ITALY IMPATRIATES TAX REGIME
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ITALY, the country of the SWEET LIFE, la DOLCE VITA, has lost significant attractiveness internationally, both due to its Debt, Macro-Economic and Banking situation, and to the presence of an asphyxiating state and public bureaucracy for businesses and citizens, with an increasingly extensive, invasive and hungry tax model, based on the GLOBAL TAXATION and compulsory DECLARATION scheme
This favourable tax regime as impatriates workers in Italy, on income produced in Italy by Italian, European and NON-EU individuals, for those who transfer their tax residence to Italy, is very attractive with unlimited work income.
It is an efficient solution that allows one to savour a lifestyle, from the Alps to Sicily, made of Italian Style and Dolce Vita with a tax burden that ORDINARY ITALIAN tax residents can only observe with envy.
There is much talk of the impatriates scheme as an attractive tax regime for workers who decide to return to or move to live in Italy for the first time because of the reduced taxation involved.
It is a scheme that several Italian citizens living abroad who have decided to return home are joining, following job offers in Italy, but it is a scheme that several foreigners have also set their eyes on.
Beyond the marketing that hovers around this tax regime as a particularly attractive one, we believe it is appropriate, as professionals, to provide some clarity so that a person can understand all the implications, advantages and disadvantages with respect to his or her personal situation and country of residence and make an informed choice before considering a move.
The Legislative Decree No. 147 of 14/09/2015, the requirements of which have varied over time until the wording in place today in 2023, introduced a special tax regime for impatriates aimed at allowing both the return of brains fleeing Italy and persons wishing to transfer their residence to Italy for the first time.
Alternatively, the requirements set out in Article 16(1) or (2) must be met. Let us see in more detail.
ART 16 PARAGRAPH 1
According to paragraph 1 of Article 16 of Legislative Decree No. 147 of 14/09/2015 , a ‘worker’ may benefit from the special regime if:
- transfers residence to the territory of the Italian State;
- the worker has not been resident in Italy during the two tax periods preceding the aforementioned transfer and undertakes to reside in Italy for at least two years
- the work activity is prevalently performed in the Italian territory.
ART 16 PARAGRAPH 2
This regime, on the basis of Paragraph 2, may be accessed by those who:
- are in possession of a university degree and have been continuously employed, self-employed or engaged in business outside Italy for the last 24 months or more, or
- have worked continuously outside Italy for the last 24 months or more, obtaining a university degree or a postgraduate specialisation.
Although the rule does not expressly provide for it, however, a circular of the Agenzia delle Entrate has clarified that ‘residence abroad for at least two tax periods constitutes the minimum period sufficient to integrate the requirement of non-residence in the territory of the State and to allow access to the facilitating regime.’
The same Circular 33/2020 also clarified that “while under Paragraph 2 of Article 16, citizens of the European Union or of a non-EU State with which a Double Taxation Convention or an agreement on the exchange of information on tax matters is in force, Paragraph 1 does not set any type of limitation in this regard, with the consequence that all workers who meet the characteristics outlined by the rule, regardless of their nationality, can access the regime under consideration”
In order to take advantage of the relief, it is essential to have transferred your tax residence to Italy and, in addition, to undertake to remain living in Italy for at least two years otherwise the relief scheme lapses.
What does transferring residence to Italy mean?
In order to be considered resident in Italy, Italian legislation is very strict on the matter and requires specific elements.
According to Article 43 of the Italian Civil Code:
- domicile is the place where a person has established the main seat of his business and interests
- residence is the place where he has his habitual abode
- abode is the place where one occasionally finds oneself
When you live habitually and voluntarily in a place, you must take up residence anagrafica, i.e. register with the Anagrafe (Register Office) of the Italian municipality where you have your habitual abode.
The concept of anagrafica residence is different from fiscal residence, although the two residences often end up coinciding.
Fiscal residence is the necessary premise for assessing where a person is liable to pay taxes.
Who is tax resident in Italy and liable to pay taxes?
Article 2 of the TUIR – Testo Unico Imposte sui Redditi in Italia – provides that for the purposes of income tax, persons who for the greater part of the tax period are registered in the registers of the resident population or have their domicile or residence in the territory of the State within the meaning of the Civil Code are considered to be resident in Italy.
Included in the category of tax residents in Italy are:
- whoever is registered in the resident population register for more than 183 days in the tax year
- who has a domicile understood as the main seat of business or interests
- who has a residence understood as habitual abode.
Any one of the three conditions is sufficient to be considered tax resident in Italy and liable to pay income tax.
The legislation also provides, following an amendment introduced in 2019, that Italian citizens not registered with the Anagrafe degli Italiani residenti all’estero (AIRE) who returned to Italy starting from the tax period following the one in progress on 31 December 2019 are also eligible for the tax benefits, provided that they had their residence in another State pursuant to a convention against double taxation on income.
“This provision allows taxpayers who are not registered with AIRE (or who are registered with AIRE for a period shorter than that required by Article 16) to prove their period of residence abroad on the basis of double taxation conventions, in order to avoid that taxpayers who, despite having effectively transferred their residence abroad, have not cancelled themselves from the national register of resident population or have done so belatedly, remain excluded from the benefit.”
This legislative addition is, in our opinion, inappropriate, since it conflicts with the general Italian tax residence legislation, where one of the formal requirements for being considered resident abroad is precisely registration with AIRE!
