover, the implementation of the alternative value tax has enhanced Italy’s international competitiveness in crypto regulation. By offering a more flexible tax handling method, Italy has attracted more crypto investors, fostering the growth of the country’s cryptocurrency market. Overall, the introduction of this tax represents a significant innovation in Italy’s cryptocurrency tax policy, providing tangible benefits to investors. 

4. Italy’s Dynamic Crypto Regulatory Framework 

The Bank of Italy classifies cryptocurrencies into two categories: stablecoins and "unsupported" cryptocurrencies. While stablecoins like USDT are considered supported by reserve assets, cryptocurrencies like Bitcoin and Ethereum are classified as unsupported. Given the unique nature of the crypto industry, holders of crypto assets face risks of financial fraud or unwise investment decisions, in addition to the high price volatility and lack of intrinsic value of cryptocurrencies, making effective regulation of crypto assets particularly important. 

Italy has taken a cautious approach to regulating crypto assets and has adopted several measures to strengthen macroprudential regulation. These include expanding the responsibilities of the already established Macroprudential Policy Committee to include crypto assets, thereby improving coordination and information exchange between various crypto regulatory bodies. To better regulate the cryptocurrency market, Italy plans for the Bank of Italy and the market regulator Consob to work together under the European regulatory framework. This cooperation aims to impose fines ranging from €5 million (approximately $5.4 million) to €50 million (approximately $54 million) for illegal activities such as insider trading, unlawful disclosure of insider information, and market manipulation, thereby maintaining financial stability and ensuring orderly market conduct. 

In 2022, the Gazzetta Ufficiale della Repubblica Italiana (Official Gazette of the Italian Republic) also published new anti-money laundering (AML) rules for cryptocurrency companies. These AML regulations outline the registration and reporting requirements for virtual asset service providers (VASPs), which align with the EU's Fifth Anti-Money Laundering Directive and the guidelines of the Financial Action Task Force (FATF) on crypto companies. Under these new regulations, any company wishing to provide digital asset-related services in Italy must register in a special registry. It is noteworthy that Italy’s AML rules contain a specific requirement that does not fully align with the EU's VASP passporting license system. 

Specifically, to qualify for registration in Italy’s VASP registry, all entities must comply with the relevant provisions of Article 17 of Italy’s 2008 Directive on Credit Contracts. According to this article, VASPs from other EU countries must establish a permanent establishment or a stable organization (stabile organizzazione) in Italy, typically interpreted by Italian lawyers as requiring the establishment of a branch or subsidiary. In other words, VASPs from other EU member states wishing to operate with Italian clients must establish a branch or subsidiary in Italy, and VASPs from third countries must establish an Italian subsidiary. In addition to the registration requirement, these new regulations require VASPs to report all AML-compliant information to the institution responsible for overseeing the VASP registry (Organismo Agenti e Mediatori) at the end of each quarter. The VASP registry will be formally established within 90 days of the publication of the prescribed documents. Through this dual framework of registration and reporting, Italy not only enhances its regulation of the cryptocurrency market but also provides strong support for the long-term stability and development of the financial market. 

5. Conclusion and Outlook 

At the taxation level, Italy, with a deep understanding of its existing tax framework, has implemented a capital gains tax policy on the disposal of crypto assets and introduced an alternative value tax mechanism. These innovative measures are aimed at reasonably reducing the tax burden on cryptocurrency traders. This series of initiatives not only highlights Italy's continuous efforts in building a comprehensive and fair cryptocurrency tax system but also reflects its strong commitment to fostering a healthy and sustainable growth of the crypto industry. 

On the regulatory front, Italy has reinforced its oversight through the imposition of fines and the introduction of the latest MiCA regulations. These measures aim to ensure that Italy’s crypto industry can adapt to the ever-changing and complex environment, while creating a safe and transparent market environment for crypto asset investors. In the future, Italy is likely to actively incorporate advanced international experiences in crypto regulation and collaborate with other countries globally to promote the development and progress of the regulatory framework for cryptocurrencies. 

We believe that Italy will continue to deepen and improve its legal framework for crypto asset taxation, a necessary step in the development of the country's crypto industry. At the same time, Italy will keep enhancing its regulatory system, strengthening its ability to regulate the sector and maintain financial and market stability. Italy is moving towards building an environment conducive to the healthy growth of cryptocurrencies, which will undoubtedly inject new vitality into the country’s economic prosperity and sustained development.