Inbound Regime – news introduced through the Circular n. 33/E 2020 issued by the Italian tax authority

Prepared by Lucia Zedda, Domenico Antonacci and Paolo Lucarini

With this document, we would like to summarize the main clarifications provided by the Italian Tax Authority on December 28th, 2020, through its Circular n. 33 regarding the applicability of the Italian special tax regime pursuant to Article 16 of Legislative Decree 147 / 2015 “Decreto Internazionalizzazione”, so-called “Regime Impatriati”.

Through years this mentioned regime was subjected to different changes. The most important was the Law Decree n. 34 of April 30th 2019 “Decreto Crescita” then converted into Law n. 58/2019, through which the subjective and objective criteria to access to the benefit were redefined starting from tax year 2020.

The most relevant clarifications provided by the aforementioned Circular are available below,  organized according to the Tax Authority’s index.

Subjective and objective requirements

The current version of Article 16 of Decreto Internazionalizzazione, effective since May 1st, 2019 provides that “The employment income, the income assimilated to employment income and the income from self-employment produced in Italy by workers who transfer their residency in Italy in accordance with Article 2 of the Law Decree of 22 December 1986, n. 917, contribute to the computation of the total income only for the 30% of their amount if the following conditions are met: a) the employees were not tax resident in Italy during the two years  prior the aforementioned transfer and accept to reside in Italy for at least two years; b) the work activity is mainly performed in the Italian territory “.

The regulatory text established that the mentioned changes were effective applicable only to those individuals who moved their tax residency in Italy starting from tax year 2020.

Subsequently, the “Tax Decree” redefined a new effective starting date of the mentioned changes; extending the benefits applicable to workers who transfer their tax residency in Italy between April 30th 2019 and July 2nd. In this way the Tax Autority adjusted the clear difference between those individuals who would have returned during fiscal year 2020 and those who have already returned as of April 30th 2019.

“Fondo Controesodo”

With reference to the application of the Impatriati Regime for those taxpayers who transferred their tax residency in Italy between April 30th 2019 and July 2nd 2019, Article 13-ter, Paragraph 2, of the Tax Decree provides that “The Ministry of Economy and Finance, in its prevision has settled up a fund, called “Fondo Controesodo”, with an endowment of 3 million euro starting from the year 2020. The criteria for the access to the fund are established by Decree of the Ministry of Economy and Finance.

With the Circular 33/E, the Italian tax Authority clarifies that, while waiting for the issuance of the mentioned Decree, the individuals involved can enjoy the benefit in the amount of 50% and not 70%. Last January 13, 2021 has been filed to the Financial Ministry an official request of clarification in relation to the actual application of the “Fondo Controesodo”.

Lack of enrollment in the registry of Italian population living abroad (A.I.R.E.)

In order to apply for the tax relief  the taxpayer shouldn’t have been  resident in Italy during  the two previous tax periods prior  the transfer of the tax residency to Italy and undertakes to remain as tax resident for at least two tax years, under penalty of forfeiture.

The Decreto Crescita  established that “Italian citizens who are not enrolled in the registry of Italian population living abroad (AIRE), and who have returned to Italy starting from the period of tax subsequent to the one in progress as on December 31st 2019 can apply for the mentioned tax benefits as long as they have had their tax residency in another State in accordance with a Double Tax Treaty between Italy and the other Country…….

On this point, with this Circular the Italian tax Administration specifies that are entitled to benefit by the inbound regime also those taxpayers who have transferred their tax residency to Italy within the 2019 tax year.

Taxpayers who return at the end of an assignment outside of Italy

Differently from Law 238/2010,  Article 16 of the “Decreto Internazionalizzazione”, does not provide clarifications regarding employees  returned to Italy at the end of an assignment. With reference to this point, the Italian tax Authority with  Circular 17/E of 2017 clearly stated that individuals returned to Italy after being seconded abroad cannot benefit from the tax relief under Article 16.

 In fact their situation is considered as a simple continuation of the previous job position in Italy. Thereafter, with Resolution no. 76/E of October 5th 2018, the tax Authority clarified that the mentioned restrictive position was necessary in order to avoid an abuse of the favorable tax regime. However they recognize this position was not in line with the attractive aim of the relief in question, and so they confirmed it is not denied the possibility to evaluate specific hypothesis of return to Italy which are not a direct consequence of the natural ending of the assignment but instead it is influenced by different elements linked to the ratio under the tax relief law.