This potentially represents an indirect self-reporting, which could give rise to a dispute with the Italian tax authorities over past periods.
Income eligible for tax relief contributes 30% to the formation of IRPEF taxable income, while the remaining 70% of income is exempt.
This means that if your income is 50,000 you will only pay tax on an income of 15,000.
If the taxpayer transfers residence to one of the regions of Southern Italy such as Abruzzo, Molise, Campania, Apulia, Basilicata, Calabria, Sardinia and Sicily, the relief is greater as the taxable income will only be 10% of that produced while the remaining 90% of income is exempt.
This means that if the income produced is 50,000, taxes will only be paid on an income of 5,000.
It is also possible to obtain the facilitation if you carry out your activity in a municipality other than that of your residence.
The employee must make a written request to his employer to apply for the benefit or, if the employer does not recognize the benefit, he must ask for it in his first tax return.
The self-employed worker must apply for the impatriates tax relief in his tax return and or, alternatively, take advantage of it when applying the withholding tax levied by the principal on the remuneration received.
Let us see in more detail which incomes can be taxed at 30% or 10%:
- income from employment and assimilated work,
- income from self-employment produced in the territory of the State deriving from the exercise of arts and professions, carried out individually or in association (e.g. in the form of a professional association)
- business income produced by individual entrepreneurs who have started a business activity in Italy
Therefore, business incomes of partnerships or corporations are excluded from the relief, and as the Agency explicitly states, ‘the tax-advantaged business income is only that of the individual entrepreneur, since it is produced by the individual through the exercise of his business activity under the business regime’.
Further incomes can also be facilitated (a business activity is then added to the self-employment) produced with working activities undertaken in tax periods subsequent to the re-entry, but in any case within the maximum limit of 5 years: “The categories of facilitated income can, therefore, derive from working activities exercised at the same time (temporal contextuality) at the moment of the impatriation or from additional activities undertaken in moments subsequent to the impatriation, provided that the link is satisfied”.
Other income categories not listed are excluded.
For example, income produced abroad is excluded from the facilitating regime,
while employment income and self-employment income are considered as produced in Italy if they are provided in the territory of the State, even if remunerated by a foreign entity.
The special regime is applicable for 5 years starting from the tax period or the year in which the worker transfers residence to Italy and for the following four tax periods.
There is the possibility to extend the benefits for another 5 years in the presence of one of the two requirements :
– if you have at least one child who is a minor or dependent or in pre-adoptive foster care
– or, alternatively, if you become the owner of at least one residential property unit in Italy after the transfer or in the previous 12 months.
For these additional five years, income will be taxed at 50 per cent of its amount or at 10 per cent in the case of workers with at least three minor or dependent children.
The maximum period of reduced taxation is therefore 10 years.
Let us see some clarifications by the Inland Revenue Agency that may clarify some doubts:
For minor or dependent children:
“The extension of the temporal benefit in the presence of at least one minor or dependent child, also in pre-adoptive foster care, is recognised both if the minor and/or dependent child (i.e. in pre-adoptive foster care) was born before the transfer to Italy, and afterwards, provided that this prerequisite subsists within the expiry of the first five-year period of benefit of the relief.”
For example, for a person who returned to Italy for tax purposes in 2020
the first child (i.e. the third child) must be born by 31 December 2024, for the purposes of extending the relief for an overall total of ten tax periods.
For the purchase of a property
“For example, for a person who has fiscally returned to Italy in 2020, the purchase of the property must be made by 31 December 2024, for the purposes of the extension of the relief.”
One must consider that:
– the rule is subject to interpretation on the basis of the Revenue Agency’s circulars and answers to interpellations, which must be taken into account to verify all personal cases and requirements of doubtful interpretation
– one cannot make an evidentiary appeal to the Agency (Tax Ruling) to ask in advance whether one meets the requirements to be admitted to the facilitation but it must be the taxpayer who has to ascertain them before taking advantage of the scheme
– the incomes subject to the facilitating regime are those listed in the regulation while the others are subject to the ordinary regimes
– particular attention must be paid if one falls into specific categories of subjects such as workers on secondment abroad, workers on board ships and aircraft in international traffic, officials and agents of the European Union or International Organizations to whom the facilitating regimes may not apply because they do not meet all the requirements provided for by the regulations
– two different facilitative regimes, such as, for example, the facilitated scheme for impatriates and the forfeit scheme, cannot be combined
– Italy applies the worldwide taxation regime or worldwide taxation, i.e. taxation on a worldwide basis of all income wherever it is earned
– Italy applies the declaratory regime
– the carrying out of an activity also entails the payment of compulsory social security contributions due at significant rates on 100% of the income.
These are just some of the overall and general aspects that a person should be aware of and evaluate when deciding to choose and access the facilitative regime, without stopping at the certainly tempting aspects of taxation on income alone at 30% or 10%.
For any clarification, consultancy, legal & tax advice, support to procedures and applications for both Citizenship and special taxation schemes in Italy such as the NEO-RESIDENT regime, do not hesitate to contact us, Maltaway‘s professionals put at your disposal their 35+ years International Practice
The advice of an expert in the field can help you resolve all doubts and understand all the implications, advantages and disadvantages with respect to your home situation and country of residence and make an informed choice before considering a move.