The following is a brief summary of the inbound workers incentives available for new Italian residents. Please note that this article deals with tax and not immigration matters – you must of course satisfy any residency requirements before moving to Italy. These are complicated matters and professional advice is required in order to take account of your individual situation.

What does the incentive consist of?

• Taxable income covered by the incentive (basically work income) is reduced by 70% (or 90% for those choosing to reside in Abruzzo, Molise, Campania, Puglia, Basilicata, Calabria, Sardegna or Sicilia);
• Period of 5 tax years, extendible by a further 5 years subject to the following conditions:
• Must have at least one child under the age of 18, or otherwise dependent, or;
• Purchase at least one residential property in Italy in the period between 12 months prior to transferring residency and the expiry of the first 5 year period. The property can be bought directly or by one’s spouse, partner, or children. This can be a second home in Italy and you do not need to live there.
• For the period of the 5 year extension, the benefit is reduced to 50% (instead of 70%), unless the individual concerned has at least 3 children under the age of 18, or otherwise dependent, in which case the exemption is 90%.

Who can make use of the incentive?

• Individuals who transfer residency to Italy, as long as they:
• work prevalently in Italy (i.e. at least 183 days each year) – care is needed in cases where an individual travels abroad frequently for work;
• remain resident in Italy for at least 2 years;
• have NOT been resident in Italy in the 2 years prior to taking up residency under the regime;
• have a clear connection between their change of residency and their working activities (i.e. you cannot move to Italy and look for a job when you get here – you must at least have a job organised which begins as soon as practicable upon arrival).

What kind of work?

• Either as employees or self-employed (excluding forfetario regime), but corporate or partnership arrangements do not qualify;
• No distinction between working for Italian companies or foreign companies (or foreign clients in the case of someone who is self-employed) BUT – the Agenzia has made it clear that a foreign company having an Italian-resident employee could be considered as having a permanent establishment in Italy;
• Royalty income can be included as long as it derives from the individual’s working activities – it appears that passive income from patent licensing, for example, could be excluded.

Rulings

• Not possible to ask for a prior ruling (interpello) as to eligibility because it would regard questions of fact (as opposed to queries relating to theoretical applications of tax law)

Practical considerations:

• If working for an Italian company, request must be made to the employer to apply the correct tax rates from the beginning of the employment contract;
• Self-employed people must make a declaration to Italian clients in order to apply the correct withholding payments (20%);
• Intention to use regime must be indicated in first relevant tax return, which must be filed within the normal timeframes (late filing precludes access to the regime);
• Workers returning to Italy having worked abroad for Italian companies may be excluded from the regime if their contract in Italy is considered to have “continuity” with their work abroad.

INPS (state pension contributions)

• INPS treatment is currently unclear. It would appear that a disparity between self-employed people and regular employees exists, with the former enjoying the incentive also on INPS contribution whilst the latter no. There is no good reason for this so it will likely be resolved at some point – the likely outcome being that everyone will end up paying full INPS contributions.
• Pension contributions are a major expense (25 – 35% of taxable income for most people) so need to be carefully factored in to any calculations.

See our Property Listings in Italy here

Guest post: Andrew Lawford