Italy: Limitations the applicability of the preferential tax regime for so-called “impatriated” workers

published on 4 January 2024 | reading time approx. 4 minutes

In implementation of Law No. 111 of 9 August 2023, containing “Delegation to the Government to review the tax system”, the Council of Ministers preliminarily approved a Legislative Decree on international taxation matters on 16 October 2023. The text, which was submitted to the Italian Parliament on 17 November for discussion and possible amendment, contains Article 5, entitled: “New preferential regime in favour of Impatriate Workers”. It determines a real redefinition, which appears as a net downsizing, of the scope of the special regime for workers who transfer their tax residence in the territory of the State, which entails the full repeal of the prevailing rule set forth in Article 16 Legislative Decree no. 147/2015 and Article 5 Decree-Law no. 34/2019. The new rules shall enter into force from 1 January 2024.

In order to understand the magnitude of the changes introduced and their implications for the taxation of individuals, it is deemed of fundamental importance to highlight the differential elements with respect to the previous text of the new regime. Moreover, it is highlighted that the latter will come into force as of 1 January 2024, it being understood that under the current wording of the draft text "those who have achieved their tax residence in Italy by 31 December 2023" will still be subject to the previous "Impatriates" regime pursuant to Article 16 of Legislative Decree 147/2015.

Identification of taxable income and calculation of the tax base

The redrawing of the regime begins with a reduction of the eligible income from the previous 70 per cent to the current 50 per cent of total income from employment and self-employment. It will therefore no longer be possible, unlike previously, to bring business income within the scope of the relief. At the same time, the extension of the relief in specific family or patrimonial situations is no longer envisaged, nor is the increase in the relief (90 per cent tax relief on income) for those who move to the regions of southern Italy, i.e. Abruzzo, Molise, Campania, Apulia, Basilicata, Calabria, Sardinia and Sicily. In addition, a quantitative limit of EUR 600,000 per year is established, which corresponds to the maximum amount of income on which it is possible to benefit from the reduction of the tax base: it follows that income above this threshold will be subject to taxation according to the ordinary rules.

Finally, as regards the reference amount for calculation of social security contributions in case of “Impatriate” workers, clarifications had recently arrived from the social security agency (Inps) through the publication of Circular No. 52/2023. The document, relating to business income earned by natural persons, focuses on equality of treatment between the social security and the tax sphere in terms of applicability of the Impatriate relief. This implies that the income base on which social security contributions are calculated must be the same as that identified for income tax purposes.

However, since this paper mainly refers to the category of business income, which is eligible for the beneficial regime under the former rules but not under the current ones, it is legitimate to wonder whether these indications will also be relevant starting from 1 January 2024 for workers that earn employee or self-employment income and are allowed to benefit from the dispositions of the new discipline, who will also benefit from a 50 per cent reduction in the taxable contribution base. Clarification by the Legislator or the social security agency on this issue would be definitely appreciated.

Subjective requirements

As already mentioned, the transfer of tax residence to Italy is a binding prerequisite for the access to the preferential tax treatment in question. More in depth, the following conditions must be met:

The employee must not have been tax resident in the territory of the State during the three tax periods preceding the aforementioned transfer, instead of the previous formulation requiring two tax periods of non-residence;
The worker must fulfil the criteria of high qualification or specialisation as defined by Legislative Decree no. 108/2012 and no. 206/2007;
The person undertakes to obligatorily maintain tax residence in Italy for at least five years. The legislator deliberately refers to the concept of “year” instead of “tax period”. As a consequence, if, for example, a person transfers his tax residence to Italy as of 1 January 2024, he would have to reside there at least until 31 December 2028 to avoid losing the right to the relief.

With specific reference to this requirement, a recapture regime is introduced to ensure compliance with the constraint or, alternatively, the loss of the benefit: “If the tax residence in Italy is not maintained for at least five years following the transfer, the worker forfeits the benefits and the tax authorities recover those already received with the application of the relevant penalties and interest”.

Objective requirements

The conditions for the exercise of the option have been updated and further specified, in particular as far as the identification of the employment or self-employment activity whose income is eligible for relief is concerned:

The work must be carried out in the territory of the State by virtue of a new employment relationship with an entity other than the one with which the employee was employed abroad before the transfer as well as those belonging to the same group. It is therefore no longer sufficient for there to be a change of position or assignment within the same entity or group, but it must be a totally unrelated contract of employment;
The work activity must be performed for most of the tax period in the territory of the State. This provision would appear to be aimed at reducing the phenomena of the massive use of smart working, i.e. the hypotheses in which a person formally transfers his tax residence from abroad to Italy and changes his previous work position, but in fact continues to work from abroad without any substantial change.