Italian Tax Ruling: What are the Requirements that a Worker must have? How long does the Facilitation last?
The Impatriate Regime, an important Italian Tax Ruling, allows workers who decide to come to Italy to tax only a part of the income produced there: 30% or 10% in cases of transfer of residence to one of the Southern regions of the nation. The facilitation is recognized for the first five tax periods, extendable for another five when well-defined conditions are met. The Impatriate Tax Regime, therefore, appears as a particularly favorable regime to be analyzed in every aspect and angle, especially in view of its applicability for the new tax year 2023.
So, let’s try in this content to give an answer to the following questions:
- What are the requirements to access the Impatriate Regime?
- What are the things to know about the innovations introduced by the “Ddl Bilancio 2023”?
In this article, we will discover:
- The reference legislation and the impact of the Ddl Bilancio 2023
- The objective and subjective requirements to access the Impatriate Regime
- The duration of the facilitation and the differences compared to the second five-year period
- The reasons for incompatibility with the flat-rate regime
Italian Tax Ruling: Reference Legislation
The 2015 “Decreto Internazionalizzazione” and the 2019 “Decreto Crescita” are the two main Italian Tax Ruling sources regulating the Impatriate Tax Regime in Italy, which has remained unchanged, in certain aspects, also for the 2023 tax year. The legislators’ rationale has always been to incentivize a worker to come to Italy to work, guaranteeing them, subject to certain conditions set out below, the possibility of taxing only 30% or 10% of the entire income produced in Italy.
With regard to the subjective and objective requirements, Art. 16 of Legislative Decree 147/2015 specifies that reduced taxation of income is recognized provided that:
- The worker was not fiscally resident in Italy in the two tax periods preceding the repatriation,
- The worker undertakes to be fiscally resident in Italy for at least two years following the arrival,
- The work activity is mainly carried out in Italian territory.
In compliance with all three of these requirements, the following remain eligible:
- Income from dependent and assimilated work,
- Income from self-employment,
- Business income.
On this last point, the Revenue Agency has specified in Circular 33/E/2020 that only business income produced by the impatriated subject is eligible, with income produced by commercial partnerships and directly attributed to each partner in proportion to their ownership share not being included.
Impatriate Tax Regime in Italy: Duration of the Facilitation
In compliance with the requirements set out in Article 16 of the “Decreto Internazionalizzazione”, the recognition of the Impatriate Tax Regime for the first 5 tax periods in the percentages of 30% or 10% depending on the region of residence in which the “impatriated” worker decides to settle is also confirmed for 2023. Under paragraph 3 of the same article of law, the tax relief can be expanded and extended for a further 5 years, with only 50% of its entire amount contributing to the formation of taxable income.
In fact, the rule provides that:
“The provisions of this article apply for an additional 5 tax periods to workers with at least one dependent minor child, also in pre-adoptive foster care – as well as – […] in the case where workers become owners of at least one residential property unit in Italy, after the transfer to Italy or within the 12 months preceding the transfer.“
Attention! In the specific case where the beneficiary worker of the special regime has at least three dependent minor children, also in pre-adoptive foster care, for the additional 5 tax periods, the percentage of income subject to taxation goes from 50% to 10% of its amount.
Impatriate Tax Regime: a Focus on the Extension of the Benefit
As reported by Circular 33/E/2020 of the Italian Revenue Agency, the temporary benefit extension in the presence of at least one dependent minor child, also in pre-adoptive foster care, is recognized both in cases where the dependent minor child was born before the transfer to Italy and subsequently – but not later than the expiration of the first five-year period of using the benefit.
Regarding the purchase of a residential property unit in Italy, this can occur either within the twelve months prior to the repatriation or subsequently – but not later than the first five tax periods. The residential property unit can be purchased directly by the worker, the spouse, the cohabiting partner, or the children; or even in situations of co-ownership. On the other hand, the Italian Revenue Agency has excluded the possibility of benefiting from the extension of the benefit if the property is acquired free of charge.
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How to Benefit from the Extension of the Five-Year Period?
Article 1 paragraph 50 of the 2021 “Legge di Bilancio” (taken up and extended in its application by Resolution 27/E/2021 of the Italian Revenue Agency) provided for the possibility for those registered in the Registry of Italians Residing Abroad or citizens of EU Member States who had already transferred their residence before 2020, to opt for the extension of the special regime for another five years by paying an amount equal to 10% or 5% of the income from work produced in Italy in the previous year compared to that of the exercise of the option.
The 10% payment applies to repatriated citizens with at least one dependent minor child or citizens who have purchased a residential property unit in Italy. The percentage is reduced to 5% if the children are at least three and the worker has (anyway) purchased a residential property unit.
Attention: the 2021 budget law refers only to those who repatriated before 2020, i.e. those who as of December 31, 2019, were beneficiaries of the Impatriate Tax Regime. With the new 2023 “Legge di Bilancio”, there has been no express confirmation or modification regarding the aforementioned 10% or 5% payment for workers who returned to Italy after 2019.
We await possible subsequent pronouncements.
Impatriate Tax Regime: Compatibility with the Regime Forfettario?
Following the issuance of the new 2023 “Legge di Bilancio”, the italian Regime Forfettario has undergone significant changes regarding the turnover limits beyond which it is not possible to remain in the regime. Regarding this regime, a question that is increasingly being asked in consultancy concerns the alternativeness or not of the Regime Forfettario with respect to the Impatriate Tax Regime.
…and the answer to this question can only be negative, at least according to what was specified by the Italian Revenue Agency in “Interpello n. 460/E/2022”.
In particular, the financial administration clarified that:
“The choice of the Regime Forfettario”, in the first year of transfer to Italy, while meeting the requirements to access the Impatriate Tax Regime, makes it impossible to subsequently choose this latter regime“.
In other words, the prior choice – at the time of returning to Italy – of the Regime Forfettario entails the impossibility – even having the requirements provided for by the regulations – of accessing the Impatriate Tax Regime even in subsequent years.
Let’s try to understand the reasons for this!
Based on the response of “Interpello n. 460/E/2022” of the Italian Revenue Agency, the special regime of the Impatriate Tax Regime, also for 2023, applies only to income from dependent or assimilated work and autonomous work that, produced in the territory of the State, contribute to the formation of the taxpayer’s overall income according to the ordinary provisions of the Italian Tax Law.
On the other hand, adherence to the Regime Forfettario pursuant to Article 1 of Law 190/2014 involves the determination of taxable income according to flat-rate criteria, applying to the amount of income received a profitability coefficient different depending on the ATECO code associated with the VAT number – and on which, as we know, a substitute tax of 5% or 15% can then be calculated.
Therefore, as clarified by the Revenue Agency also with Circular 33/E/2020,
“The taxpayer who returns to Italy to carry out autonomous work benefiting from the Regime Forfettario cannot take advantage of the Regime provided for Impatriates workers since income produced under Forfait does not participate in the formation of overall income.“
Given the incompatibility of the two regimes and the impossibility of alternating one or the other during the first five years of returning to Italy depending on the personal and income needs of the worker, it is also necessary for 2023 to carry out preventive calculations in order to decide whether to immediately apply the Impatriate Tax Regime or the Regime Forfettario.
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