Edited by Pasquale Salvatore, Gianluigi Bizioli, Carmela Ettorre, Marco Ruzza, Alessandro Arace, Elena Briguglio
The new connection criteria of the tax residency of individuals and their impact on existing tax advantage regimes
Article 1 of Legislative Decree No. 209 of December 27, 2023, entitled “Implementation of the tax reform on international taxation”, published on December 28, 2023, in the Official Gazette, introduced significant changes to the connection criteria for determining the tax residency of individuals as provided and regulated by Article 2, paragraph 2, of Presidential Decree No. 917 of December 22, 1986.
The new Article 2, paragraph 2, of the Presidential Decree of December 22, 1986, No. 917, in effect from 1 January 2024, clarifies that individuals are considered fiscally resident in the territory of the State if, for the majority of the tax period (i.e., for more than 183 days), taking into account even fractions of a day, they alternatively (i) have their domicile in the country, (ii) have their residency in Italy, as regulated under Article 43 of the Civil Code, or (iii) are physically present in Italy.
Furthermore, unless proven otherwise, individuals who are registered in the record of the resident population for most of the tax period are also presumed to be residents.
With reference to the first connecting criterion the Legislator has explicitly specified that registration in the Registry of the Resident Population has the nature of a relative legal presumption. Therefore, there is always the possibility for the “presumed” resident to demonstrate, through contrary evidence, the actual residency abroad or, in any case, the tax residency outside of Italy.
Another new is the elimination of the reference to the civil code in interpreting the concept of domicile. This modification will result in the exclusive relevance of the “place where, primarily, personal and family relationships of the person develop”. Therefore the Legislature define a precise hierarchy between the connection criteria privileging the personal and family relationships over economic and work-related interests.Top of Form
The reference to the civil law concept of residency under Article 43 of the Civil Code is confirmed.
From 1 January 2024, moreover, the new criterion of physical presence within the national borders for the majority of the tax period is in force.
Furthermore, despite the expectations generated by the Delegated Law for the reform of the tax system (Law of 9 August 2023, No. 111), among the significant regulatory changes made by Legislative Decree of 27 December 2023, No. 209, there has been no introduction of a domestic provision providing for the splitting of the tax period (so-called “split year”).
Of particular interest will be, at this point, to assess the concrete impact of such significant regulatory novelties in relation to tax advantage regimes provided by the Italian tax law, in particular, to the regime for new residents under Article 24-bis of the Presidential Decree of December 22, 1986, No. 917, and to the inbound workers regime governed by Legislative Decree of 14 September 2015, No. 147, as amended by Article 5 of the same Legislative Decree of 27 December 2023, No. 209. Consideration should be given to the new criterion of physical presence in Italy for the majority of the tax period, which will be sufficient to establish tax residency in the territory of the State, regardless of the significance of personal or economic relationships, further to the power to deny tax residency where it is supported solely by the registration in the Register of Resident Population.
The new inbound workers regime
The Article 5 of Legislative Decree 27 December 2023, no. 209, introduced significant changes to the “inbound workers regime”.
In its current formulation, the tax benefit applies to employment incomes or equivalents and to self-employment incomes produced in Italy by the employees who transfer their tax residency pursuant to the new paragraph 2 of the Presidential Decree of 22 December 1986, no. 917.
Such incomes, within the limit of six hundred thousand euros per year, do not contribute to the formation of the overall income to the extent of 50% of their amount.
The regime applies from the year of acquisition of the tax residence and for the four subsequent years.
The application of the new inbound workers regime is subject to compliance with the following conditions:
- the employees undertake to reside for tax purposes in Italy for at least four tax periods.
- the employees have not been tax residents in Italy in the three tax periods preceding their transfer.
However, if the employee carries out his work in Italy in favor of the same employer with whom he was employed abroad before the transfer or in favor of an employer belonging to the same group of companies, the minimum requirement of foreign residency is of:
- six tax periods if the employee has not previously been employed in Italy for the same employer or for an employer belonging to the same corporate group.
- seven tax periods if the worker, before moving abroad, was employed in Italy for the same employer or for an employer belonging to the same corporate group.
- the work activity, for the greater part of the tax period, is carried out in Italian territory.
- the workers have high qualification or specialization requirements as defined by the Legislative Decree. no. 108 of 28 June 2012 and by Legislative Decree no. 206 of 9 November 2007.
The contribution to the formation of the overall income is reduced to 40% in the event that the worker moves to Italy with a minor child or in case of the birth of a child during the period of use of the regime. In this latter case, the application of the greater benefit will start from the tax period in progress at the time of birth. In any case, it is required that, during the period of use of the regime, the minor child maintains residency in Italy.
The new provisions will apply to subjects who transfer their tax residency to Italy starting from the 2024 tax period.
Individuals who transferred their legal residency by 31 December 2023 continue to apply the previous provisions regarding the application of the inbound workers regime.
Limited to individuals who transfer their legal residency to Italy in 2024, the application of the regime can be extended for another three years in the event that they become owners, by 31 December 2023 and, in any case, in the twelve months preceding the transfer in Italy, of a residential real estate used as a main residency in Italy. The non-contribution to the formation of the gross income, for the further three years, is equal to 50%.
Increase of the IVIE tax rate
Law no. 213 of 29 December 2023 (2024 Budget Law) raises the rate of tax due on properties held abroad (Ivie) from the current 0.76% to 1.06%.
Compared to the legislative provisions currently in force, the determination of the relevant tax base remains unchanged, represented by the cadastral value of the property or by its purchase cost or market value depending on whether it is located in a state that is part of the EU/EEA or in a non-EU/EEA state.
The new provisions apply starting from the 2024 tax period.
Increase in the IVAFE tax rate for financial assets held in countries with preferential taxation
Law no. 213 of 29 December 2023 (2024 Budget Law) raises, from the current 0.2% to 0.4%, the rate of tax due on financial assets (Ivafe) held in states or territories deemed with privileged taxation identified by the Ministerial Decree of the Ministry of Economy and Finance of May 4, 1999 and subsequent amendments.
Ivafe will continue to apply to the value of financial assets, bank accounts and savings accounts held abroad, considering the percentage of ownership in the case of joint ownership of the financial assets and the number of days of ownership.
The taxable base is represented by the value of the financial asset on December 31 of the tax year or by the market value recorded at the end of the holding period in the case of interim transfer.
In case of bank accounts, the tax is paid in a fixed amount of 34.20 Euros, to be calculated on the basis of the number of days of possession.
It is worth noting that Switzerland is out of the scope of the provision concerning the increase in the Ivafe rate being no longer included, starting from the 2024 tax period, among the countries and territories listed in the Ministerial Decree of May 4, 1999.
Therefore, financial assets held in Switzerland will remain subject to the Ivafe tax rate of 0.2%.
The new provisions apply starting from the 2024 tax period.
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