Family business
There is still one owner. Up to 49% of the income can be shared. Family members have no liability towards third parties.
VAT numbers · Ways of working together
Family business (impresa familiare)
The impresa familiare (family business) is how the owner of a sole proprietorship formally recognises the work of family members who help in the business, sharing part of the income among them. It is not a company: there is still only one owner.
01 · The structure
A sole proprietorship with family members working in it
The family business is governed by the Italian Civil Code and remains, in every respect, a sole proprietorship: there is one owner, the partita IVA (Italian VAT number) is theirs, and liability towards third parties is theirs.
The law grants certain rights to family members who work in the business on an ongoing basis: to maintenance, to a share of the profits and of the assets bought with them, and to a say in extraordinary decisions about how the business is run.
For tax purposes, this means you can allocate a share of the business income to the family members who work in it, up to an overall limit of 49%.
It is not a company. Family members working in the business are not liable towards third parties, do not appear as owners and have no power to represent the business. Liability rests entirely with the owner.
02 · Eligible family members
Who can work in a family business
The circle is defined by law and cannot be widened by agreement between the parties.
- Your spouse or civil partner.
- Relatives up to the third degree: children, parents, siblings, grandchildren, nephews and nieces, uncles and aunts.
- In-laws up to the second degree: parents-in-law, sons- and daughters-in-law, brothers- and sisters-in-law.
- A de facto cohabiting partner, on the terms and with the protections the law provides.
Being family is not enough on its own: there must be real, ongoing and predominant work in the business. A relative who lends a hand now and then cannot be included.
03 · How it is formalised
The deed and its effects
For the income split to be recognised for tax purposes, the family business must be set out in a public deed or an authenticated private agreement, drawn up before the tax year it refers to.
Notarial deed
It names the family members taking part, how they are related to the owner and their shares of the profits.
Made in advance
The deed must predate the start of the tax year: you cannot set it up in December to split the income of the year that is ending.
INPS registration
Each family member must be registered with the INPS (Italian social security institute) scheme that matches the business activity.
Annual return
In the tax return the owner states each family member's actual share and the work each of them carried out.
The requirement to have the deed in place beforehand is what most often costs people the benefit. If you think about it in March, when you do your return, the previous year is already lost and you can only set up the current one.
04 · Why people do it
Sharing the income of a family business
Business income can be allocated to family members up to an overall maximum of 49%, in proportion to the work they actually carry out on an ongoing and predominant basis.
The advantage comes from progressive tax rates: two average incomes pay less tax in total than one high income concentrated on a single person. With the same business income, the overall tax burden on the household goes down.
| Aspect | Rule |
|---|---|
| Overall maximum share for family members | 49% of the business income |
| How it is split | In proportion to the work done, not to what the parties want |
| When income is allocated | On a look-through basis, whether or not it is actually paid out |
| Losses | Not allocated to family members: they stay with the owner |
| Gains on the sale of the business | Stay with the owner |
| Flat-rate scheme (regime forfettario) | No split is allowed: all the income stays with the owner |
The limit people often overlook
Under the flat-rate scheme, the family business brings no tax advantage.
- The flat-rate income is allocated entirely to the owner
- Family members still have to pay INPS contributions
- So the advantage is reduced to the civil-law recognition of the family member's rights
- It is a factor to weigh when choosing your tax scheme
05 · The social security cost
Contributions for family members
Each family member must be registered with the artisans or traders scheme, with the same mechanism as the owner: a fixed amount on the minimum income threshold and a percentage on anything above it.
- The fixed amount is due for each family member, even if the income allocated to them is small or nil.
- This is what most often tips the balance: the tax saving has to be set against the extra contribution cost.
- There are reductions for family members within certain age bands.
- The family member builds up their own pension record, which is a real benefit and not just a cost.
- The owner is responsible for paying the family members' contributions.
So the calculation has two sides: the tax saved on one, the extra contributions on the other. With modest incomes the balance can be negative; with medium to high incomes it becomes favourable.
06 · Other routes
Family business, partnership or employment
When a family member works in the business on a stable basis, the family business is not the only possible solution.
Partnership
All partners become owners, with unlimited liability in an SNC. Income is shared freely according to the partnership shares.
SRL
Limited liability and a sturdier structure, with higher running costs and more obligations.
Employment
A family member who is hired has full protection, but labour costs are higher and deductibility follows specific rules between family members.
Frequently asked
The questions that keep coming up
Can I set it up at the end of the year for income already earned?
No. The deed must predate the start of the tax year the income split refers to.
A deed signed today takes effect for tax purposes from the following year. This is the constraint to know first, because there is no way to fix it afterwards.
Can the family member also work somewhere else?
Work in the family business must be ongoing and predominant. Another full-time job makes it hard to show that requirement is met.
Predominance is assessed on the facts, looking at the time given and the actual contribution, not at what the parties declare.
Do I need a notary, or is a private agreement enough?
You need a public deed or an authenticated private agreement: in both cases a notary has to be involved.
A simple private agreement is not enough for the income split to be recognised for tax purposes.
What happens if the family arrangement ends?
The end of the working arrangement must be formalised, with effects on the income split and on the contribution record.
The family member keeps the rights built up until then, including a share of the assets bought with the profits, which may lead to a payout that has to be settled.
Let's talk
It only pays if the family member's work is real and ongoing
The tax advantage exists and can be measured, but it rests on a substantive condition that has to stand up to an inspection.