In Italy, the legislation on the determination of tax residency for natural persons (individual taxpayers) changed in 2024. The most significant changes concern the new definition of “domicile”, which is one of the four alternative criteria used to determine personal tax residency for income tax purposes, and the enactment of the new physical presence rule.
The criteria for determining the tax residency of individuals (natural persons) are the following:
- Residence, as defined in the Civil Code,
- Domicile, as defined in the tax statute, and
- Physical presence,
- Registration on the list or resident population.
A person is a tax resident when, for most of the tax period, meets any of those four tests.
The registration test creates a rebuttable presumption of residence, and the taxpayer is free to prove that he or she is not a resident under any of the other three tests1.
The physical presence test is a mechanical test, which is met in case of a presence in Italy for more than 183 days during any year, including a fraction of a day (meaning, with days of departure and arrival counting as full days).
Domicile and residence require more analysis of their interpretation and meaning and depend on the facts of each case.
I. Domicile.
Italy’s new statutory definition of “domicile” refers to the place where a person’s personal and family relationships are primarily developed2.
The definition is expressly intended to draw from and be consistent with the international meaning of the corresponding concept that applies in the context of the international conventions for the avoidance of double taxation, where the term “center of vital interests” is substantially equivalent to the concept of “domicile” and relies on a person’s personal, family, social and economic connections to a country and is used to determine a person’s tax residency for tax treaty purpose when a person is simultaneously resident in both of the two treaty contracting states under the internal laws of each state[3].
The new definition of domicile refers and gives exclusive relevance to personal and family relationships[4], which include social relationships[5], and overrules previous case law according to which professional, economic, or financial interests should be given more weight in determining a person’s domicile.
The interplay between the “primarily developed” component of the domicile test and the “most of the tax period” general requirement, which is common to all four tax residency tests, is on display in the example on page 11 of Circular 20/E, which illustrates the domicile rule.
There, the tax agency describes a situation in which a taxpayer overall spends less than 183 days a year in each of three countries, with 143 days spent in Italy, where his spouse lives, and 120 days spent in country B, where a taxpayer’s child lives. In the example, the family relations that are relevant for the purpose of the domicile test are equally present in different countries (spouse in Italy and child in country B).
According to the tax agency, the taxpayer’s domicile should be deemed to be in Italy, where he spends most of his time relative to the time he spends in other countries during the year, even if, overall, he spends less than 183 days in Italy in the year, therefore, making Italy to be the place where his family relationships were primarily developed during the year.
The tax agency refers to the taxpayer’s physical presence in Italy and suggests that when a taxpayer spends most of his time in a country where he also has stable and continuing family relationships throughout the year, the country where he spends most of his time relative to the time spent in each other country where he also has family connections, during the year, should be treated as his domicile, even though the taxpayer’s overall presence in that country lasted less than half of the year[6].
II. Residence (Habitual Abode).
The resident rule adopts the meaning of the concept of residence that is defined pursuant to the second paragraph of Article 43 of the Italian Civil Code. There, residence is defined as the place where a person has their habitual abode.
Case law has held that a habitual abode requires the presence of two elements: an objective (or material) element, characterized by “stable permanence” in a specific location, and a subjective element, namely the intention to remain in that location (Italian Supreme Court, February 5, 1985, No. 791)[7].
Italian Supreme Court, Civil Section, July 6, 1983, No. 4525, ruled that “To satisfy the concept of residence, understood as a person’s habitual abode, two elements are required: an objective element, consisting of the subject’s stable permanence in a specific place, and a subjective element, consisting of the intention to remain there on a lasting basis. To determine when residence can be considered established, it is not necessary for the permanence in a specific place to have already lasted for a significant period; it is sufficient to ascertain that the person has established their abode in that place with the intention, inferable from any evidentiary element, also through an ex-post fact assessment, of settling there in a non-temporary manner.”
The courts, in an attempt to provide a comprehensive definition of the concept or residence, have clarified in several decisions two fundamental principles:
- it is not necessary for the permanence in a specific place to be continuous or permanent (Italian Supreme Court, United Sections, October 28, 1985, No. 5292); however, it is required that the person uses the place as their dwelling and maintains the center of their social and family relationships there (Italian Supreme Court, March 14, 1986, No. 1738);
- absences due to specific needs, such as work, study, or medical care, do not negate the intention to remain in a particular place (Italian Supreme Court, February 12, 1973, No. 435).
A consistent jurisprudential approach (Italian Supreme Court, January 17, 1972, No. 126; February 5, 1985, No. 791; May 5, 1980, No. 2963; March 14, 1986, No. 1738; June 12, 1987, No. 5194; October 28, 1985, No. 5292; July 6, 1983, No. 4525) holds that residence entails habitual and voluntary abode, understood as the stable maintenance of a dwelling in a specific place. This remains the case even when the individual travels elsewhere for work or other reasons, such as study, medical care, or vacation, provided that they return to the dwelling whenever possible and maintain it as the center of their family, social, and economic relationships (Italian Supreme Court, May 22, 1963, No. 1342; May 5, 1980, No. 2936; May 11, 1994, No. 4581).
With reference to the subjective element of the residence rule the Italian Supreme Court, in its ruling of January 21, 2015, No. 961, with specific reference to the aspect of a person’s “willingness” to remain in a given place as a defining element of their tax residence, explicitly clarified that “what matters is not the continuous presence in a place (…), but rather the intention to remain there and return as soon as possible (animus reverendi) and to maintain one’s family and social relationships there.
