The protagonist is a taxpayer who opened a VAT number in 2016 and has carried out consulting activities in Italy in the field of information technology as a self-employed person.
In February 2019 he moved to Spain, where he also moved his tax residence. He is currently employed in the Iberian Peninsula. But there are still some professional services, dating back to the last months of 2018, for which he must receive compensation.
The taxpayer turns to the Inland Revenue to find out the tax treatment to be applied to the professional compensation he receives in 2019, the tax period in which he cannot be considered as resident for tax purposes in Italy, for the benefits he received in 2018, when he was resident for tax purposes in Italy.
In its answer to question number 512 of 11 December 2019, the Tax Agency clarifies that compensation for self-employment services, even if not habitual, paid to non-resident citizens must be subject to the withholding tax at the rate of 30%.
In the document an important clarification:
“Since this is income deriving from the exercise of a self-employed activity carried out in Italy in 2018, our country retains the power to tax the emoluments in question, although received by the applicant in the following year, in accordance with the provisions of Article 14, paragraph 1, of the Convention against double taxation between Italy and Spain, signed in Rome on 8 September 1977 and ratified by Law no. 663 of 29 September 1980”.
Withholding tax on self-employment: 30% for non-residents, 20% for residents
In justifying its reply, the Inland Revenue first of all refers to the concept of the cash principle that applies to self-employment: the taxation of compensation must be made in the tax period in which it is actually received, or collected, and the deduction of expenses in the period in which they were actually incurred (or paid).
The key reference for identifying the correct taxation is
The tax residence of the person who performs the self-employment services is fundamental. Two cases can be distinguished:
subjects fiscally resident in Italy, withholding tax of 20% as a down payment and final taxation of the compensation made in the tax return;
non-resident subjects, withholding tax of 30% that exhausts the tax claim. It does not apply to compensation for self-employment services paid to permanent establishments in Italy of non-resident parties.
In the case analysed, therefore, the taxpayer invoices professional services in the last months of 2018, the year in which he is tax resident in Italy and used to be self-employed, but collects the compensation in 2019, the year in which he is tax resident abroad and no longer carries out professional activity in our territory.
According to the principle mentioned above, therefore, he must apply the taxation provided for non-residents with a withholding tax of 30%.
In recent months, the Inland Revenue, with a series of answers to the question, has often returned to the rules to which citizens who move abroad or return to Italy must adhere.
Even on the same day of 11 December, with answer number 510 of 2019, it reiterated an important clarification on the access to the facilities provided for the return of brains: a worker who returns to Italy, after a period of posting abroad, in a position that is not in discontinuity with the past, cannot access the facilitated regime.
Article 25 of Presidential Decree No. 600 of 1973
Where any person indicated in the first paragraph of art. 23 pays an Italian tax resdeint taxpayer any remeration in any form , including in the in the form of profit-sharing, for self-employment services, regardless of whether or not they are carried on on a habitual basis or rendered to third parties or in the interest of third parties or for the assumption of obligations to do, not to do or to permit any action, must withhold tax at a rate of 20% by way of advance payment of Irpef payable by the recipient, under obligation to pay that the tax over to the Treasury. [omissis] The withholding tax shall not be levied on services provided in the course of a business or trade.
Without prejudice to the provisions of the last paragraph of this article, if the compensation and the other sums referred to in the previous paragraph are paid to a non-resident, withholding tax at the rate of 30% must be made, including for services provided in the course of business. Compensation for self-employment services provided abroad and those paid to permanent establishments in Italy of non-residents are excluded.