By way of example, this can happen if:

  • the secondment contract has been extended several times and its duration over time therefore determines a weakening of the links of the individual with the Italian territory and an effective connection of the employee in the foreign territory;
  • the employee is coming back to Italy without keeping the continuity with the previous job position in Italy. This is the case of an employee who will take a different corporate role than the original one due to the grater skills and professional experience gained abroad.

From the Italian tax Authority point of view, in these  circumstances and in   the conditions required by the tax law, it is possible to apply  for the special tax regime, provided  by the aforementioned Article 16, also for those employees who are coming back from a foreign assignment.

At the same time the Tax Authority clarifies that if the individual starts a new working activity under a new employment contract, which is different from the contract  in place in Italy before the start of the secondment, and if  the employee assumes a different corporate role in place of the original one, he will be able to apply for the tax benefit in question starting from the tax period in which he transferred his tax residency back to Italy.

Furthermore, the tax Authority explained that the tax relief it is not applicable to those individual who, despite the existence of a new contract to cover new corporate role, the working activity is still linked with the previous job position carried out in Italy before the expatriation.

The Agency listed different example of “business continuity”, including:

  • the confirmation of holidays accrued before the new contractual agreement;
  • the confirmation of seniority from the date of first hiring;
  • the absence of a trial period;
  • the presence of clauses aimed to not paying the accrued thirteenth payment (and possibly fourteenth payment) and the severance payment at the time of signing the new agreement;
  • the presence of clauses in which it is established that at the end of the secondment, the employee will be re-integrated inside the organization of the Home Company with the same agreements and conditions of work in force before the starting of the assignment.

Otherwise, where the objective conditions of the new contract (work performance, duration and , salary) require a new agreement to replace the previous one, with new and different legal situations followed by a substantial change in the object of the service and the title of the relationship, the individual will be eligible to the applicability of the tax benefit in question.

Non-resident employer

The Italian tax Authority, through the Circular in question recalls that Article 16, paragraph 1, in the version of  April 29th, 2019 requires that the employee will perform his working activity for an Italian resident company under an employment relationship established with it or with companies that are directly or indirectly controlled it, were controlled by it or were controlled by the same company that controlled the company. This requirement is no longer required for the purposes of access to the special tax regime as determined by the Decreto Crescita. Indeed, can access to the inbound regime individuals who moved in Italy and carrying out their working activities for an employer based abroad or  clients (in the case of self-employment) are foreigners (non-residents) are eligible for the application of the special tax regime in question.

Variable income received during the tax period of acquisition of the tax residency in Italy, referable to tax periods in which the employee was resident abroad

 With this  Circular , the Italian tax authority clarifies that the special tax regime cannot be applied to the income received during the tax period in which the individual has acquired the tax residency in Italy if they refer to the work activity performed before the repatriation, during which he was considered as resident abroad.

Bonus accrued in the last year of use of the special tax regime but received in subsequent years

With reference to the remuneration paid as bonuses, the Italian tax Authority confirms that in consideration of the cash principle, all the income paid in cash and in kind as employment income are considered as tax relevant at the moment of the receipt of it by the employee. If the aforementioned bonus is paid in a tax period in which the individual has already end the length of applicability of the special tax regime the entire value of the bonus will be considered to the computation of the total income according to the ordinary tax rules. It will not enjoy the tax benefit because of a ratione temporis.

Taxpayers who returns after an unpaid leave

With reference to the unpaid leave spent out of Italy by the employeethe Italian tax Authority confirms that such employees are not allowed to benefit by the inbound regime. The reason of this position find his reason in the fact that, during the suspension period, the employee preserves the right to keep his working role and, as a rule, the return back to work takes place in continuity with the previous job position since generally the employee return back with the same professional classification and under the same contractual conditions which were in place before the unpaid leave.

Let’s Talk

For a deeper discussion, please contact:

Paolo Lucarini

PwC TLS Avvocati e Commercialisti


Lucia Zedda

PwC TLS Avvocati e Commercialisti

Senior Manager