Tax treatment is a key factor for private individuals like workers, executives, entrepreneurs and professional athletes who relocate to new jurisdictions. Recent tax law changes may influence the choice to relocate to Italy and must be carefully analyzed.
Special tax regime for inbound workers and (individual) entrepreneurs
An employee, a self-employed person or an individual entrepreneur may be subject to Italian personal income tax (IRPEF) on 30% of their income – therefore obtaining a 70% exemption – deriving from activity performed in Italy if the individual: (a) becomes an Italian tax resident pursuant to Italian tax law; (b) has not been tax resident in Italy for the previous two years; (c) endeavors to remain in Italy as a tax resident for the following two years; and (d) mainly works or performs employment activity in Italy.
The exemption is increased to 90% – and, consequently, only 10% of income shall be subject to income tax – if the inbound workers move their residency to one of the southern Italian regions (ie Abruzzo, Molise, Campania, Puglia, Basilicata, Calabria, Sardinia or Sicily).
The new tax incentives apply for five years and can be extended for a further five years (in total ten years) – with a 50% 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 a dependent child; if there are three dependent children, the exemption in the extended period is increased to 90%).
New provisions introduced by the 2021 Italian Budget law
The extension for the additional five-year period was originally granted to those individuals moving their residence to Italy from the 2020 financial year.
The recent 2021 Italian Budget Law has granted the possibility to obtain the five-year extension also to individuals who have already moved their tax residence to Italy before 2020, to the extent they are subject to the favorable tax regime as of December 21, 2019.
These individuals can opt for the additional five-year benefit on payment of an amount equal to 10% of the income from employment produced in Italy in the financial year prior to that of the option. The option can be exercised only if the applicant has at least one dependent child or has become the owner of a residential property in Italy after the initial transfer or in the previous 12 months, or if he becomes so within 18 months from the option. The amount to be paid for the option is reduced to 5% if the worker has at least three dependent children and becomes or has become the owner of a residential property within the mentioned deadlines.
Specific guidelines must be released by the Italian Tax Authorities within 60 days from the entry into force of the new provisions.
Tax incentives applicable to professional athletes
The incentives for “inbound workers” also apply to professional athletes if all the conditions mentioned in the previous paragraph (a, b, c, d) are met. However, in such cases, the athletes (e.g. football players) shall be subject to Italian personal income tax (IRPEF) on 50% – instead of 30% – of their income (therefore obtaining a 50% exemption).
The incentives apply for five years and can be extended for an additional five years (in total ten years) – with a 50% income exemption in the extended period – if 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 if there is at least one dependent child. The 90% exemption linked to the transfer of the tax residence to one of the southern Italian regions shall not be applicable. The regime applies upon a specific option and the payment of an amount equal to 0.5% of the taxable income.
The new extension granted by the recent 2021 Italian Budget law to those individuals who have moved their residence to Italy before 2020 is not applicable to the athletes.
The incentives could apply to sport stars (players, coaches and sport managers) relocating to Italy as employees of Italian clubs (as well as self-employed professionals). This would make Italian clubs more competitive at an international level in engaging sport stars.
For the sport sector, tax incentives for inbound workers are an alternative to the tax incentive system aimed to attract HNWIs relocating to Italy (EUR100,000 taxation on a yearly basis on all foreign-sourced income). The new regime for inbound workers could allow a substantial saving on their Italian annual salary, while the HNWIs tax incentive could allow a substantial saving on foreign-sourced income (e.g. dividends from foreign companies, royalties).
Time is of the essence
The regimes here briefly analyzed 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. Such opportunities should be carefully considered once accurate preliminary tax, wealth and immigration analysis has been duly performed with the support of trusted professionals. The analysis must include sources of income, asset allocation/protection structures, Italy’s tax treaty network and the available solutions for succession planning.