To support the economic, scientific and cultural development of Italy, the Italian Tax system provides for numerous benefits for people who move their residence to Italy to work or live here.
All measures have a common purpose: attracting human resources to Italy.
The requirement of moving to Italy
All the benefits described in this article require the transfer of the residence for tax purposes to Italy by the person who intends to use it. Furthermore, prior to the transfer to the Italian territory, the individual is required to have had his/her tax residence abroad for a minimum period of time, which varies according to the benefit concerned.
The concept of residence for tax purposes
According to Article 2 of the Italian income tax code (Dpr n. 917/86, also called TUIR), individuals resident in Italy are those who, for most of the tax period, namely for at least 183 days (or 184 days in the case of a leap year):
- are enrolled in the registers of the resident population or
- have their domicile or
- have their residence in the territory of the Italian State.
The notions of residence and domicile refer to the civil law concepts (Article 43 of the Civil Code), which defines “residence” as the place of habitual abode and the “domicile” as the main place of business and personal interests. These two conditions are alternatives: the existence of only one of them is sufficient to suggest that a person is qualified, for tax purposes, as resident in Italy.
The incentives apply from the tax year in which the person becomes fiscally resident in Italy (except for the tax incentives for new residents addressed in chapter 4), having regard to the period of application of the incentives and their duration. Given that for individuals the tax year coincides with the calendar year, a taxpayer who moves to Italy after 2 July (after 1 July in the case of a leap year) cannot be considered resident for tax purposes for that year, as s/he will be resident for less than most of the tax year. For example, those who enroll in the population register of the resident population from 3rd July 2023 are not considered fiscally resident in 2023 and, therefore, cannot access the tax benefits for that tax year, unless they have actually moved the domicile or residence before that date.
The person who, although resident or domiciled abroad, has never cancelled his/her name from the register of the Italian resident population cannot be granted the benefits.
- FIRST TAX INCENTIVE: TAX BENEFITS FOR RESEARCHERS AND PROFESSORS
Professors and researchers who move their residence for tax purposes to Italy can benefit from reduced taxation on income from employment and self-employment generated in Italy for teaching and research. In particular, these items of income contribute to the formation of total taxable income by 10% (90% exemption) and are excluded from the value of net production for IRAP (the regional tax on productive activities) purposes. For employees, the IRAP benefit is granted to withholding agents who pay salaries for teaching or research, while for self-employed workers it is directly granted to the professor or researcher who perform the activity. The benefit applies starting from the tax year in which the professor or researcher becomes fiscally resident in the territory of the Italian State and in the following 5 periods. Therefore, the benefit applies for a total of 6 years. If, during this period, the professor or researcher moves the residence abroad, the tax benefit ceases from the tax year in which s/he is no longer fiscally resident in Italy.
The incentives are granted to professors and researchers who carry out their activities in Italy and meet the following conditions:
- HOLDING UNIVERSITY DEGREE OR EQUIVALENT QUALIFICATION: All academic or equivalent academic qualifications are valid. The qualifications obtained abroad are not automatically recognized in Italy. Therefore, the interested party must request the “declaration of value” from the competent consular authority, namely a document certifying the value of the qualification in the country where it was obtained. The declaration must be written in Italian and issued by the Italian Diplomatic Representatives Abroad (Embassies/Consulates).
- HAVE BEEN RESIDENT ABROAD, NOT OCCASIONALLY: The law does not specify the length of the period spent abroad but merely requires a permanent and not occasional stay. Bearing in mind that, the duration of the research or teaching activity abroad must have lasted for at least two consecutive years, this period may be considered the minimum necessary to obtain the benefits.
- HAVE CARRIED OUT DOCUMENTED RESEARCH AND TEACHING ACTIVITIES ABROAD FOR AT LEAST TWO CONSECUTIVE YEARS, AT PUBLIC OR PRIVATE RESEARCH CENTERS OR UNIVERSITIES: The research activity can be identified as the activity dedicated to basic research, industrial research, experimental development and feasibility studies. On the other hand, teaching activity can be identified as the teaching activity carried out at universities, public and private institutions. The actual research or teaching carried out abroad must be proven by appropriate documentation issued by the research centers or by the universities where the activity was carried out. The teaching and research activity must not necessarily have been carried out in the two years immediately preceding the return. To calculate the two-year activity it is possible to combine periods of teaching and of research (for example, research activity may have been carried out for one year and teaching activity in the following academic year).
- CARRY OUT TEACHNG AND RESEARCH IN ITALY: The nature of the employer or of the client is not relevant: for the research activity, it can be a public or private university, or a public or private research center or a company or an entity which, because of the peculiarity of the economic sector in which it operates, it has organizational structures aimed at research. As far as teaching is concerned, all the activities aimed at teaching and those aimed at training at universities, schools, offices or companies, public or private entities, can access the incentive.
