Expatriate tax ebook - Italy

Basis of taxation

Charge to tax
Residence
Income from employment
Source of employment
Benefits (in kind)
Expatriate concessions
Relief for foreign taxes
Deductions against income

Charge to tax
Subjection to Italian tax is dependent on whether the income arises in Italy and the extent of the charge will be determined by an individual’s tax residency status.

Residence
Residence and Domicile
The taxation of individuals is determined by their residency status. An Italian resident is taxed on his worldwide income for the whole period of residency. A non-resident is taxed on Italian source income only. Italian source employment income for a non resident individual is subject to tax at an index rate as a resident.

Investment income is subject to non-resident withholding tax at source (exceptions exist according to EU regulations).

The Italian Tax Code contains only an indicative definition of fiscal residence. Each case must be determined on its own facts and circumstances. The Italian Tax Authorities, in their interpretation of the residency rules, usually look at a number of factors in making a determination. These factors include; the acquisition of a dwelling, moving one’s family, establishing social and economic ties (i.e., acquiring provincial health coverage, a driver’s license, opening bank accounts, etc.)

Residency can also be established if an individual “sojourns” in Italy for more than 183 days in a particular calendar year. The individual would then be deemed resident for the entire calendar year and as such, is taxable on his worldwide income for the whole year.

Subjection to Italian tax will be determined by the expatriate's residence and domicile status.

Income from employment
Income from an office or employment includes all amounts received by 12 January of the following year as salary, wages, commissions, director’s fees, bonuses and taxable benefits (also in kind). In addition to amounts received as an employee, amounts received in consideration of or on termination of employment are also taxed as employment income.

Source of employment
The basic rule makes reference to the place in which the work is performed. Therefore, where duties are performed in Italy, any remuneration received in respect of these duties is treated as Italian sourced income and subject to Italian tax. Relief under the relevant Double Taxation Agreement may apply.

Benefits (in kind)
In general where a benefit is enjoyed in Italy, an Italian income tax charge will arise. If the individual is resident, all the benefits, regardless where they are enjoyed or granted, have to be considered in the determination of his/her taxable base. As a general rule, housing, meal allowances, provision of a car and relocation allowances are to be taken into account where the individual’s taxable base is computed, in addition to the individual's salary.

Under specific conditions, however, some of these benefits are, partially or totally, exempt from taxation. By way of instance, relocation allowance are taxable only in the ratio of 50% up to € 4,648,11. Costs related to international relocations (flights, transportation expenses, etc.) born by the employer are totally exempt if duly documented.

Expatriate concessions
There are not specific concessions for expatriates. However, tax planning opportunities exist in the years of entering/leaving the country.

Relief for foreign taxes
In case of double taxation in Italy and a foreign jurisdiction, relief can be obtained once the foreign taxes can be considered as “definitively” paid (i.e. no refund is available abroad in the future).

EU directives apply allowing savings for specific income.

Deductions against income
Employee contributions to a registered Italian and European pension scheme complying with the requirements of the Directive No. 2003/41/CE are deductible within defined limits (up to a total amount of € 5,164.57). Employee contributions to a other pension plan are generally not deductible.

Deductions are also foreseen for insurance plans and, under some conditions, for health care.

Information about Italy:

introduction

facts and figures

basis of taxation

what taxes?

tax planning opportunities