“Impatriates” Tax Relief on earned/self employment income

Extension for a further 5-year period

5 Year Extension after initial 5 year period

The “Decreto Bilancio 2021” (Law 178/2020), has extended the possibility of taking advantage of the 5 year extension of the tax regime for “impatriated” workers available to individuals who transferred their residence to Italy before 30 April 2019 and who, as at 31 December 2019, were already benefiting from the favourable regime.

The Impatriates Regime

The expatriate workers (employees or the self-employed) regime initially introduced as part of an anti-brain-drain drive designed to encourage Italians (and former residents of Italy) to return to live and work and work in Italy, was, over the years, subsequently extended to almost anyone wanting to move to Italy to take up employment or self-employment.

In its latest version the regime consists of a 5-year, 70% exemption in calculating taxable income. The exempt amount is 90% for individuals taking up residence in defined Regions of the South of Italy.  The April 2019 changes to the regime, saw the possibility of extending the regime for a further five years (after the initial 5-year period) for individuals who purchase Italian real estate or who have dependent children.  However, the April 2019 legislation only granted the possibility of the five-year extension for those who became tax resident in Italy for FY 2020 and later periods. These new rules now give the possibility of a 5-year extension to those arriving before April 2019.

Cost of the extension

Individuals who qualify can choose to extend the favourable regime, for five more tax periods, after the end of the standard five year period. The option is not free – taxpayers must pay:

  1. 10 per cent of their facilitated income relating to the tax period preceding the one in which the option is exercised, if the person at the time of exercising the option:
    1. has at least one child, OR
    2. has purchased residential property in Italy, subsequent to the transfer to Italy or in the twelve months preceding the transfer, or becomes such owner within eighteen months from the date of exercising the option. If property is not purchased the additional benefit enjoyed is lost but no penalty is due for the extra tax. The real estate can directly by the worker or by a  spouse, cohabiting partner or children, including by way of co-ownership.
  2. an amount equal to 5 per cent of the income subject to the beneficial regime received in the tax period preceding the period in which the extension is requested, where:
    1. the individual has at least three dependent children; AND
    2. becomes, or has become, the owner of at least one residential property in Italy, with the same timescales.

The procedures for exercising the option remain to be defined by specific resolution of the Tax Agency. This will likely also provide further clarification as to the extent of the exemption during the 5-year period (presumably 50%).

For individuals moving to Italy before 30 April 2019, and already accessing the regime, no increase has been allowed in the tax-exempt portion of income. For people arriving up to April 2019, income was a subject to a 50% reduction, rather than the 70%/90% allowed for people transferring after that date.

If your require any information of would be interested in knowing whether these somewhat intricate rules apply to you, please contact us.


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