By Claudia Arquint, BritishinItaly.com tax consultant for individuals, specialized in giving tax advice for people working in the United Nation Agencies and, in general, for foreign individuals who move their residence in Italy.
Introduction: the Concept of Residence for Tax purposes
According to Article 2 of the Italian Income Tax Code (Dpr n. 917/1986, also called T.U.I.R.), individuals resident in Italy are those who, for most of the tax period, namely for at least 183 days (or 184 days in the case of a leap year), are enrolled in the registers of the resident population or have their domicile or residence in the territory of the Italian State.
The notions of residence and domicile refer to the civil law concepts (Article 43 of the Civil Code), which defines “residence” as the place of habitual abode and the “domicile” as the main place of business and personal interests.
These two conditions are alternatives: the existence of only one of them is sufficient to suggest that a person is qualified, for tax purposes, as resident in Italy and has to comply with all Italian tax rules and requirements, i.e. has to pay taxes in Italy.
Before dealing with main fulfilments required to fully comply with Italian tax rules, foreign people who move to Italy must require a tax identification number, so called Codice Fiscale, which provides means of identification of foreign citizens in their relations with public authorities and other administrations.
For individuals, it is determined on the basis of personal data and is made up of an expression of 16 alphanumeric characters. This application is made through Revenue Agency – Agenzia delle Entrate, a non-economic public body which operates to ensure tax compliance, mainly responsible for collecting tax revenues, providing services and assistance to taxpayers and carrying out assessment and inspections aimed at countering tax evasion. Agenzia delle Entrate website (www.entrate.it) provides also a service called Cassetto Fiscale, for consultations on individual fiscal position, tax filing, tax payments, etc., available through the website via a requested PIN number.
TAX FILE – Dichiarazione dei Redditi – Modello Unico
Italian tax file, to be filed – if due – annually in June, is called Modello Unico. This model enables to declare yearly taxable incomes and taxable financial asset /real estate held outside Italy, and to pay related taxes.
The main Italian taxes to be declared using Modello Unico are:
IRPEF: a progressive Income Tax on individual incomes such as salaries, capital gains, rent, self-employment incomes, etc.;
Imposta sostitutiva – Regime Forfettario: a fixed taxation of self-employment incomes (alternative to IRPEF, in case of annual incomes below euro 65.000), with two different tax rates, which the application of depends on specific characteristics of self-employment activity (currently 5% for start-up, 15% for others, plus I.N.P.S.);
CEDOLARE SECCA: a fixed taxation of rent (alternative to IRPEF), with two different tax rates, which the application of depends on specific characteristics of lease contract (currently 21% and 10%);
IVIE/IVAFE: an Asset Tax due on foreign properties, due in case of ownership of real estate and/or financial assets held outside of Italy, to be declared within the Modello Unico, in Quadro Form RW. These taxes apply even where assets are beneficially owned via an agent, through a trust or other entity (for example, a foundation) acting as nominee. Missing disclosure – through Form RW of Modello Unico – of the ownership of foreign properties can generate very high penalties, which sums up from 3% to 15% of the value of these properties, or higher.
Another tax due in Italy, and NOT DECLARED in Modello Unico, is IMU, an Italian real estate tax which is calculated as a percentage of catastal value of real estate settled in Italy (except for first house, which is exempt at the condition of permanent resident in that house) and is due in June and December of each year.
Conventions for the Avoidance of Double Taxation
As like every country, Italy has bilateral agreements with many foreign countries to avoid double taxation on income and capital. These agreements establish the range of the power to set taxes of the two states and provides credits or refund to avoid double taxation.
Tax Incentives for individuals for Attracting Human Capital in Italy
Please be aware that, in order of support the economic, scientific and cultural development of Italy, the Italian Tax System provides for numerous benefits for people who move their residence to Italy to work or live here.
For example, the Italian Tax System grants tax incentives for the income generated in Italy by professors and researchers residing abroad who move to Italy.
A tax incentive is also in place for so-called “impatriates” workers, who are:
- graduates who have worked abroad
- students who have obtained an academic qualification abroad
- managers and workers with high qualifications and specializations.
Moreover, a tax regime for new residents is dedicated to those whom move to Italy regardless of a specific work activity. High-net-worth individuals moving their tax residence to Italy are enabled to apply a substitute tax to their foreign income, amounting to €100,000 for each fiscal year, instead of the Italian Income Tax IRPEF.
Tax and Financial Planning
Investments and pensions located outside of Italy should be assessed for Italian residence and structured so as to be tax efficient and compliant with Italian law.
If you are interested in finding our more about how Claudia and our team at britishinitaly.com can help you with your personal tax and financial planning needs in conjunction with becoming a resident in Italy please contact us on the following link: