Italy introduces new tax incentives to attract foreign talent
When the labour market is competitive, recruiting from aboard is a solution to finding the best talent. However, attracting foreign professionals to Italy has been a challenge due to its taxes and the country has tried multiple times to reduce the amount foreigners would have to pay. This has now changed as of 2020, as Italy has revised and extended the benefits initially established by article 16 of Legislative Decree no. 147/2015 for workers who transfer their tax residence to Italy.
This reduction is one of the widest across Europe and will allow foreign people, whether they be employees, freelancers or retired, to come to Italy with a relatively low tax rate on their worldwide income.
Here are some details to be noted:
- For five years, 70% of income from freelance work, employment or a pension will be considered as exempt from tax if: 1) the worker has not been a resident in Italy during the two tax periods prior to moving the tax residence to Italy (no longer five, as in the original formulation); 2) the worker agrees to remain in Italy for at least 2 years; 3) the work is predominantly done in Italy.
- The benefit has been extended to all workers and not only those in managerial roles and those having a higher/specialist qualification or degree.
- The benefits also apply to business income produced by people who return to Italy who start a business from 2020.
- A further five tax periods are envisaged (for a total of 10 years): 50% of taxable income, for workers with at least one child who is dependent or under 18, or for those who purchase a house in Italy after moving to the country or in the 12 months prior to moving; 90% of taxable income, for workers with at least three children who are dependent or under 18.
- The amount increases up to 90% if the worker moves to Abruzzo, Basilicata, Calabria, Campania, Molise, Puglia, Sardinia or Sicily.
- Specific rules have been decided for sport players.
This benefit can also be used in some cases, provided the requirements are met, by seconded workers who return to Italy. More specifically, the worker can use these benefits, alternatively:
- if the duration of the secondment was especially long - due to an extension of the secondment - and so it is possible to affirm weakened ties to Italy and consequent rootedness in the foreign country;
- if, on returning from the secondment, the worker takes on a different role to the one held originally, partly because of the know-how and experience gained abroad. The key is thus that the role on returning to Italy is not a continuation of the prior one.
By Luca Pirola, HLB Italy
Additionally, a particular regulation has been approved for teachers and researchers who have undertaken research or taught abroad for 2 years in a row and then officially move back to Italy (i.e. return residence to Italy): they will only pay 10% tax on their employee income or on their self-employed income as follows:
- for seven years following the official date of moving back to Italy, if they have a minor or dependent child, including in pre-adoption care, or if they purchase at least one home in Italy after moving to Italy or in the twelve months prior to moving;
- for ten years following the official date of moving back to Italy, if they have two minor or dependent children, including in pre-adoption care;
- for twelve years following the official date of moving back to Italy, if they have three minor or dependent children, including in pre-adoption care.
While a careful check on a case by case basis in order to verify if the tax break is applicable is highly recommended, this his tax reduction makes Italy one of the most tax attractive states of Europe.