Tax Regime for New Residence and Requirements: What Are They? How Long Does the Benefit Last for Workers Returning from Abroad?
Among the most well-known measures in Italy aimed at encouraging the entry of new workers, there is a Tax Regime for New Residence that is undoubtedly the most discussed, as well as the one about which there are more and more requests for information.
The advantage that this regime grants to its beneficiaries concerns the possibility of taxing only a portion of the total income generated in Italy: 30% or 10% in cases of moving residence to one of the southern regions of the country.
The benefit is granted for the first five tax periods, extendable for another five under well-defined conditions.
But what are the requirements to access the Impatriate Tax Regime?
In this article, we will discover:
- The reference legislation
- The objective and subjective requirements to access the Impatriate Tax Regime
- The duration of the benefit and how to take advantage of it
- The limits of the preventive inquiry
The Reference Regulation
The Impatriate Tax Regime was first regulated with Legislative Decree 147/2015, known as the “Decreto Internazionalizzazione”, later amended by Legislative Decree 34/2019 (or “Decreto Crescita”).
As mentioned earlier, the rationale of the regulation has always been to encourage the “arrival of fleeing brains” to Italy, ensuring that, subject to certain conditions that we will see below, they can only tax 30% or 10% of their total income produced in Italy, resulting from employment, self-employment, or entrepreneurial activities (always in individual form).
Starting with Article 16 of Legislative Decree 147/2015, let’s see all the requirements needed to access the Impatriate Tax Regime.
Subjective and Objective Requirements
Article 16 of Legislative Decree 147/2015 defines the subjective and objective requirements necessary to access the Impatriate Tax Regime.
According to the first paragraph, reduced income taxation occurs under the following conditions:
- The worker must not have been a tax resident in Italy in the two tax periods preceding repatriation.
- The worker commits to being a tax resident in Italy for at least two years following repatriation.
- The work activity must be performed mainly in Italian territory
In compliance with all three of these requirements, the following are facilitated:
- Income from dependent and similar work,
- Income from self-employment,
- Business income – on this point, the Italian Revenue Agency with Circular 33/E/2020 has clarified that only business income generated by the expatriate individual is facilitated, not including income produced by commercial partnerships and attributed directly to each partner in proportion to their ownership shares.
Impatriate Tax Regime and Requirements: the Duration of the Benefit
As we mentioned earlier, in compliance with the requirements listed above, the Impatriate Tax Regime is recognized for the first 5 tax years, at percentages of 30% or 10% depending on the region of residence in which the repatriated person decides to settle.
According to article 16, paragraph 3 bis, of Legislative Decree 147/2015, the tax benefit can be extended for an additional 5 tax periods. In this case, however, the taxable income will be equal to 50% of the entire amount received, not 30% or 10% of it.
In fact, the norm states:
“The provisions of this article apply for an additional 5 tax periods to workers with at least one minor or dependent child, even in pre-adoptive foster care – as well as – […] in the event that the workers become owners of at least one residential property unit in Italy, subsequent to the transfer to Italy or within the 12 months prior to the transfer.”
In the specific case where the beneficiary of the Impatriate Tax Regime has at least three minor or dependent children, even in pre-adoptive foster care, for the additional five tax periods, the percentage of taxable income decreases from 50% to 10% of its amount.
Focus on Extending the Benefit
The extension of the temporal benefit in the presence of at least one minor or dependent child, even in pre-adoptive foster care, is recognized both in cases where the minor and/or dependent child was born before the transfer to Italy, and subsequently – provided, however, that this requirement exists within the expiration of the first five-year period of benefit.
If, after arrival to Italy, the worker’s children reach the age of majority or are no longer fiscally dependent, he or she will still not lose the tax benefits provided for the second five-year period.
As for the purchase of residential property in Italy, this can be done either within the twelve months prior to the return to Italy or subsequently – as long as it is within the first five tax periods.
The residential property can be purchased directly by the worker, spouse, cohabitant or children, or even in situations of co-ownership. Conversely, the Revenue Agency has excluded the possibility of benefiting from the extension of the benefit in the case of a gratuitous transfer of ownership.
How to Benefit from the Tax Advantage
In compliance with the requirements listed so far, the Impatriate Tax Regime can be recognized both for employees and self-employed workers.
But how can self-employed workers apply for it?
To apply for the tax benefit provided by the Impatriate Tax Regime, employees must submit a written request to the employer, made through a self-declaration as provided for by Presidential Decree 445/2000.
Upon receiving the request, the employer can apply tax withholdings of 10%, 30% or 50% of the total income directly to the payslip. In the absence of this, the taxpayer can benefit directly in the income tax return.
Self-employed workers with a VAT number can access the tax benefit regime directly in their income tax return. But not only that. In fact, they can also benefit from the tax incentive when the tax withholding is applied by the client. Similarly to what is provided for employees, however, the self-employed worker must submit a self-declaration to the client in order to benefit from the tax benefit, made in accordance with Presidential Decree 445/2000.
Recalling once again Circular Letter no. 33/E/2020 of the Revenue Agency, it should be noted that access to the tax benefit regime cannot be subject to a request for preventive inquiry by the taxpayer, if the issues concern the existence or not of the conditions necessary to establish actual tax residence or the requirements necessary to access the special regime – since such verifications involve assessments of fact that cannot be resolved through preventive inquiry.
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