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.
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.
Italian Government has approved a new legislative decree introducing substantial modifications to the special tax regime for inbound workers relocating to Italy.
Specifically, the changes have been made to the tax benefit for “impatriates workers”, as outlined in our previous article called “Tax incentives for attracting human capital in Italy for the fiscal year 2023). Please note that the others tax incentives and in particular TAX BENEFITS FOR RESEARCHERS AND PROFESSORS and FAVORABLE TAX REGIME FOR NEW RESIDENTS have not changed.
This decree restricts the existing inbound tax regime by tightening the eligibility criteria and imposing a cap on the maximum income that can be exempted from taxation.
The updated regime will apply to individuals becoming tax residents of Italy in 2024. Additionally, there’s a provision for individuals enrolled in the Italian Registry for the Resident Population (“Anagrafe”) by December 31, 2023, through a grandfathering clause.
Background (up to the year 2023)
Until the year 2023, the inbound special tax regime allowed a 70% reduction (90% for taxpayers relocating their residence to specific regions in southern Italy) in taxable employment and self-employment income earned from services performed in Italy. This tax benefit was applicable for an initial period of 5 fiscal years and, subject to particular conditions, could be prolonged for additional 5 fiscal years.
Eligibility for this special regime was open to employees who fulfilled distinct requirements criteria and retained their tax residency in Italy for a minimum of 2 fiscal years.
THE NEW TAX REGIME – Requirements and benefits
Under the updated regulations, taxpayers are eligible to access the special tax regime if they satisfy the following conditions:
- They must have maintained non-tax residency status in Italy for a minimum of 3 years (previously 2 years) prior to relocating to Italy;
- They are obliged to commit to residing in Italy for a minimum of 4 years (previously 2 years) and primarily engage in work within the Italian territory;
- They are required to possess a high-level qualification or specialization as stipulated by Legislative Decree 108/2012 and Legislative Decree 206/2007. Benefits of the regime can be summarized as follows:
- a 50% reduction in taxable income for a maximum duration of 5 fiscal years, subject to an annual cap of Euros 600,000;
- a 60% reduction in taxable income within the yearly limit of Euros 600,000 for taxpayers who relocate their residency accompanied by an underage dependent child or in the event of the birth of a newborn or the adoption of a minor.
Employees who move to Italy in 2024 can extend their benefit under the special regime for an additional 3 fiscal years beyond the initial 5-year period, by December 31st 2023, or within 12 months preceding the transfer to Italy, they become the owner of a residential property in Italy utilized as their primary residence.
For employees moving to Italy to work for their current employer or within the same corporate group, the minimum period of non-residency requirement prior to the relocation to Italy is raised as follow:
- 6 years, if the worker has not been previously employed in Italy by the same employer or within an entity of the same corporate group;
- 7 years, if the worker was previously employed in Italy by the same employer or within an entity of the same corporate group before their international transfer.
An entity is considered to be part of the same corporate group under the following conditions:
- There exists a direct or indirect control relationship between the entities as defined by Article 2359 of the Italian Civil Code;
- The entities are under the direct or indirect control of the same third entity.
Anticipated changes in the new legislative decree are expected to limit the scope of cases wherein the special tax regime applies to inbound workers.
The application process for these benefits will necessitate comprehensive tax and legal planning. Eligibility criteria, domestic tax regulations, existing assets, and estate structures should be thoroughly examined to evaluate the potential impact of the new regulations on individuals’ tax positions and the overall tax burden for both employees and employers.
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.