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Tax Residence Italy

Tax Residence Italy: Understanding the Impatriate Tax Regime

Tax Residence Italy is a concept that has gained significant attention, especially with the introduction of the Impatriate Tax Regime. This regime is a critical measure in Italy, aimed at encouraging the influx of new workers by offering substantial tax benefits. Under this regime, beneficiaries are allowed to tax only a portion of their income produced in Italy – either 30% or a reduced 10% if they relocate to one of the southern regions of the country. This tax relief is initially granted for the first five tax periods and can be extended for another five under specific conditions.

The Impatriate Tax Regime was first established by Legislative Decree no. 147/2015, commonly referred to as the “Decreto Internazionalizzazione”. This decree was later amended by Law Decree no. 34/2019, also known as the “Decreto Crescita”. The primary objective of this legislation has always been to attract individuals to work in Italy by offering them, under certain conditions, the opportunity to tax only a fraction of their total income generated in Italy. This income can be from dependent work, self-employment, or individual entrepreneurship.

Eligibility and Requirements for the Impatriate Tax Regime

To be eligible for the Impatriate Tax Regime, individuals must meet specific subjective and objective requirements. These are outlined in Art. 16 of Legislative Decree no. 147/2015. The key conditions include:

  • The individual must not have been a fiscal resident in Italy in the two tax periods preceding their arrival in Italy.
  • They must commit to being a fiscal resident in Italy for at least two years following their arrival.
  • The work activity must be primarily carried out on Italian territory.

Meeting these conditions allows for tax relief on various forms of income, including income from dependent and similar work, self-employment, and business income. However, it’s important to note that for business income, only the income produced by the impatriated individual is eligible for relief. Commercial partnerships and income attributed directly to each partner are not included.

Duration and Extension of Tax Relief

The Impatriate Tax Regime offers tax relief for the first five tax years, with the percentage of income subject to tax being either 30% or 10%, depending on the region of residence. According to Art. 16, paragraph 3 bis of Legislative Decree no. 147/2015, this tax relief can be extended for an additional five tax periods. In this extended period, the income subject to tax will be 50% of the total amount received.

An interesting aspect of this regulation is that for workers with at least one minor child or dependent, the income subject to taxation can be further reduced. In cases where the beneficiary of the Impatriate Tax Regime has at least three minor or dependent children, the percentage of income subject to taxation decreases from 50% to 10% for the additional five tax periods.

How to Take Advantage of the Impatriate Tax Regime

To benefit from the Impatriate Tax Regime, different procedures apply for dependent and self-employed workers. Dependent workers must submit a written request to their employer, made through a self-declaration pursuant to Presidential Decree no. 445/2000. The employer can then apply tax withholdings of 10%, 30%, or 50% directly on the payslip. If this is not done, the taxpayer can claim the benefit in their tax return.

For self-employed workers, they can access the favorable tax regime directly in their tax return. They can also benefit from the relief in the application of the withholding tax operated by the client. Like dependent workers, self-employed individuals must submit a self-declaration to the client to take advantage of the tax relief.

Pre-Ruling Procedure and Final Thoughts

It’s important to note that access to the favorable regime cannot be contingent upon the submission of a pre-ruling request by the taxpayer. This is because such requests involve evaluations of fact that are not resolvable in a pre-ruling request. The Impatriate Tax Regime represents a significant opportunity for those looking to work in Italy, offering considerable tax advantages under specific conditions.

In conclusion, the Tax Residence Italy concept, particularly with the Impatriate Tax Regime, offers a unique and beneficial opportunity for individuals planning to work in Italy. By understanding and meeting the specific requirements, one can significantly reduce their tax liabilities, making Italy an attractive destination for professionals worldwide.

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