On October 16, the Council of Ministers approved a legislative proposal that will repeal the special tax regime for new resident workers, entrepreneurs, and professionals with effect from January 1, 2024.
The special regime, enacted in its final form in 2020, allows Italian and foreign nationals who establish their tax residence in Italy while not being Italian tax residents in the preceding two years to exclude up to 70 percent of their qualifying income from tax. If the tax residence is established in one of the regions of the southern part of the country or one of the islands (Sicily and Sardinia), the exclusion goes up to 90 percent.
A new regime will replace the existing regime with much stricter eligibility requirements and a much narrower scope: it will be limited to Italian or EU nationals, apply for five years with no extension, grant a 50 percent maximum exemption, require a three-year non-tax residence period, and provide for a retroactive loss of the tax benefits if the taxpayer moves her tax residence outside of Italy before the completion of the full five year period or her business outside of Italy before the completion of ten full years of residence. Also, the new regime will apply only to those who moved to Italy to start new employment, profession, or business and meet the new high qualifications or skills requirement (which includes holding a graduate degree in economics, entrepreneurship, or qualified professions).
The final legislation will set forth specific provisions for those who moved to Italy under the existing regime and are there once that is repealed and the new one will take its place.
Taxpayers currently in Italy under the special regime should carefully follow the developments and review their tax planning strategies to address the issues that may arise form the final enactment of the legislation under consideration.
Those who plan to move to Italy after the new regime is in place should consider other planning strategies, such as specifically designed trusts aimed at minimizing their income taxes there, even when they operate outside the special regime itself.