Set Up Withholding Tax

Withholding tax (ritenuta d’acconto in Italian) is a tax advance that your client deducts from your invoice payment and pays directly to the Italian Tax Authority on your behalf. This guide explains what it is, when to use it, and how to configure it correctly in your electronic invoices.

What is Withholding Tax?

When you issue an invoice with withholding tax, the client doesn’t pay you the full amount. They retain a percentage (the withholding) and pay it to the State as an advance on your income taxes.

Practical example

Invoice of 1,000 euros with 20% withholding tax:

• Taxable amount: 1,000 euros
• Withholding (20%): 200 euros
• You receive: 800 euros
• Client pays to Tax Authority: 200 euros

Important: Withholding tax is not an additional cost for you. It’s an advance on taxes you would pay anyway. The client acts as a “withholding agent” paying them on your behalf.

Who Must Apply Withholding Tax?

Withholding tax mainly applies to:

• Professionals (lawyers, accountants, consultants, architects, etc.)
• Self-employed workers with self-employment income
• Agents and sales representatives (with different rates)
• Coordinated and continuous collaborators

Who does NOT apply withholding

• Flat-rate regime (RF19): Your invoices are already exempt, you don’t apply withholding
• Businesses and companies: Generally not applicable (except specific cases)
• Invoices to private individuals: Only when the client is a withholding agent

How to Add Withholding Tax in FatturaSmart

Step 1: Open the Invoice

Create a new invoice or open a draft invoice you’re working on.

Step 2: Access the Add Menu

1. In the upper part of the invoice screen, locate the section with quick action buttons
2. Click the Add button
3. A menu with various options will open

Step 3: Select Withholding Tax

From the menu that opens, click on Withholding Tax.

A side panel will open with the fields to fill in.

Step 4: Fill in the Withholding Data

The panel presents three fields:

How to select the Payment reason

1. Click on the Payment reason field
2. A window will open with the list of available reasons
3. Select the one appropriate to your situation

The most common reasons are:

Tip: If you’re a freelance professional (lawyer, accountant, consultant, etc.), in most cases you’ll use reason A.

How to set the withholding percentage

Enter the percentage in the % Withholding field:

• 20%: Standard rate for most professionals
• 23%: For compensation to company directors (in some cases)
• Other rates: According to specific regulations for your sector

How to set the taxable percentage

The % Taxable field indicates on which portion of the total to calculate withholding:

• 100%: Withholding is calculated on the entire taxable amount (most common case)
• 50%: Withholding is calculated on half of the taxable amount (e.g., agents with certain requirements)
• Other percentages: According to specific regulations

Example with 50% taxable: On a 1,000 euro invoice with 20% withholding and 50% taxable, the withholding will be: 1,000 x 50% x 20% = 100 euros

Step 5: Save the Withholding

After filling in all fields:

1. Click the Set Withholding Tax button
2. The panel will close
3. The withholding is now applied to the invoice

What Happens After

When you add withholding tax:

1. Automatic application to lines: The system automatically enables “Apply withholdings / contributions” on all invoice lines (except any advances)

2. Display in summary: In the summary on the right, you’ll see the withholding as an item that reduces the amount to collect

3. Withholding card: In the central section of the invoice, a card will appear showing:

   • The withholding percentage set
   • The taxable percentage
   • A button to edit or delete the withholding

Edit or Delete the Withholding

To edit the withholding

1. Locate the withholding card in the invoice
2. Click the Edit icon (pencil)
3. Modify the values in the panel that opens
4. Click Set Withholding Tax to save

To delete the withholding

1. Locate the withholding card in the invoice
2. Click the Delete icon (trash)
3. The withholding will be removed from the invoice

Apply Withholding to Only Some Lines

By default, when you add a withholding, all invoice lines are subject to it. If you want to exclude some lines:

1. Click on the line to exclude to expand it
2. Look for the checkbox Apply withholdings / contributions
3. Uncheck it to exclude that line from the withholding calculation

When to exclude a line? Typically, you exclude flat-rate expense reimbursements or advances on behalf of the client that don’t constitute professional compensation.

Summary of Totals with Withholding

Here’s how the calculation appears in the invoice summary:

The client will pay you 1,020 euros and will pay 200 euros in withholding to the Tax Authority.

Other Withholding (Special Types)

In addition to standard withholding tax, FatturaSmart allows you to manage other types of withholdings for special cases:

To add a special withholding, click on Add and then Other Withholding.

Frequently Asked Questions

I’m on flat-rate regime, do I need to apply withholding?

No. If you’re on the flat-rate regime (RF19), your invoices are exempt from withholding tax. The system won’t show you the option if your profile is configured as flat-rate.

Can I modify the withholding after sending the invoice?

No. Once the invoice has been sent to the Exchange System (SDI), it cannot be modified. If you made a mistake, you’ll need to issue a credit note and create a new correct invoice.

My client doesn’t want to apply withholding. Can I issue it without?

If the law requires withholding for the type of service you provide, you must apply it. It’s not a discretionary choice. However, check with your accountant if your specific case falls under those subject to withholding.

How do I recover the withholding paid?

The withholding that the client pays on your behalf is considered an advance on your taxes. When you file your tax return, the withholdings suffered are subtracted from the tax due. If the withholdings exceed the tax, you’re entitled to a refund or tax credit.

Which reason do I choose if I’m a consultant?

In most cases, consultants and freelance professionals use reason A (self-employment services falling within the exercise of arts or profession).

Is withholding applied to VAT as well?

No. Withholding is calculated only on the taxable amount (the fee), not on VAT. In the previous example, the 20% withholding is calculated on the 1,000 euro fee, not on the 1,220 euro total.

What does ”% Taxable” at 50% mean?

It means withholding is calculated on only half of the compensation. It’s a benefit provided for certain categories (e.g., sales agents with certain requirements, documented expenses). If you’re not sure, consult your accountant.

Checklist Before Sending

Before sending an invoice with withholding, verify:

• Reason correct for the type of service
• Withholding rate compliant with regulations (typically 20%)
• % Taxable correct (100% in most cases)
• Invoice lines: check which should be subject to withholding
• Amount to collect: matches what you expect to receive

Need Help?

If you have questions about withholding tax or the correct configuration for your business:

• WhatsApp: Click the icon in the bottom right
• Email: supporto@fatturasmart.com

Tip: For specific tax questions about your situation, always consult your accountant.

Related guides:

• Create an Invoice as Flat-Rate →
• Set Up Professional Fund →
• Issue a Credit Note →