- ACQUIRE THE RESIDENCE FOR TAX PURPOSES IN ITALY: The benefit is granted where the professor or the researcher has started to carry out the activity in Italy before moving the residence and in the case he moved the residence to Italy and then started to carry out the activity.
2. SECOND TAX INCENTIVE: TAX BENEFITS FOR “IMPATRIATES” WORKERS
Law Decree No. 34 of April 30th, 2019 (hereinafter, the “Growth Decree”) introduced new relevant tax incentives for inbound workers, entrepreneurs, researchers and professors who transfer their tax residency to Italy starting from the fiscal year 2020.
In this case, a taxpayer will be subject to Italian income tax only on 30% of income (i.e., exemption of 70% of the taxable income from employment, self-employment or distributed profits from Italian companies) if collectively, a taxpayer fulfils the following conditions:
- has not been tax resident in Italy in the two years preceding the transfer of tax residence to Italy;
- intends to remain in Italy for at least 2 years;
- mainly works or performs activity in Italy (at least 183 days during each fiscal year concerned).
The exemption is increased to 90% – and, consequently, only 10% of the income will be subject to income tax in case that inbound workers transfer their residency to one of Italy’s southern Regions (Abruzzo, Molise, Campania, Puglia, Basilicata, Calabria, Sardinia, Sicily).
Please note that the impatriate tax regime is applicable for a period of 5 tax years (the year in which the residence for tax purposes is acquired and for the following 4 years), which can be extended for more than 5 tax years at the end of the first 5 years, if the following conditions are met:
- have at least one minor or dependent child, including in pre-adoptive foster care, or
- having purchased a residential property after moving to the territory of the State, in the 12 months preceding or in the 18 months following the exercise of the option.
3. THIRD TAX INCENTIVE: FAVORABLE TAX REGIME FOR NEW RESIDENTS
The tax incentive for new residents is intended for individuals who move their residence for tax purposes to Italy and consists in the possibility of paying a substitute tax on income generated abroad. It is possible to opt for this benefit regardless of nationality.
In fact, access is allowed both to foreign citizens and to Italians, provided they have been fiscally resident abroad for at least 9 of the 10 tax periods preceding the one in which the choice becomes effective.
Individuals already resident in Italy can also benefit from it. In this case, also the tax period in which the residence for tax purposes in Italy has been obtained must be considered in the assessment of the time requirement. Italian citizens cancelled from registers of the resident population and who moved to States or territories having a preferential tax regime can also benefit from the incentive. However, they must be able to overcome the presumption of residence in Italy. In other words, the Italian citizens who move to Italy from a State with preferential tax regime “tax haven” can benefit from the incentive provided that s/he proves that s/he has not actually been resident in Italy for at least 9 of the 10 previous tax periods.
Moreover, this favourable tax regime may be extended also to the spouse/husband/children of the taxpayer. In order for the tax incentive to be extended to family members, they also need to move their residence to Italy. Also family members must have been residing abroad for at least 9 of the 10 tax periods prior to the one in which person moves to Italy.
The regime can be applied for a maximum of 15 tax years, starting from the first year in which the taxpayer and his family members transfer their residency to Italy.
Only income generated abroad is subject to the substitute tax. Income generated in Italy is taxed according to the ordinary rules. The following items of income fall within the scope of the regime:
- income from self-employment generated from activities carried out abroad;
- income from business activities carried out abroad through a permanent establishment;
- income from employment carried out abroad;
- income from a property that the new resident owns abroad;
- interest from bank accounts paid by non-residents;
- capital gains generated by the new resident following the sale of unqualified shareholdings in foreign companies.
In order to access this favourable tax regime, it is mandatory to request its application through a tax ruling (so-called interpello) to the Italian Tax Authorities. This is a specific request to provide an overview on the background/conditions met and the relevant supporting documentation. Once the tax ruling is submitted, Italian Tax Authorities must provide feedback on the application of the regime within 120 days.
However, before the expiry of the 120 days, the Italian Tax Authorities may issue a request for supplementary information. In this case, the formal reply of the application of the regime will be issued within 60 days from the day on which the supplementary information was provided.
This favourable regime, provides the possibility to pay a flat-tax on an annual basis covering all income earned outside Italy for each fiscal year. In details, individuals benefitting from the incentive are equal to €100,000 for each tax year in which the option is valid, regardless of the type and amount of the income generated abroad. If the scheme is extended to the family members, the payment of the substitute tax on the foreign income generated by each member amounts to €25,000. The payment of the tax must be made through the F24 form in a single payment within the deadline for the payment of the income tax. The parties concerned, both as principal taxpayers and as family members, must pay the tax by themselves. With the payment of the tax, the tax obligation due in Italy on foreign source income is deemed fulfilled.
