The preferential tax regime for the new resident workers, enacted by way of Article 16 of the Legislative Decree 147 of 9/14/2015, is now permanent and extended to non-EU citizens and independent consultants and service providers (while, originally, it was limited to EU citizens working in an employee capacity).
Given its wider scope and increasing relevance, for foreign enterprises which plan to move personnel to Italy, or foreign consultants who consider the opportunity to relocate to Italy, it is worth providing a review of the basic tax advantages of the preferential tax regime.
Eligible taxpayers include dependent workers and independent consultants and service providers, who are allowed a 50 percent deduction from the amount of taxable wages and salary or compensation for personal service performed in an independent capacity, with the personal income tax (IRPEF) applying on the remaining 50 percent portion of that income at graduated rates.
The special tax regime applies to the following categories of taxpayers:
A. dependent workers (employees) possessing a three or five year of five graduate degree, provided that:
1. in case of a foreign degree, a certificate is issued by the Italian consulate in the taxpayer’s home country, certifying that the degree is equivalent to an Italian graduate degree,
2. the taxpayer has carried out a studying or working activity outside of Italy for at least 24 months (or more) prior to his or her relocation to Italy,
3. the taxpayer is a EU citizen or citizen of a non-EU country with which Italy has an income tax convention or a tax information exchange agreement,
4. the taxpayer works as an employee or a independent consultant or service provider (for private or public organizations, and regardless of whether the work or activities are consistent with the taxpayer’s degree),
B. taxpayers who are employed in a managerial capacity of specialized skill capacity, provided that:
1. they have not been Italian tax residents in the last 5 years preceding their relocation to Italy,
2. they are employed with an Italian employer or a foreign enterprise’s permanent establishment located in Italy, or are employed on secondment or assignment to an Italian affiliate of a foreign company or enterprise,
3. they carry out their work primarily in Italy (the requirement is satisfied whenever the work is performed in Italy for more than 183 days of the year),
4. they perform managerial or specialized skill functions.
The managerial or specialized function requirement is deemed to be satisfied for taxpayers who are in possession of an 3+ year undergraduate degree in the area of management, liberal arts, scientific or high skilled professions, or technical jobs (such as software and IT developers, computer programmers, data base and computer systems programmers, program managers, etc.).
To qualify for the special tax regime, a taxpayer (1) must establish his or her tax residency in Italy during his or her employment there, and (2) must maintain his or her tax residency in Italy for at least two (2) years.
The maximum period for which the benefit applies is five (5) tax years, starting with the first year in which the taxpayer becomes an Italian tax resident.
The benefit consists in a 50 percent deduction of employment and personal services income. Assuming a total income of euro 100,000 in Italy the taxable income after the 50 percent deduction would be reduced to euro 50,000 and the Italian personal income tax (IRPEF) – without taking into account personal deductions or exemptions – would amount euro 15.320 (equal to an effective tax rate of 15.32 perfect).
Any other income, different from wages and compensation for services, continues to be taxed in full or according to the general rules.
Relocating to and establishing tax residency in Italy would still result in taxation in Italy on worldwide income, and carry with it the obligation to report foreign financial accounts and other reportable assets on the Italian income tax return. Consequently, specific pre-immigration tax planning would still be needed to make sure the employees are not subject to an overall adverse tax treatment and Italian taxation is properly coordinated with taxation still applicable in their home country.
The 50 percent income deduction appears to be very attractive and should facilitate foreign direct investments in Italy, in connection with which a foreign investor needs to move managerial or high-skilled personnel from its home country to Italy, and employe it at its Italian subsidiary or place of business.