The Legislative Decree on International Taxation, No. 209 of 27 December 2023 introduced some important modifications to the Italian rules on the tax residence of individuals and the statutory test of tax residence (STTR).
The STTR contained in art. 2, para. 2 of the Italian Tax Code (Decree of the President of the Republic of 22 December 1986, n. 917) is modified with effect from 1 January 2024 as follows.
Table of Contents
Basic Principles
The first and most fundamental point is that under the STTR an individual is either tax resident or in Italy or not, for any particular tax year. The Italian tax year for individuals is a calendar year – from 1 January to 31 December. It is generally not possible to be tax resident for only a part of any year. Apart from limited cases under some of Italy’s double tax treaties (e.g. the treaties with Germany and Switzerland) there is no “split year” concept under Italian rules.
If you meet any of the tests under the STTR, then you are tax resident for the whole year. It is an all in, all out test. That means that if you transfer to Italy and meet anyone of the tests of residence for the year of transfer, you are as a general rule, liable to Italian tax on income and gains received from 1 January of that year and foreign assets owned assets held during the course of the year.
The Statutory Test of Tax Residence
Art 2 of the Tax Code in its current, post 2023 version, provides that you are considered tax resident in Italy if, for the greater part of the tax year (more than 183 days or 184 in a leap year), you:
- are physically present on Italian territory; OR
- have your centre of vital interests – defined as the centre of your affections – spouse, close family – in Italy, OR
- have your habitual abode in Italy; OR
- are registered as resident in the list of resident population (anagrafe) maintained by your local authority (Comune) – this is a presumption of tax residence, not an absolute test and can be overcome, if the facts and circumstances allow, e.g. by the terms of an applicable tax treaty.
The Impact of the STTR
All this means that you will be tax resident for any year if you meet any one of the tests for more than 183 days (184 in a leap year). If you do not meet any of the tests, you are not Italian tax resident for that year. The “clock resets” at the end of each tax year. So if you leave Italy on 30 July of one year, and return on 30 June of the following year, such that you do not meet test 1 – physical presence, and providing you do not meet any of the other tests in either year, you will not be considered as tax resident for the whole of both of the years. In these circumstances however, the issues of centre of vital interests, habitual abode and registration as resident come into play. Even if you are physically outside Italy for an extended period, it is still possible to meet the test of tax residence by virtue of your centre of vital interests or habitual abode or maintaining your registration as resident with the anagrafe.
A day under the STTR includes any fraction of a day during the tax year – so days of arrival and days of departure count as a whole day. The days do not need to be consecutive in the year.
The tests are alternative so meeting any of them will make you tax resident in Italy (or presumed to be tax resident in the case of test no. 4) for a particular tax year.
The Physical Presence Test
If you are physically present on Italian soil for more than 183 days (or 184 in a leap year) you are considered tax resident in Italy. Days or arrival in and departure from Italy count as a whole day.
It is possible that the Italian tax returns (modelli 730 and PF) will be modified to request a listing of days in and out of Italy. In any event you should keep copies of boarding passes or other evidence of arrival and departure especially if the physical presence test is going to be critical in the determining residence status for any tax year.
The Centre of Vital Interests Test
1) you have your centre of economic relations – sources of income, location of savings/investments and a range of other typical economic arrangements – insurances, utilities etc. and
2) you have your centre of affections, ie. the location of spouse/partner, children and wider family.
The reference to the Civil Code definition of domiclio has been removed in the post 2023 STTR, with the exclusion of the place of economic interests has been excluded in the new version, meaning that if you are for example working full time outside Italy, but have your family in Italy for the greater part of any tax year, you will be considered as tax resident in Italy for that year.
The Habitual Abode Test
Habitual abode in this context is your “home” – the place that you intend to return at the end of any period of absence however long. It is the place in which, even taking into consideration a number of tax years, that can be said to be the place that is your habitual or usual place of abode. So you can be considered tax resident in Italy, even if absent for an extended period, if you maintain your home in Italy for the greater part of any tax period.
The Registration as Resident Test
Individuals who transfer their residence to Italy are obliged under Italian law to register with the anagrafe – the list of the resident population maintained by the municipality (Comune) for the jurisdiction in which you have your accommodation.
Application to be registered as resident is made by a self certification, made under penalty of perjury, that you consider that you have your residence (centre of vital interests) and habitual abode at the address you declare. you will be required to show evidence of the right to occupy the property declared as your residence, and evidence that you are able to sustain yourself without becoming a burden on the State. The local authority will conduct some background checks including, possibly, a visit by the local police service or agent to verify that you are in occupation of the premises at which you have declared residency. Following these checks, if successful, your application to be registered as resident will be accepted effective from the original date of the application or the following day.
If you are registered as resident in the anagrafe you will be presumed to be Italian tax resident even if you do not meet any of the other tests. And having made a formal declaration before a public official that you consider the address you registered as the place in which you have centre of vital interests and habitual abode, overcoming the presumption that you are not therefore tax resident may be difficult. At any rate any such rebuttal of residence needs to be made on the basis of documentary evidence of the facts and circumstances by reference to a legal analysis of the position, e.g. where you claiming under a Double Tax Treaty “tie -breaker” test that the provisions applicable to individuals who are tax resident in two countries under each country’s domestic test of tax residence apply to make you, in your particular circumstances, tax resident in another country.
Consequences of Tax Residence
As a tax resident of Italy you are generally (subject to specific exemption under Italian law or under a double tax treaty), liable to tax on worldwide income and gains received during the whole of the tax year. As a tax resident you are also liable to report assets owned during the tax year (e.g real estate, investments, private pensions, valuable objects and bank accounts) located outside Italy and where applicable pay the Italian wealth tax on these. If you are not tax resident for any year, you are generally (subject to exemption under an applicable double tax treaty) liable to Italian tax only on Italian source income (e.g. income from an Italian employment, rental income from an Italian property, royalties paid by an Italian resident etc.) There is a precise definition for different types of income of what is considered to have an Italian source, and that definition may be wider than expected.
Other countries may have a split year concept of residence, whereby you are tax resident for only part of their tax year. Some countries have a different tax year from the calendar year. This can lead to problems of double taxation where, as an Italian tax resident for a whole year, you are also considered tax resident elsewhere for a part of the foreign tax year. Identifying, in advance, exact timings and potential issues of double taxation for an overlapping “stub” period is important.
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