Remote working – do Italian tax breaks apply to foreign employed executives transferring to Italy? The response of the Revenue Agency.
In the last few years, the Italian government has introduced several measures aimed at attracting international talented and promising individuals to Italy. The objective of these measures is to boost further the appeal of Italy as an enjoyable place where to live and do business. Among these measures, there are extremely generous tax breaks [see note 1] and one of this is the so called “Impatriates Regime”, which is broadly the possibility for bright EU and white-list countries nationals to enjoy a 70% income tax exemption on employment or self-employment income earned after moving to Italy. Such exemption is increased to 90% for those moving to Southern Italy.
Employed or self-employed individuals “working remotely” for foreign based employers or clients
On 16 September 2021, the Italian Revenue Agency responding to a request for an official interpretation on the availability of the special tax regime for individuals working remotely from Italy for a foreign based business, has set out its view on the eligibility to the Impatriates Regime also to employed or self-employed individuals “working remotely” for foreign based employers or clients.
This request saw an Italian individual looking to move back to Italy, after more than 2 years residing abroad, to carry on working activities there for his foreign based employer for at least 2 years.
In their ruling the Revenue confirmed that individuals moving to Italy would access the Impatriates Regime if they: (a) have not been Italian tax resident in the 2 tax years before moving to Italy; (b) commit to live in Italy for at least 2 years after moving to Italy; (c) carry out working activities mainly in Italy. Furthermore, the Revenue specified that the same regime is available also to EU nationals or non-EU nationals with which Italy has double tax or tax exchange information agreements if they are university graduated and have worked abroad in the last 24 months or have, always in the last 24 months, studied abroad and obtained a university degree or a post-degree qualification.
The Revenue went on confirming that the special tax treatment is available for a period of at least 5 years and is extendable for a further 5 years if the eligible individuals buy an Italian residential property in the year preceding the move or thereafter or have at least one minor or dependent child. During the extended 5 years period, the income tax-free threshold is reduced to 50% or increased to 90% if the eligible individual has at least 3 minor or dependent children.
In relation to working activities carried out mainly in Italy for foreign based employers or clients, the Revenue referred to their recent guidance clarifying that these do not need to have an Italian presence.
Therefore, with reference to the specific case, the Revenue concluded that the individual requesting the ruling could benefit from the special tax treatment, subject to all the relevant conditions of the Impatriates Regime being met.
Permanent Establishment Risk
However, it is important to link this response to other recent Italian Revenue guidelines with which they warn about situations where the “remote worker” could be treated as a personal permanent establishment in Italy of the non-resident employer under domestic or treaty rules. For this reason, careful combined planning by the employee and the foreign employer is needed and special considerations should be given also to the Italian employment and social security regulations.
[note 1] These tax breaks include the so-called “Italian resident non-dom regime”, which is available to individuals who have not lived in Italy for at least 9 years of the decade preceding the year of the move to Italy and opt to be taxed at ordinary income tax rates only on Italian source of income, while foreign source of income would be subject to a flat charge of €100k.