Spend €6,471 running a €25,000 business and the flat tax stops paying

Italy’s flat-rate regime taxes a share of what you invoice, not a share of what you keep. The share is fixed by your activity’s group — 78% of revenue for professional work, 40% for food and drink retail — and the rest is the only allowance for costs the regime makes.1 Buy nothing to earn the money and that allowance is a gift. Buy a great deal, and the tax bill does not notice.

Every net-income figure on this blog has been computed for the first case: no business costs at all. It was stated each time, in the assumptions, and never measured. This is the measurement — the level of real costs at which Italy’s flat tax stops being the cheaper of the two regimes.

Where the line sits

Under ordinary rules, costs come off before anything else: the tax and the contributions both follow profit.23 Under the flat-rate regime the taxable base is revenue multiplied by the coefficient whatever you spend, so a euro of real cost reduces the bank balance and nothing else. The two regimes therefore converge as costs rise, cross, and swap places.

For a professional on the 78% coefficient billing €25,000 a year, the crossing point is €6,471 of annual costs — 25.9% of turnover. Below that the flat rate leaves more; above it the ordinary regime does. At €85,000, the last euro the regime allows, the line is €31,603, or 37.2%.5

The less you bill, the less cost it takes

The line falls as revenue falls. A professional billing €15,000 reaches it at €2,692 of annual costs, 17.9% of turnover; at €50,000 it takes €15,916, and at the ceiling €31,603. Someone at the small end of self-employment has the least room to spend before the arithmetic turns against them.

That is progressive income tax doing what it is designed to do. At €25,000 of billing and no costs, the flat-rate regime is worth €3,014 a year against ordinary IRPEF; at €85,000 it is worth €18,145, a figure priced in an earlier piece.6 The advantage the flat rate has to defend is small at the bottom and large at the top, and a fixed share of turnover in costs eats a small advantage first.

Not the same line for every activity

The coefficient is the regime’s presumption about your costs, so the group presumed to spend least reaches the line soonest. Construction and real estate sit at 86%, meaning the regime assumes 14 cents of every euro invoiced goes on running the business. Food, drink and retail sit at 40%, an assumed 60 cents.1

A builder invoicing €50,000 who spends more than €12,725 on materials, plant and subcontractors is past the point where the flat rate is the cheaper regime. A shop with the same turnover has to spend €31,072 to get there. Neither number says what those businesses actually spend — that is the reader’s own figure to supply.

The first five years move it

A new activity that qualifies pays 5% instead of 15% for its first five tax years, and that pushes the line a long way out. For the same professional billing €25,000 it moves from 25.9% of turnover to 38.3%; at €85,000, from 37.2% to 47.9%. The years when a business is most likely to be buying equipment are the years when the flat rate absorbs it best, which is the one part of this that works in the taxpayer’s favour.

What this does not settle

The ordinary column deducts every euro of cost in full. Real deductibility depends on what the cost is, and wherever it is restricted the true line sits above the one drawn here — in the flat rate’s favour.

Neither column contains VAT. The flat-rate regime does not charge it on invoices and does not reclaim it on purchases,1 so a business buying heavily taxed inputs pays more for the same shopping list than this comparison shows, while one selling to consumers prices more competitively than it shows. Both effects are real and neither is in these numbers.

Contributions are Gestione Separata on both sides, which fits a professional without a pension fund of their own.3 A lawyer or an engineer paying into a cassa, and a trader or artisan paying the fixed minimum contributions of their own scheme, have a different profile — so the retail and construction rows of the table are the arithmetic of the tax, not a complete costing of those trades.

The regional and municipal surcharges are carried at their 2.23% national average.4 Running the same computation at the ends of the statutory range, 0.70% and 3.33%, moves the €25,000 line to 24.0% and 27.2% of turnover — €6,009 and €6,788. Where you live changes the answer by a few hundred euros, not by its shape.

And the crossing point is arithmetic, not a recommendation. Choosing a regime also means weighing bookkeeping, VAT obligations, invoicing to clients who care about deducting it, and the €85,000 ceiling itself. What the figures above give you is the one input those decisions keep missing: the level of spending at which the flat rate has already stopped paying.