Current tax benefits for expats to work in Italy.

Italy is an appealing destination for working expats looking for good value for their money. The country’s famous quality of life and favorable living costs make it an inviting place to live in respect to the world’s other advanced economies.

Current tax benefits on offer in Italy to expat professionals further the motive to transfer to Italy full-time.

Tax incentives, in fact, for foreign professionals and Italians residing abroad, have been around as far back as 2016.  Art. 16, para. 1, Legislative Decree no. 147/2015 (Decreto Internalizzazione) introduced tax benefits for qualified professionals, both Italian and non-Italian as a measure to encourage them to work in Italy. Over the years, such legislation has greatly expanded.

Let’s take a look at the various tax benefits currently available for foreign nationals working in Italy and the requirements to qualify:

Expats residing in Italy full-time can take advantage of a 70 percent reduction in gross taxable income paid to the Italian state. For example, if a taxpayer's annual income is €100,000 euro gross, taxation will only be applied on 30 percent, or €30,000 euro of the gross figure. This tax reduction grows to 90 percent on taxable income for those professionals who legally reside in certain regions in Central and Southern Italy. This extra reduction is available in the following regions: Abruzzo, Molise, Campania, Puglia, Basilicata, Calabria, Sardinia and Sicily.

This reduction applies to all taxable income from employed or self-employed work, or from business income. Importantly, this benefit is also valid for income generated from working for or with non-Italian employers, clients, or principals.

In other words, a citizen from an EU-member state- let’s say Sweden, for example- can transfer to Italy, maintain their income abroad, and end up paying only a fraction of what they would be paying in their home country. 

Who qualifies for these tax benefits?

Paragraph 1 of Art. 16 D. Lgs. no. 147/2015 identifies two categories of workers for which such tax advantages are available.

The first category of worker shall meet the following requirements:

1) They have not been a resident in Italy for tax purposes in the two years prior to their transfer or repatriation to Italy. 

2) They shall be a resident for tax purposes in Italy for at least two consecutive years upon their transfer.

3) They shall work mainly within the Italian territory upon such transfer (at least 183 days during the fiscal year).

The second category of worker shall meet the following requirements:

1) They are citizens of the European Union.

2) They have resided continuously for at least 24 months in Italy.

3) They are in possession of a university degree, or have been continuously employed or self-employed, or have conducted business activities outside their country of origin in Italy over the last 24 months or more. 

4) They have conducted studies outside of their home country of origin and from Italy in the last 24 months or more, resulting in a university or post-graduate degree.

What is the reason for such benefits?

Again, much like some of the rent incentives on offer by Italian cities, such legislation aims to increase commercial activity in certain parts of the country by attracting individuals with the economic or professional means. The more taxpayers are in the country, the more income for the state, regardless of the amount they are paying. Local economies also stand to benefit from the presence of such expat professionals. Seeing that they must live and work in Italy for the greater part of the calendar year for two consecutive years to be eligible, their residence helps circulate money into local businesses and services.

Will these tax benefits be available eventually for “digital nomads”?

In short: probably. We cannot know for certain what tax benefits will be available for prospective “digital nomads” in Italy, as legislation for their legal presence in Italy through the issuance of a special work visa is still awaiting approval by the Italian Parliament. Information on tax contributions for digital nomads will probably be worked out upon approval of the “digital nomad” visa itself. It is likely, however,  that the Italian Parliament will either provide the same tax benefits to such “digital nomads” as those currently in force for those foreign workers described in this article, or will enact new benefits all together.

Takeaways

Working in Italy can provide a double advantage for those who have the ability to do so. One can not only benefit from the income arbitrage that comes from working in a cheaper country, but also enjoy considerable tax advantages. We should keep in mind of course, that any individual interested in pursuing a professional situation, must also check to see what income they may be taxed upon in their home country, if they plan to file taxes there. Countries like the United States, for example, have agreements with Italy to avoid double taxation of income, in which taxable income is exempt up to a certain threshold.

Interested in transferring to Italy for such tax benefits?

Contact us below for an overview of the process, including eligibility verification and the application itself. Our associate tax advisors  provide the needed assistance  for managing tax positions for expats in Italy, such as for the opening of a Partita IV / VAT registration number (necessary for conducting business in Italy), as well as annual tax filings.