Italian Tax Residency Rules: Tax Benefits for Inpatriate Workers

Who are the beneficiaries of this special tax regime?

Tax residency rules for Italian citizens
Under the following conditions, just 30% of employment income and income from self-employment sourced in Italy of workers who transfer their residence to the territory will be treated as taxable income:

• The workers were not resident in Italy in the two fiscal years prior to the transfer and undertake to reside in Italy for at least two years.
• The work is carried out mainly in Italian territory.

EU and non-EU citizens
The tax benefits also apply to citizens of the European Union or a non-EU state with which a double taxation agreement or an agreement for the exchange of information in tax matters is in force, with the following requirements:

• Possession of a degree and having previously been an employee or in self-employment outside of Italy continuously for the last 24 months or more.
• Having studied continuously outside of Italy in the last 24 months or more, earning a degree or a postgraduate specialisation.

Main features of the “inpatriate tax regime”

Duration
The special regulation is limited in time. It is valid for a period of five years. This begins with the tax year in which the employee moves his tax residence to Italy and includes the four following tax years.

Tax reduction
Following a recent change in the tax legislation, the amount of income contributing to the total taxable amount has been lowered to 30% (50% in the previous legislation), thus providing an exemption for 70% (50% in the previous legislation) of the taxable income.

Extension of the facility (+5 years)
The recent change in the tax legislation also introduced a possible extension of the tax benefit for further five fiscal years. From 2020, the taxable income can be reduced to 50% provided that certain conditions are met. These include:

• Having at least one minor or dependent child, even in pre-adoptive foster care.
• Purchase of residential real estate in Italy directly by the worker or their spouse, cohabitant or children, even in joint ownership. This purchase must be carried out “after the transfer to Italy or in the twelve months preceding the transfer”.

The taxable percentage of eligible income produced in Italy in the additional five tax periods can be reduced to 10% if the taxpayer has at least three minors or dependent children, explain the Ecovis advisers.

Budget Law 2021
The 2021 Budget Law changed the definition of ‘inpatriates’ and allows the temporal extension of the tax regime to those who transferred their residence to Italy before 2020 and who, as of 31 December 2019, are already beneficiaries of the inpatriate regime. These subjects can benefit from the reduction of 50% of taxable incomes for an additional five years, provided they meet the specific conditions required by the tax legislation.

Transfer of residence to one of the regions of central and southern Italy (90% reduction)
The taxable income is reduced to 10% for individuals who transfer their residence to one of the following Regions: Abruzzo, Molise, Campania, Puglia, Basilicata, Calabria, Sardinia and Sicily. The reduction also applies to an inpatriate who establishes his/her residence in one of these regions, even if he/she carries out their work activity in a municipality different from the one in which they have established their residence.

For further information please contact:

Antonio Argenio, Partner, Tax Consultant, Certified Public Accountant, ECOVIS STLex Studio Legale Tributario, Milan, Italy
Email: antonio.argenio@ecovis.it

Michaela Simone, Senior Tax Consultant, Certified Public Accountant, ECOVIS STLex Studio Legale Tributario, Milan, Italy
Email: michaela.simone@ecovis.it