A €50,000 practice pays €22,201 in its second year

A consultant moves to Milan, opens a partita IVA on 2 January, and joins the flat-tax regime at the 5% rate new activities get for their first five years.1 They bill €50,000 that year. Between January and December nothing is asked of them. Their invoices carry no withholding, because comma 67 exempts flat-rate income from it, and there is no instalment to pay either.

Eighteen months after the first invoice, on 30 June of the second year, €17,159 falls due on a single date. By the end of that second calendar year €22,201 has left the account — 44% of a year’s billing, under a regime whose headline number is 5%.13 Once the schedule settles, the same practice pays €11,609 a year.

Nothing here is a penalty or a surcharge. Three provisions about when money is due put two years into one, and the arithmetic follows.

The year that costs nothing

Italy collects income tax from the self-employed in three payments a year: a balance for the year just ended, due 30 June, and two advances on the year currently running, the first of them on the same date and the second in November.2 Pension contributions ride on exactly the same dates — article 18 of the 1997 collection decree sends them “entro gli stessi termini previsti per il versamento delle somme dovute in base alla dichiarazione dei redditi”.4 Flat-tax professionals are inside both rules: comma 64 ends by applying the ordinary income-tax payment provisions to the substitute tax.1

The tax advance is not a fraction. Since 2013 it has been the whole of the previous year’s tax: la misura dell’acconto dell’imposta sul reddito delle persone fisiche è fissata al 100 per cento.3 The pension advance is smaller: two instalments of 40% of the previous year’s contribution, 80% in all, which INPS computes on the previous year’s income at the current year’s rate.126

That is the whole mechanism. An advance measured on the previous tax period cannot be charged to someone who has no previous tax period, so a first year carries no advance, and its balance is not due until the June after it closes. The first year is not cheap; it is unbilled. On €50,000 of billing it generates €12,117 — €10,167 of Gestione separata contributions at 26.07% and €1,950 of substitute tax.57

The June that carries two years

On 30 June of the second year, two things arrive together: the whole balance for year one, and the first instalment of each advance for year two. For the substitute tax that is half the advance, because a flat-tax taxpayer pays it in two equal instalments rather than the general 40% and 60%.112 For the contribution it is the first 40%.12 For tax and contributions together that is €17,159 in June and €5,042 in November.

The year’s total, €22,201, is the first year’s whole bill of €12,117 plus an advance of €10,084 on top: all of the first year’s tax again, and 80% of its contribution. Both are computed on the same year, and the calendar puts both inside the same twelve months.

The two halves of the payment do not even share a section of the form. The substitute tax has three codes of its own, created the year the regime was: 1792 for the balance, 1790 and 1791 for the two instalments of the advance.8 The contributions sit lower down, in the INPS section, under causale contributo PXX.9

The sage bars are the 5% start-up rate, the dark ones the standard 15%. Neither profile pays anything in its first year and both pay close to two settled years’ worth in their second: €22,201 at 5%, 1.9 times a settled year, and €30,001 at 15%, 2.1 times. The peak is not something the start-up rate does.

Nor does the size of the practice change the shape. The regime is proportional — a fixed share of billing is treated as income, one rate applies to it, and the Gestione separata sets no minimum contribution for professionals — so the second year takes 44.40% of a year’s turnover at every €5,000 step from €10,000 to €85,000. Only the amount moves.13

A deduction that arrives late

There is a second, quieter effect in the same sentence of comma 64. Contributions are deducted from the flat-rate income, but the word the statute uses is versati — paid. Not accrued, not due: paid.1

A first year has paid none, so it is taxed on the whole €39,000 of flat-rate income and owes €1,950. A settled year deducts the €10,167 it paid and owes €1,442. On identical billing, the first year’s tax is 35% higher than every later year’s.13

The second year inverts it. Close to two years of contributions are paid inside it — €18,301, a whole year’s balance and 80% of the next — so its taxable income falls to €20,699 and the tax it generates, €1,035, is the lowest of any year in the table. The year with the smallest tax bill is the year with the largest payment.

Year three then pays less than it owes, because the tax side is carrying a credit from the oversized advance of year two; year four pays more than it owes, clearing it. The schedule stops oscillating in year five, when the tax advance already paid equals the year’s tax and the contribution settles into the same rhythm every year: the 20% balance of the year before plus 80% of the year running.

What this is not

It is not extra tax. Over the five start-up periods the practice owes €58,146 and pays €56,113 inside the five calendar years; the difference, €2,033, is the fifth year’s contribution balance, due the following June like every other balance.13 What the schedule does is move money forward and keep it there: from the second June onwards the taxpayer has prepaid a year’s tax and 80% of a year’s contribution, and gets the advance back only on closing, as a credit against a final return.

It is also not unavoidable in full. An advance may be computed on the year it belongs to rather than on the year before — the metodo previsionale, allowed at the taxpayer’s own risk of penalties if the estimate falls short. On flat billing it helps very little, because the year being estimated looks like the year before it: the second year pays €21,286 instead of €22,201, which is still 1.8 times a settled year.

And it does not depend on reading the contribution deduction as cash-basis. Deducting contributions as they accrue instead — which is not what comma 64 says — puts the second year at €21,184. The near-doubling survives every version of the arithmetic tried here, because it comes from the payment calendar rather than from the tax base.

What this does not settle

The figures describe one profile: a professional insured with the Gestione separata on the 78% coefficient, with no other pension cover and no other income, billing the same amount every year, opening on 1 January. A practice that grows, shrinks, opens in October or sits in a different coefficient group will produce different numbers from the same rules.

An earlier version of this piece split the tax advance 40/60 and charged the contribution advance at 100%; it put the second year at €24,235. The equal halves come from the rule for taxpayers inside the perimeter of the sector studies, which the Agenzia delle Entrate reads as covering the flat-tax regime and its substitute tax.1011 The 80% comes from the 1996 law that sets the contribution advance. The 1996 text still names 31 May; the 1997 collection decree is what moves it onto the tax dates. Two other options move money inside a year rather than between years: paying by 30 July with 0.40% added, and spreading the June payment in monthly instalments that have to finish by 16 December.26

The dates modelled are the statutory ones. Italy has postponed them by decree in several recent years, usually by weeks and usually announced late, so a given year’s real calendar can differ from the one in the code. What does not shift is which tax periods land in which calendar year, and that is what produces the second-year figure.

Finally, this is a description of what the rules produce, not a recommendation about what to do with the result. The regime’s own arithmetic is public and so is the schedule; what a particular practice should hold back, and when, is a conversation with an accountant who knows its books.