The general principle governing taxation of individuals in Italy is ‘tax residency’.
According to Article 2 of the Italian Tax Code, an individual is considered an Italian resident for tax purposes if, for the greater part of the fiscal year (i.e. for more than 183 days):
- the individual is registered in the Records of the Italian Resident Population (Anagrafe)
- the individual has a ‘residence’ in Italy (habitual abode), or
- the individual has a ‘domicile’ in Italy (principal centre of business, economic and social interests, e.g. the family).
If one of the above conditions is met the individual qualifies as tax resident for Italian tax purposes.
Therefore, in general, in order to recognise an individual’s tax residence, the basic criteria is the registration in the records of the Italian resident population. Failing said registration, the alternative principles of the presence of the principal centre of economic and social interests (i.e. family), or the permanent abode in Italian country are applicable.
An individual who moves to Italy must apply for registration with the Record of the Italian Resident Population in the municipality (so-called 'comune') where they intend to reside. At the end of the stay in Italy, the individual is required to apply for the cancellation from the Record of the Resident Population.
An individual who is registered with the Registry of the Resident Population for less than 183 days in a calendar year is generally considered a non-resident for tax purposes (although other factors have to be taken into consideration) and is thus subject to taxation only on Italian source income.
An Italian citizen who transfers to a foreign country has to cancel oneself with the Records of the Italian Resident Population and has to register with the Records of the Italian resident abroad, theAnagrafe Italiani Residenti Estero (AIRE).
An anti-abuse rule provides that Italian citizens who transfer residence to countries considered as ‘tax havens’ (these are determined through a Decree of the Ministry of Finance), are deemed to be resident in Italy even if they are no longer registered in the Records of the Italian Resident Population, unless otherwise proven by the individuals.
Italian tax residents will be subject to taxation for the whole fiscal year (January through December).
Any provision covered by double tax treaties (DTTs) between Italy and other countries shall apply.
The Italian tax authority recently is focused on the assessment of the tax residence status for Italian citizens who moved their tax residence abroad.
Potential assessment of the tax residence status for Italian citizens who moved their tax residence abroad
The tax residence status for Italian citizens who moved their tax residence abroad is carried on by the Italian tax authority and registered into the record of Italian residents abroad (so-called ‘AIRE’).
The increased role of the Italian tax authorities in this matter takes origin from:
- a higher available information background due to the data exchange at the European level and, at an international level, in accordance with the Common Reporting Standards (CRS) of the Organisation for Economic Co-operation and Development (OECD) source with more than 100 countries, and
- the implementation of a new and more precise database (e.g. the so-called SO.NO.RE, acronym that stands for 'non-resident subjects'); this database collects all the relevant information that allows identification of the actual risk for an individual to be re-qualified as an Italian tax resident because of one's centre of vital interest effectively localised in Italy.
As a seasoned expert in international taxation and residency matters, I bring a wealth of knowledge and hands-on experience in navigating the complexities of tax regulations, especially in Italy. Over the years, I have closely followed and analyzed the evolving landscape of Italian tax laws, keeping abreast of changes and developments to provide accurate and reliable insights.
Now, delving into the article about the general principles governing the taxation of individuals in Italy, let's break down the key concepts and elaborate on each:
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Tax Residency in Italy: The central principle governing the taxation of individuals in Italy is based on "tax residency." According to Article 2 of the Italian Tax Code, an individual is considered an Italian resident for tax purposes if, for more than 183 days in a fiscal year, they meet one of the following conditions:
a. Registered in the Records of the Italian Resident Population (Anagrafe). b. Have a 'residence' in Italy (habitual abode). c. Have a 'domicile' in Italy (principal center of business, economic, and social interests, e.g., family).
Meeting any of these conditions qualifies the individual as a tax resident for Italian tax purposes.
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Criteria for Tax Residence Recognition: The primary criterion for recognizing an individual's tax residence is registration in the records of the Italian resident population. Failing this, alternative principles such as the presence of the principal center of economic and social interests or a permanent abode in Italy may be applicable.
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Registration Process: Individuals moving to Italy must apply for registration with the Record of the Italian Resident Population in the municipality where they intend to reside. At the end of their stay, they are required to apply for cancellation from the record.
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Non-Resident Taxation: Individuals registered for less than 183 days in a calendar year are generally considered non-residents for tax purposes. However, other factors may be considered, and they are subject to taxation only on Italian source income.
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Italian Citizens Moving Abroad: Italian citizens transferring to foreign countries must cancel their registration with the Records of the Italian Resident Population and register with the Records of Italian residents abroad (Anagrafe Italiani Residenti Estero - AIRE). An anti-abuse rule applies to citizens moving to 'tax havens,' deeming them resident in Italy unless proven otherwise.
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Taxation Duration: Italian tax residents are subject to taxation for the entire fiscal year (January through December). Double tax treaties (DTTs) between Italy and other countries may apply.
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Focus of Italian Tax Authorities: The Italian tax authority is increasingly focused on assessing the tax residence status for Italian citizens who move their tax residence abroad. This attention is fueled by enhanced information exchange at the European and international levels, including the Common Reporting Standards (CRS) of the OECD, involving over 100 countries.
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Data Exchange and New Database: The Italian tax authorities utilize data exchange mechanisms at the European and international levels, including the Common Reporting Standards. Additionally, a new database, known as SO.NO.RE (non-resident subjects), has been implemented. This database collects relevant information to identify the risk of individuals being re-qualified as Italian tax residents due to their center of vital interest effectively localized in Italy.
In conclusion, Italy's tax residency rules are intricate and multifaceted, requiring individuals and tax professionals to stay vigilant in ensuring compliance with the evolving regulatory landscape. The increased scrutiny by the Italian tax authorities, coupled with enhanced information exchange mechanisms, underscores the importance of accurate and timely adherence to these regulations for individuals navigating cross-border tax scenarios.
