The new Italian special tax regime for inbound specialized workers and managersWhat do the changes mean for individuals and companies?
In 2021 more than 19,400 workers moved to Italy, taking advantage of the special tax regime for inbound workers introduced in 2015 and broadened in 2019. The Italian government has now introduced some changes to the regime that will come into effect from 2024.
The government has introduced more strict requirements to access the new regime. Now individuals, such as employees, self-employed professionals and managers, will be subject to the Italian personal income tax (IRPEF) on 50% (with an exemption of 50%) of the employment income from activities performed in Italy up to a maximum income of EUR600,000.
The tax benefit will be reserved for individuals who:
- are highly specialized or qualified (ie hold higher education degrees and perform specific professions);
- have not been tax resident in Italy for the previous three fiscal years before moving their tax residence to Italy;
- try to remain in Italy as tax resident for the following five years. The residency requirement will be assessed based on the newly introduced definition of tax residence. Tax residents in Italy are those who for the greater part of the taxable period, including fractions of a day, have their domicile or residence in Italy or are physically present in Italy; domicile means the place where the person’s personal and family relationships are primarily developed;
- have a new employment relationship with an entity other than the one for which the person was employed abroad (or belonging to the same company group);
- mainly work or perform their activity in Italy.
The new special tax regime applies to people who will move their residence to Italy from 1 January 2024. The current and more favourable special tax regime (which provides for an exemption of 70% or 90%) only applies to individuals who relocate their residence to Italy and are registered with the Italian resident population register (anagrafe) in an Italian municipality by 31 December 2023.
The new regime is less attractive than the previous one, but still remains an interesting tax planning opportunity for employees and self-employed professionals, and for Italian companies willing to attract talented workers.
Potential beneficiaries should assess the feasibility of the regime, both from an individual and corporate tax perspective. They should consider the source of income, the previous tax residence of the new Italian resident, Italy’s tax treaty network, the effects on stock option and carried interest plans and potentially the solutions for asset protection and succession planning in Italy and abroad of the top managers moving to Italy.
We’re here to help clients that might be affected by these changes in the interim period, and those considering Italy as a possible option for relocation next year having to navigate the requirements and opportunities of the new tax scheme.