New tax incentives for inbound workers and (individual) entrepreneurs in Italy

Italian Law Decree No. 34 of April 30, 2019 entered into force on May 1, 2019 and introduced new tax incentives for workers, entrepreneurs, researchers and professors who transfer their tax residence in Italy from 2020. The new provisions should attract individuals and new capital by providing appealing tax incentives, including a reduction of the taxable basis in the event of relocation to Italy.

Italian law currently provides four different attractive tax regimes for new resident individuals:

• – Article 16 of Legislative Decree No. 147 of 2015, referred to workers and entrepreneurs;
• – Article 44 of Law Decree No. 78 of 2010, referred to professors and researchers;
• – Article 24-bis of the Italian income tax code (Presidential Decree No. 917 of 1986 (ITC)), known as res-non-dom regime, which provides a substitutive taxation equal to EUR 100,000 on all foreign-sourced income earned by the individual new resident; and
• – Article 24-ter of the ITC, which provides for a 7% flat tax on all foreign income (not only on foreign pension income) earned by new resident retired individuals moving to the South of Italy.

With regard to the special tax regime for inbound workers and (individual) entrepreneurs, an individual such as an employee, a self/employed professional or an individual entrepreneur shall be subject for 5 years to Italian personal income tax (IRPEF) only on 30% of their income (getting a 70% exemption) deriving from the activity performed in Italy if collectively they: a) 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; b) have not been tax resident in Italy for the previous two years before transferring their tax residence to Italy; c) endeavor to remain in Italy as a tax resident for the following two years; and d) mainly work or perform their activity in Italy.

30% of taxable income vs. 43% highest tax rate

Such exemption may increase to 90% if inbound workers move their residency to one of the southern Italian regions (i.e. Abruzzo, Molise, Campania, Puglia, Basilicata, Calabria, Sardinia or Sicily).

10% of taxable income vs. 43% highest tax rate)

The new incentives apply for five years and can be extended for another five years (in total ten years) – with a 50 percent income exemption in the extended period – subject to some additional conditions (i.e. a residential property is purchased in Italy in the previous 12 months since the acquisition of the Italian residence or in the following 12 months, or there is an dependent child; if there are three dependent children, the exemption in the extended period is increased to 90%).

The new tax regimes represent a great tax and wealth planning opportunity for employees and self-employed professionals, as well as for Italian companies looking to attract talented workers. However, such opportunities should be carefully considered once an accurate preliminary tax and wealth analysis has been duly performed with the support of trusted professionals, including sources of income, asset allocation, Italy’s tax treaty network and the solutions for asset protection and succession planning. A review of the immigration procedures (visas, etc.) and of the foreign residency status as well as assistance on the drafting of employment agreements in compliance with the regimes are also crucial issues to be taken into consideration.

Compliments of AEM Carnelutti, a member of the EACCNY