In a series of recent tax rulings, Italy’s Tax Administration ruled that “remote workers” who live in and work remotely in Italy for a foreign employer with no trade or business in Italy can still qualify for the benefits of Italy’s new-resident workers special tax regime.
In 2015, Italy enacted a special tax regime for global workers who move to, and establish their tax residency in Italy.The special tax regime grants a tax exemption for am amount equal to 70 percent of employment taxable income for a period of five tax years. The exempt amount increases o 90 percent if the workers residence is established in one of the country’s southern regions. The exemption period is extended for five more tax years, who the taxpayer has one or more dependent minor children or owner or purchases a real estate property in Italy at any time during the first five-year exemption period. The exempt amount in the second five-year period is equal to 50 percent of taxable employment income, and increases to 90 percent when the taxpayer has three or more dependent children. One requirement for the exemption is that the taxpayer performs his or her services primarily in Italy, and the exemption applies solely to Italian source income.
With effect from tax year 2020, Italy extended the special tax regime to professional income (i.e., professional income earned from personal services performed as independent contractor) and business income (i.e., income arising from a trade or business). The exemption has also been extended to workers who work for foreign-headquartered employers and professionals with foreign-based clients.
In a series of recent tax rulings, Italy’s tax administration, addressing an issued that had emerged during the initial phase of Covid-19 in 2020 and early 2021, has ruled that, as a general rule, the special tax regime applies also to “remote workers” who decide to move to and establish their tax residence in Italy, and work remotely for a foreign employer which has neither a place of business nor any trade or business activities in Italy.
Ruling n. 596/2021 of September 16, 2021 deals with the case of an Italian citizen who move to Italy in May 2021 to work remotely for a U.S. employer. Ruling n. 621/2021 of September 23, 2021 deals with the case of a Dutch employee of an Italian company, who moved to Italy and was employed under Italy’s special tax regime, but during 2020 was forced to remain in the Netherlands and perform his work for the Italian employer in remote mode from there, due to Civid related traveling restrictions. The tax agency ruled that the income earned while working remotely from the Netherlands was not Italian source income, based on Italy’s tax code’s place of performance source rule, and did to qualify for the exemption. Ruling n.2/2022 of January 7, 2022 deals Wirth the case of an Italian citizen who moves back to Italy from Switzerland to work remotely for her Swiss employer. Finally, ruling n. 32/2022 of January 19, 2022 deals with the case of an Italian citizen who moved to Italy to work remotely as independent advisor for several foreign companies (in addition to her for some Italian clients).
In all situations described above, a related issue arises, concerning the possibile existence of a permanent establishment of the foreign employer in Italy, as a result of foreign employer’s maintaining a permanent employee based and working within the Italy territory. The fact that the foreign employer does not otherwise do business in Italy, that the services of the Italian employee are not connected with or performed in furtherance of a business operated by the foreign employer in Italy, that the location of the employee in Italy is set up at the employee’s sole convenience, and that the foreign employee keeps a fixed base regularly available to its Italian employee outside of Italy, are all important factors to consider when addressing the issue. Perhaps, additional guidance will come in the future from the tax administration, considering the constantly growing cases of global workers and professionals moving to Italy and working remotely for foreign employer and customers from their Italian location.