With respect to the objective element of the residence rule, the prevailing legal doctrine and the jurisprudence of the Supreme Court are consistent in asserting that the requirement of habitual abode does not necessitate continuity or permanence. Thus, the habitual nature of abode persists even if the individual works or engages in other activities outside the municipality of residence (or outside the country), provided that they maintain a dwelling there, return to it whenever possible, and demonstrate the intention to keep it as the center of their family and social relationships (see Italian Supreme Court, April 29, 1975, No. 2561; Italian Supreme Court, United Sections, October 28, 1985, No. 5292).
Regarding the object requirement of habituality, the United Sections of the Italian Supreme Court, in the seminal ruling of October 28, 1985, No. 5292, interpreted it by emphasizing the objective aspect of the duration of the abode. Specifically, it was clarified that “a foreigner who, although spending part of their time abroad, predominantly resides in Italy, must be considered a resident in Italy – and therefore can be sue before the Italian courts under Article 4, No. 1, of the Code of Civil Procedure. The quantitative predominance of the Italian residence over the foreign one must be determined, in cases of multiple residences in Italy, by comparing the total time spent in all Italian residences with the time spent abroad, rather than individually comparing each Italian residence with the foreign one.”
III. Physical Presence.
Under the new physical presence test, a person is automatically a tax resident if he or she spends more than 183 days in Italy during the year, including fractions of days (which count as a full day).
IV. Conclusions.
Italian rules on individual tax residency remain challenging, and the new “183-day” rule is deceptively simple.
In today’s global world, where international families are often split in different places, and family members divide their time in various countries where they may have substantial and continuing personal and family connections, the new “domicile” rule (which focuses on the place where personal and family relations are primarily developed), may lead to tax residency even when a person spends only a tiny fraction of the year in Italy.
At the same time, childless couples or single individuals who maintain several homes and divide their time in various countries around the world, including Italy, without spending more than half of the year in any country where they hold a home might still be considered Italian tax residents if they develop their most meaningful personal connections in Italy and spend more time there than in any of those other countries during the year.
In general, spending less than 183 days in Italy does not automatically shelter from Italian tax residency, and the tax residency analysis under the domicile and place of abode rules requires careful consideration and planning.
[1] For income tax purposes, persons who, for most of the tax period, also considering fractions of a day, have their residence within the meaning of the civil code or their domicile in the territory of the State or are physically present therein are deemed to be resident. For the application of this provision, domicile is defined as the place where personal and family relationships of the person mainly develop. Unless otherwise proven, also persons enrolled for most of the tax period in the resident population registries are presumed to be resident.
[2] The new statutory definition of domicile reads as follows: “For the application of this provision, domicile is defined as the place where personal and family relationships of the person mainly develop”.
[3] “In the Explanatory Report to the Decree, it is also clarified that with the amendment the Legislator has replaced “(…)the civil law criterion of domicile with a criterion of a substantive nature, borrowed from international practice andconventions for the avoidance of double taxation, in which domicile is the place where the taxpayer’s personal and family relationships are primarily developed (…)”. Ultimately, based on the mention of the international praxis and the DoubleTax Conventions, reference shall be made, for relevant parts, to the OECD Commentary to the Model Convention against double taxation (hereinafter also referred to as the “OECD Model”)”.
[4] “The notion of ‘personal and family relationships’ comprises both the typical relationships regulated by the current law (for example conjugal relationships or civil partnerships) and stable personal relationships expressing an attachment to the Italian territory (as for example, a stable couple living together)” (see Circular n. 20, page 10).
[5] “Equally, taxpayer’s stable social relationships can be relevant to the extent to such relationships result from concrete elements as, for example, the annual membership of a cultural and sports club” (see Circular n. 20, page 10).
[6] “Take, for example, the case where, without integrating any further residence requirement under Article 2, paragraph 2, of TUIR, Tizio simultaneously maintains as owner a house in Italy and another house in State Beta. Tizio’s children, born from a first marriage, live in the Italian house, while Tizio’s new wife lives in the house in State Beta. Tizio ordinarily works in Italy, frequently travels to various countries on business trips as well as to Beta during weekends and periods of abstention from work. During the year, Tizio stays on average 145 days in Italy, 120 days in State Beta and 100 days in other Countries. In such a case, it is not immediate to identify the State where the personal and family relationships are concentrated, which could be equivalent in both countries (because Tizio has the children in Italy and the wife in State Beta).
In these circumstances, it is considered that a useful criterion can be found in the period of physical presence in the territory of the State. In the present case, therefore, Tizio would be resident in Italy”.
[7] See Italian Supreme Court, Civil Section, February 5, 1985, No. 791:
“Residence is determined by the habitual and voluntary abode of a person in a specific place, such that this legally relevant relationship arises from both the objective fact of stable permanence in that place and the subjective element of the intention to remain there. This intention, expressed through unequivocal acts evidencing such intent, is generally inferred from the first element.” In other words, intention is presumed until proven otherwise, and proof relies on external indicators.
- The amended statute reads as follows: “For income tax purposes, persons who, for most of the tax period, also considering fractions of a day, have their residence within the meaning of the civil code or their domicile in the territory of the State or are physically present therein are deemed to be resident. For the application of this provision, domicile is defined as the place where personal and family relationships of the person mainly develop. Unless otherwise proven, also persons enrolled for most of the tax period in the resident population registries are presumed to be resident” ↩︎
- “For the application of this provision, domicile is defined as the place where personal and family relationships of the person mainly develop”. ↩︎