Italian tax regime updates for “impatriati”

Law Decree No. 34 of April 30, 2019, also called “Regime impatriati” entered into force on May 1, 2019, and introduced new tax incentives referring to inbound workers, entrepreneurs, researchers, and professors who transfer their tax residence in Italy starting from 2020.

The new provisions are aimed at attracting individuals (including wealthy individuals) and new capital resources by providing more appealing tax incentives which will give a real boost to human capital relocation in Italy.

These new measures extend the actual range of Italian tax incentives for individuals who currently reside abroad, giving them the opportunity to benefit from a reduction of the taxable basis if they decide to relocate to Italy.

Usually, Italy has been unattractive to foreigners who were willing to work in the country due to its taxes and the country has tried multiple times to reduce the amount foreigners would have to pay. This has now changed as of 2020, as Italy has revised and extended the benefits initially established by article 16 of Legislative Decree no. 147/2015 for workers who transfer their tax residence to Italy. 

This reduction is one of the widest across Europe and will allow foreign people, whether they are employees, freelancers or retired, to come to Italy with a relatively low tax rate on their worldwide income.

Here are some details to be noted: For five years, 70%, or up to 90% if you are willing to live in the South of Italy, of income from freelance work, employment, or a pension will be considered as exempt from tax.

Requirements

It’s not always possible to apply to this regime. To do what the worker:

1)  has not been a resident in Italy during the two tax periods prior to moving the tax residence to Italy (no longer five, as in the original formulation);  

2)  agrees to remain in Italy for at least 2 years;  

3) the work is predominantly done in Italy.  That means that the worker can work also in other places, but his/her work must be done predominantly in Italy. 

The worker must become an Italian tax resident, pursuant to Article 2 of TUIR. Note that individuals are considered as Italian tax residents if, for the greater part of a given tax period, they are enrolled in the Italian register of the resident population, have their residence or domicile in Italy pursuant to Article 43 of the Italian Civil Code. For instance, individuals who are enrolled in the Italian register as of July 4, 2019, are considered an Italian tax resident starting from 2020 and, therefore, can benefit from the new tax incentives as from tax period 2020;

Other rules

The benefit has been extended to all workers and not only those in managerial roles and those having a higher/specialist qualification or degree. 

The benefits also apply to business income produced by people who return to Italy and start a business from 2020. 

A further five tax periods are envisaged (for a total of 10 years): 50% of taxable income, for workers with at least one child who is dependent or under 18, or for those who purchase a house in Italy after moving to the country or in the 12 months prior to moving; 90% of taxable income, for workers with at least three children who are dependent or under 18.  

The amount increases up to 90% if the worker moves to Abruzzo, Basilicata, Calabria, Campania, Molise, Puglia, Sardinia or Sicily.  That means basically if you open your Partita Iva or you are resident in one of these regions, you basically pay 10% of IRPEF taxes.

Other categories

Specific rules have been decided for sports players.  

Additionally, a particular regulation has been approved for teachers and researchers who have undertaken research or taught abroad for 2 years in a row and then officially move back to Italy (i.e. return residence to Italy): they will only pay 10% tax on their employee income or on their self-employed income as follows:  

a) for seven years following the official date of moving back to Italy, if they have a minor or dependent child, including in pre-adoption care, or if they purchase at least one home in Italy after moving to Italy or in the twelve months prior to moving;  

b) for ten years following the official date of moving back to Italy, if they have two minor or dependent children, including in pre-adoption care;  

c) for twelve years following the official date of moving back to Italy, if they have three minor or dependent children, including in pre-adoption care.  

What happens if I decide to leave earlier than in 2 years?

If you or your employer were applying for this tax relief since the start of your employment (this means, from the very beginning) and you decide to leave Italy earlier than in 2 years, you might be asked by the Tax authority to pay the entire amount back.

What if I worked in the first year in Italy, the second year abroad, and the third year again in Italy?

You have a good chance to be entitled to the benefits because the 2 years consecutive is not a condition in the requirements. A consultation with our Italian tax advisor would be necessary.

Is that the only tax?

Nope, unfortunately we are just talking about IRPEF, that is the personal income tax. You must pay as well Social Security, called INPS, that, depending on your job and your category, as well as the regime that you choose, could arrive at 25% of your income. Usually, is 25% out of your 78% income if you choose “regime forfettario” (that applies just for freelancers).

Conclusions

With these new provisions, Italy has become one of the most attractive countries in Europe to work as a freelance or as an employee. Besides that, Italy still has some bureaucratic problems in terms of obtaining visas and other mandatory requirements, such as “Codice Fiscale”, that sometimes are a nightmare for people who want to live in Italy, but, the road is marked out and everything lets us think that in the future more foreign workers will come to Italy and more the provisions will be easier for them.

While a careful check on a case-by-case basis in order to verify if the tax break is applicable is highly recommended, this tax reduction makes Italy one of the most tax-attractive states of Europe.

In the end, you can enjoy one of the most beautiful countries in the world, especially in the South paying less taxes than most of the countries in Europe.