December 21, 2023
Employment Tax
Italy | Inbound tax regime reform
Impact: High
Summary
On December 19th, 2023 the Council of Ministers approved the final version of the Legislative Decree on International taxation providing some amendments to the Inbound tax regime, named “impatriati”. Companies and international employees should consider the below law updates which could impact the employment and global mobility strategies.
The Detail
The approved amendment affects the Italian special tax regime applicable on salaries of inbound employees. The changes impact the following areas:
● The percentage of tax-exempt employment income is reduced from current 70% to 50% or to 60% where the major exemption applies only to employees with a child of age below 18 remaining resident in Italy with the parent employee.
● An annual threshold of 600.000 € has been introduced. Employment income above this limit will be fully taxed.
● The current qualifying conditions are amended as follows:
❖ As a general condition, the individual must be non-tax resident in Italy in the 3 tax years preceding the transfer to Italy (the current tax law requires 2 years of non-tax residency). However, the condition of non-tax residency increases significantly if the employee, prior to transferring to Italy, held an employment relationship with the Italian employer or with an employer being part of the same group of the current employer. In this case, the non- residency requirement increases to:
➢ 6 tax years, in case the foreign employment was not performed in favour of an Italian employer;
➢ 7 tax years, in case the foreign employment was not performed in favour of an Italian employer.
❖ The individual must become a tax resident in Italy and commit to maintain this condition for a period that should be of 4 years (the current tax law requires a minimum of 2 years of tax residence). The failure to respect this condition shall result in paying back the benefit obtained from the tax relief
with additional interests.
❖ Carry out work activities mainly in Italy.
● The following condition has been added:
❖ The applicant should meet the requirement to be regarded as a highly qualified or specialised professional.
● As for the current law provision, the tax benefit will apply for 5 years, starting from the tax year in which the taxpayer becomes an Italian tax resident. However, it will no longer be possible to extend the special tax regime for a further 5 years.
Transitory provisions
The above-mentioned changes will not apply to the taxpayers who will register with the Italian record of resident population (i.e. anagrafe) by December 31st, 2023. These employees will be allowed to benefit from the current and more favourable inbound tax treatment.
In addition, those employees who will register with “anagrafe” in 2024 and become owners of an Italian residential property in the timeframe that goes from twelve months prior to their transfer in Italy and December 31st, 2023, will benefit from the possibility to extend the inbound tax regime for 3 additional tax years. The extension in these cases will allow for a tax exemption on 50% of employment income capped as above while the property will need to be used as their primary residence.
How we can help
Given the important impact that this tax reform will have on employment incomes, on the special inbound tax regime and on company global mobility and talent acquisition strategies, we would be more than glad to offer our assistance with specific case-by-case evaluations and guidance to secure the benefits offered by the current and the future laws.
Contact us
For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:
Nicla Cimmino
Partner
nicla.cimmino@vialto.com
Suzana Branilovic
Partner
suzana.branilovic@vialto.com
Valentina Siciliani
Director
valentina.siciliani@vialto.com
Ciro Eligiato
Senior Manager
ciro.eligiato@vialto.com
Edoardo Plescia
Senior Associate
edoardo.plescia@vialto.com
Further information on Vialto Partners can be found here: http://www.vialtopartners.com