No General Split Tax Year Concept
A notable feature of the Italian tax residence rules is the absence of a general domestic “split-year” concept. Under Article 2 of the Italian Tax Code, an individual is either tax resident or non-tax resident for the tax year as a whole, depending on whether one of the statutory residence tests is met for the majority of the year. The Italian tax year is the calendar year 1 January to 31 December.
While Italy’s treaties with Switzerland and Germany contain specific provisions that can produce a split-year result, most Italian tax treaties instead rely on the standard OECD tie-breaker rules and do not divide the tax year into separate tax residence periods.
Moving in the First Half of an Italian Tax Year
The practical consequences for taxpayers moving to Italy holders can be significant.
An individual who moves to Italy in the first half of the year from a treaty-partner jurisdiction that does not contain a split-year provision and who satisfies one of the Article 2 residence tests for that year will generally become Italian tax resident for the entire tax year. Subject to any treaty relief and the specific conditions of the relevant regime, such an individual may, if the eligibility conditions are met generally, access the Regime Forfettario or the Impatriates Regime in that year in respect of qualifying Italian-source income. However, because Italian residence applies for the full tax year, foreign-source income received before the relocation may also fall within the Italian tax net and be subject to ordinary progressive rates, with foreign tax credits potentially available where applicable.
Moving in the Second Half of an Italian Tax Year
By contrast, an individual who relocates in the latter part of the year and does not satisfy any of the Article 2 residence tests will generally remain non-resident for that tax year and therefore outside the scope of Italian taxation on foreign-source income. Such a person will nevertheless remain taxable in Italy on Italian-source income, including employment or self-employment income attributable to services physically performed in Italy. Since both the Regime Forfettario and the Impatriates Regime generally require Italian tax residence for any Italian tax year to which the special regime is to apply, access to those regimes will normally only commence from the first tax year in which Italian tax residence is established.
Practical Effects for Mid Year Movers
The practical implication is that the timing of a move to Italy can have a dramatic impact on the first year’s tax burden. A Digital Nomad Visa holder arriving during the first half of the year and becoming Italian tax resident under Article 2 TUIR may, absent a treaty split-year provision, be exposed to Italian taxation on worldwide income for the entire tax year, including foreign-source income arising before the relocation. By contrast, an individual arriving later in the year who does not satisfy any of the Italian residence tests will generally remain taxable only on Italian-source income for that year, although residence-dependent regimes such as the Forfettario and Impatriates regimes will ordinarily not be available until Italian tax residence is established.
The easiest solution is to time a move to Italy as near as possible to a calendar year end as possible, starting work as near as possible to the beginning of a tax year.
Considerable attention needs to be given to the date that you cease to be tax resident in the country that you are moving from and to your tax liability on earnings performed in that country up to the date of the move.
This is less of an issue for U.S. citizens moving to Italy as they generally remain liable to U.S. tax on worldwide income regardless of residence, although defining the start of e.g. the Foreign Earned Income Exclusion and the availability of a U.S. foreinn tax credit for income tax paid in Italy.
Social Security
The issue is less critical as regards Italian social security contributions as on the whole these will apply only to remuneration paid in respect of services provided from Italian soil.
Wealth Tax
Italian wealth tax applies for any year that the owner of non Italian assets is tax resident in Italy.
Rental Income
General rules
Italy generally taxes on a “receipts” basis. Income must be reported in the annual tax return for the year in which it is received. taxable on receipt or on receipt of the right to receive the relevant income. exception is made for tax on rents revived from lettings of non Italian situated property.
Taxation of Foreign Rental Income
Where a property located abroad is rented by an individual who is tax resident in Italy under Tax Code the and the income is subject to taxation in the foreign state, Italy generally does not recalculate the taxable rental profit using Italian property-income rules. Instead, the foreign rental income to be reported in Italy is the net amount that is taxable in the foreign jurisdiction. The amount included in the Italian return is therefore the net rental profit as determined under the foreign tax system, for the foreign tax period ending during the course of the Italian tax year. This leads to a potential timing mismatch for landlords with property in a jurisdiction such as the UK, Australia, South Africa etc. which do not have calendar year tax periods, as in Italy.
For example, UK property rents are reported in the UK by reference to the UK tax year ending 5 April. The foreign rental profit reported in the UK tax return for the tax year ending during the relevant Italian calendar year is typically the figure that feeds into the Italian return.
Accordingly, an individual becoming Italian resident on 1 April 2026 may find that the rental profit reported in the UK tax year ending 5 April 2026 is brought into the Italian return for 2026 (filed in 2027), notwithstanding that virtually all of that profit economically arose before the move to Italy.
That is one of the more counter-intuitive consequences of the Italian foreign-income rules.
Foreign Tax Credit
Where UK tax has been paid on the rental profit, relief may generally be available under the ordinary foreign tax credit mechanism, subject to the statutory conditions and limitations. However, if the effective rate of UK tax on the rental income is lower than the effective Italian rate of tax, the taxpayer may need to “top-up” up tax to Italian rates.
The opposite effect can apply, depending on the timing of a move of residence away from Italy, with the result that foreign rental income received in a tax year of residence escapes the charge to Italian tax.
Examples – Freelancers
Example 1: Freelancer Seeking to Use the Regime Forfettario
Assumptions
- Freelance consultant.
- Annual gross revenue: €60,000.
- No treaty split-year provision applies.
Eligible for the Regime Forfettario. - Move on 1 April
- The individual becomes Italian tax resident during the year under Article 2 of the Tax Code
Effect:
Pays Italian Tax on April to December earnings calculated under rules for Regime Forfettario
Pays Italian tax on January to March foreign source income – at ordinary scale rates, possibly with offset of foreign tax credit.
Consider the Italian treatment of non earned foreign-source income received before the move because Italian residence applies for the tax year as a whole.
Result:
Potentially a significantly larger Italian tax base than expected.
Example 2
Assumptions
Move on 1 October
The individual may not satisfy any of the Article 2 residence tests for that tax year and therefore may remain non-resident for that year.
Result:
Italian tax generally applies only to Italian-source income (income from services provided from Italian soil).
Foreign-source income earned earlier in the year generally remains outside the Italian tax net.
The Regime Forfettario would ordinarily begin only once Italian tax residence is established (i.e. for earnings received on or after 1 January of the year following the year of moving.).
The contrast between the two outcomes is what readers need to grasp.
Example 2: Employee
A second example involving an employee may be even more powerful because readers often assume that PAYE withholding in their home country settles everything.
Assumptions
Employee earning €60,000 annual salary.
Relocates to Italy and works remotely from Italy thereafter.
Impatriates regime potentially available once tax residence is established.
Move on 1 April
The employee becomes Italian tax resident for the year.
The salary earned before arrival may still need to be analysed from an Italian perspective because residence is determined for the tax year as a whole. Foreign tax credits may be available where double taxation arises.
Move on 1 October
The employee may remain non-resident for that year.
Only employment income attributable to work physically performed in Italy after arrival may be subject to Italian taxation. Full Italian tax residence, and therefore access to the Impatriates regime, would generally commence in the following tax year.
Important: The examples are purely illustrative and are intended to explain the operation of the residence rules. They are not tax calculations and should not be used to estimate an individual’s actual tax liability. The precise outcome will depend on the taxpayer’s personal circumstances, the applicable double tax treaty, the nature and source of the income involved, eligibility for special regimes, foreign tax credits, social security considerations and other factors.
Figures are illustrative only and ignore deductions, social security, tax credits, treaty relief and other variables.