Taxes in Italy for Expats

Do expats pay income tax in Italy?

Understanding the ‘tax residence‘ concept is the first step to determine how an individual’s income will be taxed in Italy.

For expat individuals who are arriving in or leaving Italy it is important to understand what their Italian tax residence status will be.

Tax resident individuals

Tax residents are subject to taxation in Italy on their income wherever produced, under the so-called ‘worldwide principle’. Therefore, tax residents are subject to taxation on income from foreign sources. This includes:

• income from real estate owned outside of Italy;
• foreign interests, dividends, and capital gains;
• foreign compensations;
• other foreign income (ex. Malta).

Non-tax resident individuals

Non-tax residents are subject to taxation only on income produced in Italy. According to the “mirror-like” reading of art. 23 of Italian Tax Code (“T.U.I.R.”), the category of income produced in the territory of the State includes:

• income from rented immovable property located in Italy;
• capital gains paid by Italy or by residents;
• income from employment performed in Italy;
• income from self-employment produced by activities carried out in Italy;
• profits deriving from business activities carried out in Italy through permanent establishments of the foreign Entity;
• other income from activities carried out in Italy and from assets located on the territory of the State;
• capital gains from transfers of stocks held in resident companies.

Individual Tax Residency in Italy

The domestic tax legislation of each State provides the conditions according to which an individual is deemed a tax resident of that State.

Italian tax year follows the calendar year (e.g., 1st January – 31st December). Therefore, an individual is regarded as a tax resident in Italy for the whole tax year, while there is no concept of a split tax year, unless a specific Double Tax Treaty provides for this.

According to Article 2, paragraph 2, of the Italian Tax Code (“T.U.I.R.”), an individual is considered a “resident” for tax purposes if, for most of the tax year (at least 183 days a year, 184 for leap years):

1. the individual is registered with the Registry of the Italian Resident Population (called “Anagrafe”); or
2. the “domicile” is in the territory of the Italian State, as defined by Section 43 of the Italian Civil Code (the place where the individual as economic social and family centre of interests); or
3. the “residence” is in the territory of the Italian State, as defined by Section 43 of the Italian Civil Code (the place where the individual has the habitual abode, where the person usually lives).

Meeting at least one of the above conditions, even without continuity, for the major part of the tax year is sufficient to qualify the individual as an Italian tax resident.

Registration within the Register of the Italian Resident Population

Maintaining enrollment on the Register of the Italian Resident Population (hereafter “Anagrafe“) will constitute an absolute presumption of tax residence in Italy, irrespective of the individual’s actual presence outside of Italy.

For foreign individuals arriving in Italy, it is a legal obligation to register themselves and any dependents as a resident in the municipality where they have their habitual abode within three months of arrival in Italy.

Italian nationals who transfer their residence abroad for 12 months or more have a right and an obligation to register with the Registry of Italians Resident Abroad (AIRE). Registration with AIRE allows voting in Italian elections and renewing or obtaining documents abroad.

Foreign nationals leaving Italy should cancel their registration from the Anagrafe before leaving Italy. However, for Italian citizens, simple deregistration from Anagrafe may not be sufficient. Enrollment in the Registry of Italians Residing Abroad (AIRE) alone may not break tax residence. Italian tax residence continues if the individual maintains domicile and/or residence in Italy. This is according to the meaning in the Italian Civil Code. Residence may also continue if the person moves to a “blacklist” country.

The “White” and “Black” lists

When an individual moves to a “whitelist” country, the burden of proof rests with the Authorities. Whitelist countries have a Double Taxation Treaty or Exchange of Information Agreement with Italy. The Authorities must prove that the individual is resident in Italy.

When an individual moves to a “blacklist” country, the burden shifts to the individual. These countries are considered tax havens by the Italian Authorities. The individual must prove they reside in the foreign country and not in Italy.

The Domicile in Italy

The Italian Civil Code defines the domicile as the place where the person has established the centre of business and interests.

Therefore, two elements are to be considered:

1. the objective element: the center of the business and personal affairs.
2. the subjective element: the intention to be based in that place (Italy), expressed explicitly or indirectly through the individual’s behavior to a common social evaluation.

Considering the above, domicile consists primarily of a legal situation. It is independent of the person’s physical presence and characterized by a subjective element: “the will” to establish and maintain a center of business activity in Italy. It also involves maintaining personal affairs in Italy.

The term “business and affairs/interests” have to be interpreted broadly and not purely in an economic one, considering thus also the moral, social and family relationships (the center of vital interest).

In principle, maintaining family relationships in Italy is an important factor leading to a domicile in Italy.

The expression “Center of vital interests” also refers to other elements linking the individual to Italy. Such elements would be, without being limited to, real estate, bank accounts, financial investments, etc.

The Italian Residence (Habitual Abode)

The Italian Civil Code defines residence as the place where individuals have their own habitual residence.

The first component of the residence test is an objective element, consisting of the taxpayer’s physical presence in Italy. The physical presence in Italy must be regular and continuous, as opposed to sporadic and occasional.

A stable and continuous presence in Italy still exists when taxpayers frequently travel abroad. This applies even for long periods.
It must be proved by considering all other circumstances of the particular case. Evidence includes maintaining a home in Italy.
Also relevant is returning to Italy whenever possible. Keeping the center of social and family relations in Italy matters. These factors show the intention to treat Italy as home indefinitely.

The second component of the residence test is a subjective element consisting of the taxpayers’ intention to stay and live in Italy for the foreseeable future.

