What’s New on Italian Special Tax Regimes?

The Italian Government has recently approved a decree (Legislative Decree n. 209/2023) containing some changes to the existing Special Tax Regime (STR) for Inbound Workers (Art. 5) and introducing favourable fiscal provision for extra-UE companies and certain specific businesses (Art. 6, dedicated to “Reshoring”). 

No changes apply to the High-Net-Worth-Individual (HNWI) Tax Regime, amounting to an annual 100,000-euro substitute tax on all non-Italian income for those who move to Italy. Neither for the Special Tax Regime for Retirees, which provides for a 7% Flat Tax on foreign income if you receive a pension income abroad and move to Italy under certain conditions (e.g. the transfer must be in a small municipality located in the Southern Regions such as Sicily, Puglia, etc.). Furthermore, no changes are apply to the Special Tax Regime for Inbound Professors and Researchers, who are eligible for a 90% reduction of their taxable employment income.

For more details about the STR for HNWI, please make reference to our article https://www.grantthornton.global/en/insights/articles/Tax-planning-for-High-Net-Worth-Individuals/

The new changes relate to Inbound Workers (employees and self-employees) who move their tax residence to Italy starting from the FY 2024. 

Those who already benefit from the regime, or who became a tax resident of Italy in FY 2023, enrolling to the “Anagrafe” before the end of December 2023 continue to fall under the Inbound Workers tax regime based on the previous law. Professional sportsmen and sportswomen included. This allows a reduction of the taxable base equal to 70% (90% in certain case) for five years, extendable to ten years. 

The requirements under the new provisions of the Inbound Workers Tax Regime

According to the recent decree, to be eligible for the New Special Tax Regime for Inbound Workers, involves meeting high qualification or specialisation requirements, and to have been a non-tax resident of Italy for the previous three fiscal years before the transfer (2 FYs are sufficient with the previous regime). Professional sportsmen and sportswomen are now excluded.

The employment/self-employment income produced in Italy is 50% exempted (60% in the case of having a minor as a child) up to an annual limit of 600,000 euro (while no cap applies to those already transferred to Italy). Considering Italian tax rates, the exemption results in an effective overall tax rate of 22% - 24% (including national tax and local taxes) for income not exceeding the 600,000 euro threshold, making the regime still very attractive notwithstanding the changes.  

The tax benefit lasts for the fiscal year where the residency is transferred to Italy and for the following four. It is mandatory to maintain the tax residence in Italy for at least four years. If you leave the country before, taxes on the previously exempted income are due, plus interest.  

Also, it has been expressly recognised that it is possible for those moving to Italy, while working for the same company or the same group, to benefit from the regime. In such a case, the employee must demonstrate that he/she was a tax resident of another country for six years before the transfer (instead of the ordinary term of three years), or seven years had they already worked in Italy for the same group. The aim of the legislation is to attract skilful managers who have gained significant experience in other countries while avoiding aggressive tax programmes. 

Special tax planning for FY2024.  It is also possible to benefit from an extension of the tax regime for a further three fiscal tax years (i.e. from five to eight) for those moving their registered residence to Italy during 2024. If they buy a house on the Italian territory in the 12 months preceding their transfer. This must become their main residence.  

Reshoring

The decree introduces an additional tax incentive to promote the development of economic activities in Italy: Non-EU companies moving to Italy are granted  a 50% reduction of their taxable basis for the fiscal year in which the transfer takes place and for the following five fiscal years. Considering that the Italian ordinary CIT rate is 24%, this implies a basic taxation of 12% (plus 50% of IRAP, whose rate varies from 3% to 5% depending on the region where the activities are performed). The application of this new opportunity for single-member companies is to be clarified by the authorities. Interestingly, the benefit is also available to partnerships.  

Should the business leave Italy within five fiscal years after the beneficial regime expires (before 11 FYs from the initial move to Italy), a recapture mechanism of the benefit enjoyed is provided. 

If you would like to discuss any of the points raised in this article, contact Lorenzo Carminati, Grant Thornton Italy at lorenzo.carminati@bgt.it.gt.com.