Tax treatment is a key factor for private individuals such as workers, executives, entrepreneurs and professional athletes who relocate to new jurisdictions. In this respect, recent tax law changes may influence the choice to relocate to Italy.
Law Decree No. 34 of April 30, 2019 entered into force on May 1, 2019 and introduced new tax incentives referring to inbound workers, entrepreneurs, researchers and professors who transfer their tax residence in Italy starting from 2020.
The new provisions are aimed at attracting individuals (including wealthy individuals) and new capital resources by providing more appealing tax incentives which will give a real boost to human capital relocation in Italy.
These new measures extend the actual range of Italian tax incentives for individuals who currently reside abroad, giving them the opportunity to benefit from a reduction of the taxable basis if they decide to relocate to Italy.
Indeed, Italian law currently provides four different attractive tax regimes for new resident individuals:
a) Article 16 of Legislative Decree No. 147 of 2015, referred to workers and entrepreneurs;
b) Article 44 of Law Decree No. 78 of 2010, referred to professors and researchers;
c) Article 24-bis of the Italian income tax code (Presidential Decree No. 917 of 1986 (ITC)), known as res-non-dom regime, which provides a substitutive taxation equal to EUR 100,000 on all foreign-sourced income earned by the individual new resident; and
d) Article 24-ter of the ITC, which provides for a 7% flat tax on all foreign income (not only on foreign pension income) earned by new resident retired individuals moving to the South of Italy.
Notably, the recent provisions of the Decree have modified only the special tax regimes under a), b) and d), as follows.
Special tax regime for inbound workers and (individual) entrepreneurs
Starting from FY 2020, an individual such as an employee, a self/employed professional or an individual entrepreneur shall be subject to Italian personal income tax (IRPEF) only on 30 percent of their income (getting a 70 percent exemption) deriving from the activity performed in Italy if collectively they:
a) become an Italian tax resident, pursuant to Article 2 of TUIR. Note that individuals are considered as Italian tax resident if, for the greater part of a given tax period, they are enrolled in the Italian register of the resident population, have their residence or domicile in Italy pursuant to Article 43 of the Italian Civil Code. For instance, individuals who are enrolled in the Italian register as of July 4, 2019 are considered an Italian tax resident starting from 2020 and, therefore, can benefit from the new tax incentives as from tax period 2020;
b) have not been tax resident in Italy for the previous two years before transferring their tax residence to Italy;
c) endeavor to remain in Italy as a tax resident for the following two years; and
d) mainly work or perform their activity in Italy.
For individuals who meet these criteria, Italian personal income tax can be reduced to 13% approximately (30% of taxable income *43% highest progressive tax rate).
Such exemption is increased to 90 percent – and, consequently, only 10 percent of income shall be subject to income tax – if inbound workers move their residency to one of the southern Italian regions (i.e. Abruzzo, Molise, Campania, Puglia, Basilicata, Calabria, Sardinia or Sicily). In this case, the individual income tax can be reduced to approximately 4.3% (10% of taxable income *43% highest tax rate).
The new incentives apply for five years and can be extended for another five years (in total ten years) – with a 50 percent 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 an dependent child; if there are three dependent children, the exemption in the extended period is increased to 90%).
Why professional sportsman may be interested
One of the greatest advantages of the new incentives for inbound workers is that the new regime embraces employees and self–employed professionals regardless of their qualifications (i.e. no degree, masters, or similar are required) or role.
In this connection Decree No. 34/2019 has introduced a specific tax regime for professional athletes. The special tax regime applies if all the conditions mentioned in the previous paragraph (a, b, c, d) are met. However, in such a case, sportsman shall be subject to Italian personal income tax (IRPEF) on 50 percent – instead of 30 percent – of their income (getting a 50 percent exemption).
The new incentives apply for five years and can be extended for another 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 there is at least a dependent child. The 90% exemption for transferring the tax residence to one of the southern Italian regions shall not be applicable.
The regime applies upon a specific option made by the sportsman and upon the payment of a proportional tax equal to 0,5% of the taxable income.
As a matter of fact, 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 football clubs (that generally negotiate salaries of sport stars net of Italian income taxation) more competitive at an international level in engaging football stars.
The tax incentive for inbound workers is 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 annual Italian salary, while the new residents’ tax incentive could allow a substantial saving on foreign–sourced income (e.g. dividends from foreign companies, royalties, etc.).
In other words, the EUR100,000 tax incentive targets an elite of sport stars with international assets and investments, while the new regime as modified by the Decree provides for a general set of rules potentially applicable to all sportspeople transferring to Italian clubs.
An example may clarify the difference between the special regimes.
A Brasilian top player is currently tax resident in Spain. Should he decide to move to Italy and play for an Italian football club in Serie A (for example Milan or Rome), he could benefit from the new Italian tax regime designed for inbound workers that relocate to Italy from 2020.
His employment income (the income he would receive from the Italian football club) would be subject, for five years, to Italian personal income tax on a portion equal to 50% of the income getting a 50% tax exemption.
In moving to Italy, the top player would also have another tax option to mitigate his personal tax treatment.
As previously mentioned, specific tax provisions for high–net–worth individuals (HNWIs) wishing to become tax resident in Italy have been introduced. Eligible individuals can opt for a one-off payment of €100,000 per year for a maximum of 15 years, regardless of the amount of income received. Remittances of foreign-sourced income in Italy do not trigger further taxation. However, in this case, Italian-sourced income would be taxed under the ordinary tax regime (43 percent tax rate plus local taxes).
Why might this tax regime be of interest to top players or coaches? A significant stream of their income derives from the commercial exploitation of image rights. For example, revenue from sponsorship contracts such as payments received by an American sportswear company for sponsorship activities carried out exclusively in Brazil and dividends paid from “star companies” could be treated as non-Italian income and taxed under the EUR100,000 umbrella tax, regardless of the amount of income received.
The regimes mentioned here 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. In this respect, Italy could also become the promised land for celebrities or sportspeople looking to mitigate their tax burden.
However, such opportunities should be carefully considered once an accurate preliminary tax and wealth analysis has been duly performed with the support of trusted professionals. Notably, the analysis should consider sources of income, asset allocation, the previous tax residence of the new Italian resident, Italy’s tax treaty network and the solutions for asset protection and succession planning.
Moreover, a review of the immigration procedures (visas, etc.) and of the foreign residency status as well as assistance on the drafting of employment agreements in compliance with the regimes are crucial issues to be taken into consideration.