New Italian Inpatriate Workers Regime

On 28 December 2023, Legislative Decree n. 209/2023 entered into force, introducing new rules for individuals moving their tax residence to Italy from 1 January 2024 ("New Italian Inpatriate Workers Regime").

The New Italian Inpatriate Workers Regime contains significant changes to the scope of tax benefits available to workers moving to Italy compared to the pre-2024 regime as well as bringing the concept of Italian tax residence more into line with international practice. Whilst it is to be hoped that the Italian tax authorities will publish further clarifications on the new regime, the changes are broadly welcomed and bring a degree of certainty to the position of workers moving to Italy to work within the same multinational group.

Individuals who are registered in the Official Register of the Italian resident population (so called "Anagrafe della popolazione residente") by 31 December 2023 will continue to apply the previous regime set out in Article 16 of Legislative Decree n. 147/2015.

Requirements

In order to qualify for the New Italian Inpatriate Workers Regime, applicants must:

A. Not have been resident in Italy during the three tax periods preceding the application.
B. Remain a tax resident of Italy for no less than four tax periods after the application.
C. Carry out work activities mainly within Italy (i.e. for a period exceeding 183 days during any tax period).
D. Be highly qualified or specialised workers in accordance with Legislative Decrees  n. 108/2012 and n. 206/2007 (i.e. hold a degree on completion of a higher education programme lasting at least three years).

Special rules applicable to "intragroup transfers of employees"

The New Italian Inpatriate Workers Regime also applies in the case of transfers of employees within companies belonging to the same group.

In such cases, the minimum period spent outside of Italy under condition (A) above is increased to (i) six fiscal years; or (ii) seven fiscal years where the worker has previously been employed in Italy by the same employer or by another entity of the same group.

Benefits

The New Italian Inpatriate Workers Regime provides tax relief of 50% for employment and self-employment income earned in Italy up to a maximum amount of €600,000 per year. Eligible income exceeding this threshold will be taxed according to ordinary rules.

The tax relief is increased to 60% if; (i) the worker transfers his/her tax residence to Italy with a minor child; or alternatively, (ii) the birth or adoption of a child occurred during the period of qualification for the New Italian Inpatriate Workers Regime. In this case, the "increased" tax relief is granted from the tax period in progress at the time of the birth or adoption of the child and for the remaining period of qualification for the regime.

Duration

The New Italian Inpatriate Workers Regime is applicable for five tax periods (i.e. the tax period in which the worker moves his/her tax residence to Italy and for the four subsequent tax periods).

Where the worker is enrolled in the Official Register of the Italian resident population by the end of the fiscal year 2024, an additional period of three years of tax benefits will be granted (i.e. eight years in total) if he/she has purchased a residential property in Italy to be used as their principal dwelling by 31 December 2023 or in the 12 months preceding the transfer to Italy.

Recapture rules

Under the New Italian Inpatriate Workers Regime, individuals are required to maintain their tax residence in Italy for at least four years after relocation. Otherwise, a claw back provision applies to the tax benefits claimed together with relevant penalties and interest.

Simmons & Simmons comments

Under the previous regime, the Italian tax authorities took a restrictive approach to intra-group transfers of employees, whereby individuals transferring to Italy as a condition of continuity with their previous employment (i.e. same employment contract with same role and responsibilities) could not take advantage of the tax regime.

This position generated uncertainty in relation to global mobility decisions implemented by international groups and led to tax litigation. This litigation mostly ended in favour of taxpayers since the Italian tax courts stated that the purpose of the regime was to encourage workers to transfer their residence in Italy to work here, regardless of whether they are starting of a new employment contract.

The New Italian Inpatriate Workers Regime provides clearer rules for intra-group transfers of employees whilst requiring an increased period of non-Italian residence. This provision is designed to avoid abusive practices, particularly those involving circular intra-group transfers solely for the purpose of exploiting the tax relief.

The increased period of non-Italian residence will apply also to "remote-workers" transferring their tax residence to Italy under the same employment contracts. This new measure seems to put "remote-workers" at a disadvantage compared to the guidelines published by the Italian tax authorities for the purposes of Resolution n. 55/2022, according to which tax benefits were applicable to "remote-workers" who continued to work for a non-Italian employer.

We expect that the Italian tax authorities will clarify whether the above position will continue to apply under the New Italian Inpatriate Workers Regime.

For the fiscal years up to 2023, an individual is considered to be a non-Italian tax resident if he/she is enrolled in the official register of Italian individuals resident abroad (so called "AIRE") or, alternatively, is considered as tax resident in a State different from Italy under a double tax treaty in force with Italy.

Regarding the fiscal years from 2024, according to changes to the concept of "tax residence" set out in Legislative Decree n. 209/2023, an individual is considered to be a tax resident in Italy if, for the greater part of the tax period (also considering fractions of a day) either he/she (i) has his/her residence in Italy for civil law purposes, (ii) has his/her domicile in Italy for civil law purposes, or (iii) is physically present in the territory of the State.

Domicile is now defined for tax purposes as the place where an individual's personal and family relationships are primarily developed, independently from the place of his/her economic interest. For sake of completeness, the previous criterion of the registration in the Official Register of the Italian resident population remains a relevant connecting criterion for tax residence, albeit only as a rebuttable presumption.

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