To determine the intention to move to and live in Italy for the undefined future, reference is made to various factors such as the taxpayers’ overall conduct, social and personal habits, working relationships, family relationships, business, and personal activities, and so forth.

Other cases

Italian nationals leaving Italy may still be regarded as resident in Italy. This applies even if they are enrolled in AIRE. Factors include:

• ownership and use of property in Italy;
• maintaining the family house in Italy;
• registration of minor children in Italian schools;
• maintaining current accounts in Italy for investments;
• frequent participation in business meetings in Italy;
• registration to sports clubs or societies in Italy.

For foreign nationals leaving Italy, complications may still arise if they continue to maintain family or property in Italy.

Taxes to pay in Italy for Expats

Personal income tax, also known as the Imposta sui redditi delle persone fisiche (IRPEF)

Personal income tax is levied at progressive tax rate on the following type of income:

• Employment income;
• Business income;
• Self-employment income;
• Real estate income.

The gross taxable income is determined by the sum of the taxable incomes of the above categories subject to ordinary taxation.

As of 2023, the brackets were as follows:

As of 2024, the new brackets are going to be as follows:

Additional Regional Tax

Ranges between 1,23% to 3,33% and may operate either on a progressive basis or at a flat rate, depending on the Region of residence.

Additional Municipal Tax

Municipal income tax depends on the municipality of residence and usually ranges between 0,2% to 0,9%.

Municipalities can establish progressive tax rates applicable to the national income bracket.

Tax on Investment income in Italy

Dividend income

Starting from the fiscal year 2018, dividends from qualified shareholdings are subject to the same tax treatment as non-qualified shareholdings, which entails a 26% substitutive tax.

Dividends paid to non-residents may be subject to a lower tax rate if there are tax treaties in place.

Interest income

The taxation of interest varies based on its source. Government bond interest income, for example, is subject to a withholding tax of 12.5%. On the other hand, interest income and income from other securities issued by banks or companies listed on the stock exchange are subject to a final withholding tax of 26%. Interest earned on the bank and current postal accounts and interest on bank and postal deposits are also subject to a final withholding tax of 26%.

However, interest earned on foreign bank accounts may be subject to a 26% substitute tax through the income tax return.

Capital Gains

Capital gains are categorized as miscellaneous income. The tax is calculated based on the difference between the selling price and the purchase cost, which may include any additional legal and administrative expenses.

Starting from January 1, 2019, non-business individuals are subject to a flat tax of 26% on capital gains earned from both qualified and non-qualified participation in Italian and foreign companies.

Italian Taxes on Capital

Municipal Property Tax (IMU – Imposta Municipale Propria)

From January 1st, 2020, the TASI tax (Tax on Inseparable Services) has been abolished and incorporated into the new IMU tax. The tax is applicable to owners of real estate properties located in Italy, except for those registered as prima casa (first home) unless the property is categorized as a luxury property.

The tax is calculated based on the value of the property in the property registers, which is the rendita reevaluated by 5% and then multiplied by a given coefficient (such as 160). The standard tax rate is 0,86% (IMU 0,76% and TASI 0,1%), but each municipality can choose to increase or decrease this rate.

The new IMU tax is typically due in two installments, one by June 16 and the other by December 16 of the current year.

Italian Tax on Waste (TARI – Tassa rifiuti)

The TARI or Tax for the Indivisible Services of Waste can be calculated either based on the average quantity and quality of waste produced or by using productivity coefficients.

The tax applies to the owner of any property or open space that has the potential to generate waste and must be paid by them.

Tax on properties abroad, also known as Imposta sul valore degli immobili situati all’estero (IVIE)

IVIE is applicable to real estate properties located outside Italy and owned by an individual considered a resident for Italian tax purposes.

The IVIE is calculated based on the value of the real estate property, which is determined as the purchase cost resulting from the purchase act or the current market value at the location of the real estate property.

For real estate located in an EU or EEA country with an information exchange agreement with Italy, the wealth tax is calculated based on the cadastral value in force in the foreign country. If no cadastral value is available, the tax is calculated based on the purchase cost or the market value at the property’s location.

For the fiscal year 2023, the tax rate for IVIE is 0.76%, and if the tax amount is lower than €200, then no tax is due. Furthermore, suppose the property is already subject to a property tax in the country where it is located. In that case, the individual can deduct that amount from the tax due in their Italian tax return.

The wealth tax is determined when filing the Italian tax return.

Law No. 213 of 30 December 2023 (Budget Law for 2024) provides for an increase in in wealth tax rates on foreign real estate.

In particular, the IVIE rate will increase from 0.76% to 1.06% from 2024.

Tax on financial assets held abroad, also known as Imposta sul valore delle attività finanziarie detenute all’estero (IVAFE)

The taxable base for this tax is the value of financial investments as of December 31 or the end of the holding period. For the fiscal year 2023, the applicable tax rate is 0.2%.

For bank accounts, a flat amount of €34.20 per account is due for this tax. However, this flat amount is not applicable if the average annual balance of the bank account is lower than €5,000.

Law No. 213 of 30 December 2023 (Budget Law for 2024) also provides for an increase in wealth tax rates on foreign financial activities.

From 2024, the IVAFE rate will increase from the current 0.2% to 0.4%, but only for financial products held in countries blacklisted under the ministerial decree of 21 November 2001.

The wealth tax will be determined upon filing of the Italian tax return.