Italy now very attractive for private individuals

After the flat tax regime (2017), intended to attract wealthy foreigners paying a fixed yearly tax of 100.000 euros, a new Law Decree (No. 34/2019) has now been approved, with which the Italian government wants to encourage other private individuals to come to work in Italy with significant tax advantages.

The new tax incentives are referred to all categories of workers abroad who transfer their tax residency to Italy, more precisely: employees and self-employees, researchers and/or professors, professional sportsmen and retired individuals moving to the south of Italy.

Employees and self-employees

Employees and self-employees who transfer their residence to Italy benefit from a 70% tax exemption, paying an income tax on only 30% of the income deriving from the working activity performed in Italy, under the following conditions:

• they have not been tax resident in Italy for the previous two years before transferring the tax residence to Italy
• the work activity is mainly provided in the Italian territory
• they have to remain in Italy as a tax resident for the following two years

The tax savings for these private individuals are very advantageous as the tax rate is reduced to  12.9% on 100% of their income. In fact, considering that the highest tax individual income rate amounts to 43%, taxation on only 30% of income brings the rate to 12.9%

This rate is furthermore reduced to 4.3% for those who decide to move their residency to one of the following eight southern Italian regions: Abruzzo, Molise, Campania, Puglia, Basilicata, Calabria, Sardinia or Sicily.

In fact, for those who decide to go to work in one of those regions the tax exemption is increased to 90% and, consequently, only 10% of income shall be subject to income tax.

The new incentives apply for five years and can be extended for further five years to those workers who have economically dependent children or have purchased a residential property in Italy. The exemption for the additional five years period is limited to 50% of the income, but can be increased to 90% to those workers who have at least three dependent children.

Employees wishing to benefit from the immigration regime must submit a specific written request to their employer, including the following information:

• their personal details (name, surname and date of birth);
• Italian tax code (codice fiscale);
• date of entry into Italy and date of employment in Italy;
• declaration in which he certifies that he meets the requirements provided to take advantage of the related tax regime;
• indication of the address residence in Italy;
• commitment to promptly communicate any changes of residence before the expiry of the minimum period;
• declaration of not benefiting at the same time of the flat tax Regime (art. 24-bis TUIR).

The employer, for its part, will apply the withholding taxes on the taxable amount, reduced to the percentage of taxable income for that employee.

In order to ascertain the right to be able to take advantage of the immigration regime, I recommend first to apply for a ruling to the ruling commission of the Taxpayers Division. The ruling is not mandatory but advisable.

Professors and/or Researchers

Professors or researchers who decide to move their residence for work reasons to Italy, benefits of an exemption of 90% of the taxable income coming from their working activity in Italy.

The total incentive period is six years and can increased up to eight, eleven and thirteen years if the professor/researcher:

• has purchased an apartment/house after moving to Italy, or in the previous twelve months; and/or
• has one economically dependent children. If the dependent children are two, the period of tax benefit can be extended to eleven years and to thirteen years if the dependent children are at least three.

Professional sportsmen

Professional sportsmen who transfer their residence to Italy benefits of 50% tax exemption on the income deriving from the activity performed in Italy for a 5-years period.

The 5-years period can be extended for further 5-years, in case of purchase of a residential property in Italy or if they have a dependent child.

Sport stars (but also other wealthy individuals which decide to move to Italy) with substantial income and assets will have to evaluate whether to adopt this tax regime or the flat tax one, for which I refer to my previous web publishing: Italy moves to attract high net worth foreigners.

Retired individuals residing abroad

Retired people living abroad with a foreign pension income who decide to move the tax residence to Italy, benefits of a 7% flat tax on all their foreign income, under the condition that:

• the pension income is not paid by an Italian private or public entity;
• the retired individual has not been tax resident in Italy for the five years before deciding to benefit from the current regime;
• that the transfer of residence takes place from a country having administrative cooperation agreements in force with Italy (DTA, FATCA);
• that the residence must be established in a municipality with a population not exceeding 20’000 inhabitants located in one of the following regions of Southern Italy: Calabria, Campania, Basilicata, Abruzzo, Molise; Puglia, Sicily and Sardinia;

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These new tax regimes, together with that of the flat tax mentioned above (they cannot be combined with each other), are very competitive compared to those in force in other countries (starting from 2020 Portugal has raised the rate for foreign pensioners to 10%) and are a real opportunity for those who have the chance to exploit them in a country appreciated as Italy, due to its nature, climate, history and art.

For more information or individual advice please contact: italianlaw@fld-law.com