Income Tax Italy: what is it?

Income Tax Italy

Income Tax Italy: Navigating the Impatriate Regime for Expats

Income Tax Italy represents a significant aspect for expatriates considering a move to Italy. The Italian tax system, particularly the Impatriate Regime, offers unique advantages for skilled professionals relocating to Italy. This regime is a part of the broader Italian Tax Ruling, designed to attract global talent by offering a reduced tax rate on their income. For those contemplating a move to Italy, comprehending this tax system is crucial to maximize financial benefits.

The Impatriate Regime allows individuals moving to Italy to enjoy a reduced taxable income rate. Specifically, only 30% of the income generated in Italy is subject to taxation, or just 10% if the individual opts to reside in one of the Southern regions. This tax reduction applies for the first five tax periods following relocation, with a potential extension for another five years, subject to certain conditions.

Eligibility for the Impatriate Regime is based on several criteria. The individual must not have been a fiscal resident of Italy in the two tax periods preceding their move. They must commit to being a fiscal resident in Italy for at least two years, and their work must be primarily carried out within Italy. This regime encompasses various income types, including employment, self-employment, and business income, each governed by specific rules.

Legislative Framework and Tax Benefits

The “Decreto Internazionalizzazione” of 2015 and the “Decreto Crescita” of 2019 form the legislative foundation of the Impatriate Regime. These laws aim to make Italy a competitive destination for international professionals by offering a reduced tax rate on their income. The intent is to position Italy as an attractive location for global talent.

The tax benefits of the Impatriate Regime extend beyond the initial five-year period. For those meeting additional criteria, such as having dependent minor children or purchasing residential property in Italy, the benefits can be extended. During this extension, only 50% of the total income is considered for taxation, with further reductions for those with three or more dependent minor children.

Extension and Eligibility Criteria

The extension of tax benefits under the Impatriate Regime is a key aspect. Italian Revenue Agency specifies conditions under which the extension can be granted, including the presence of dependent minor children or the acquisition of residential property in Italy. The timing of these life events in relation to the move can also influence eligibility for the extension.

Furthermore, the 2021 “Legge di Bilancio” introduced provisions for individuals who moved to Italy before 2020 and were registered in the Registry of Italians Residing Abroad, or were EU Member State citizens, to opt for an extension of the special regime. This extension requires a payment of 10% or 5% of the work income produced in Italy in the year preceding the option exercise, with the percentage dependent on the presence of dependent children and property ownership.

Incompatibility with Other Tax Regimes

When moving to Italy, it’s essential to consider the compatibility of the Impatriate Regime with other tax systems, such as the Regime Forfettario. The Italian Revenue Agency has clarified that opting for the Regime Forfettario upon moving to Italy excludes the possibility of later choosing the Impatriate Regime. This is due to the fundamental differences in how taxable income is determined under each regime.

The Impatriate Regime applies to income that contributes to the taxpayer’s overall income according to the ordinary provisions of Italian Tax Law. In contrast, the Regime Forfettario involves a flat-rate determination of taxable income, with different profitability coefficients based on the type of work and a substitute tax rate of 5% or 15%.

Conclusion

Moving to Italy offers a unique opportunity to benefit from a tax system that is both welcoming and advantageous for new residents. The Impatriate Regime is a testament to Italy’s commitment to attracting and retaining global talent by offering significant tax incentives. Understanding the eligibility criteria, the legislative framework, and the compatibility with other tax regimes is essential for anyone considering making Italy their new home.

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