Italy Tax Residence: A Guide to the Expat Tax Regime

italy tax residence

Italy Tax Residence and the Expat Tax Regime: An Overview

Italy Tax Residence has become a focal point for many foreign professionals considering a move to the Mediterranean country. The Expat Tax Regime, also known as the Impatriate Tax Regime, is Italy’s groundbreaking initiative aimed at drawing in foreign talents. This strategy not only seeks to enhance Italy’s workforce but also to bolster its economy. Beneficiaries of this regime can relish in the reduced taxation on a significant portion of their income earned within Italy. This can be as low as 10% for those who opt to live in Italy’s southern regions, or 30% for others. Such enticing tax benefits are designed to make Italy Tax Residence an attractive proposition for global professionals.

The genesis of the Expat Tax Regime can be traced back to the Legislative Decree no. 147/2015, informally referred to as the “Decreto Internazionalizzazione”. This foundational decree was further augmented with the introduction of the Law Decree no. 34/2019, colloquially known as the “Decreto Crescita”. Both legislative pieces had a singular vision: to establish Italy as a premier destination for global talents by offering them compelling tax incentives. Beyond the individual perks, this strategic move was also aimed at rejuvenating the Italian economy. It was envisioned to strengthen Italy’s global standing and counteract the trend of talent emigration that the nation was witnessing.

Eligibility Criteria and Tax Benefits

For expatriates to fully capitalize on the benefits of the Italy Tax Residence under the Expat Tax Regime, they must meet certain conditions. The foundational criteria are as follows:

  • Previous Residency: The individual should not have been a fiscal resident in Italy for the two tax years preceding their move.
  • Commitment to Residency: After relocating, they must maintain fiscal residency in Italy for a minimum of the next two years.
  • Work Location: A major portion of their professional activities should be conducted within Italy.

Upon fulfilling these prerequisites, expatriates can avail tax relief on various income types:

  • Dependent Work Income: This covers salaried roles and similar financial structures.
  • Self-Employment Income: Tailored for freelancers, consultants, and other professionals not under traditional employment.
  • Business Income: It’s crucial to understand the subtleties here. Only the business income directly tied to the expatriate is eligible for relief. Income from commercial partnerships or those proportionally attributed to partners based on ownership are excluded.

Initially, the tax relief is valid for five tax years. This can be set at 30% or even 10%, depending on the expatriate’s residential region in Italy. However, there’s an option to prolong this relief for another five years, with a catch: the taxable income increases to 50% of the total, a shift from the original 30% or 10%.

Extension Provisions and Claiming the Benefits

The allure of the Expat Tax Regime isn’t short-lived. Under certain conditions, the tax relief can be extended for an additional five years. For instance:

  • Family Considerations: If an expatriate has at least one minor or dependent child, they can request an extension. This remains valid even if the child was born before moving to Italy, as long as the child’s status remains unchanged during the initial benefit phase.
  • Real Estate Investments: Expatriates can also secure an extension if they invest in residential property in Italy. This can be done 12 months prior to relocating or within the first five tax years post-move. The property can be acquired either by the expatriate or their immediate family, including spouses or children.

To leverage these tax reliefs, the procedure varies based on employment type:

  • Dependent Workers: They must submit a formal written request, supported by a self-declaration as per Presidential Decree no. 445/2000, to their employer. Once approved, the employer can adjust the tax withholdings on the payslip.
  • Self-Employed Workers: They can directly incorporate the tax relief in their tax returns. Additionally, they can apply the relief during withholding tax applications by their clients. A self-declaration, akin to the one for dependent workers, is obligatory.

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