Tax residence is the legal status that determines the jurisdiction of the State in which taxpayers are required to fulfil their tax obligations. This concept is not uniformly applied, as each State defines its parameters in accordance with its own legal framework.
Under Italian jurisdiction, determining whether a person is a tax resident in Italy or abroad is essential to establishing the applicable tax regime. In fact, personal income tax applies to both resident and non-resident individuals, as set forth by Article 2, paragraph 1 of the Italian Income Tax Code (TUIR), pursuant to the so-called principle of universality.
It is therefore fundamental to outline the criteria for determining tax residence in Italy, to distinguish between those who qualify as Italian tax residents—and are thus subject to taxation on their worldwide income—and those who are instead considered non-residents for tax purposes, who are taxed in Italy, pursuant to Article 23 of the Italian Income Tax Code (TUIR), based on the source principle.
The Concept of Tax Residence under Article 2, Paragraph 2 of the Italian Income Tax Code (TUIR)
The criteria identifying tax residence—set out in Article 2, paragraph 2 of the Italian Income Tax Code (TUIR)—have recently undergone reform, effective as of 1 January 2024, which has partially reshaped the legal framework of the institution.
In its original formulation, Article 2 provided that:
“[f]or the purposes of income taxes, individuals shall be considered residents if, for the greater part of the tax year, are registered in the population register of residents or have their domicile or residence in the territory of the State, as defined by the Civil Code.”
Following the legislative intervention (Legislative Decree No. 209/2023), individuals are now deemed to be Italian tax residents if, for the greater part of the tax period (i.e., at least 183 days per year, or 184 days in a leap year, including partial days), they:
- have their residence in the territory of the State pursuant to the Italian Civil Code, or
- have their domicile in the territory of the State, to be understood as “the place where the individual’s personal and family relationships primarily develop”, or
- are physically present in the territory of the State.
Furthermore, pursuant to Article 2-bis, “Italian citizens who have been removed from the population register and have transferred their residence in States or territories other than those identified by the Decree of the Minister of Economy and Finance, to be published in the Official Gazette, shall also be considered residents, unless proven otherwise”.
The amended Article 2 responds to the need to align the domestic legislation with the international legal framework and the conventional criteria for determining tax residence (see Cass. 20041/2024). The wording of the provision makes it clear that tax residence may be established upon the fulfilment of any one of four alternative conditions.
The alternative nature of these criteria implies that the existence of even one of the four conditions is both necessary and sufficient for an individual to be deemed tax resident in Italy.
Conversely, individuals who do not meet any of the above conditions are to be considered non-resident for tax purposes. This interpretation has been repeatedly confirmed by the Italian Revenue Agency in various tax rulings (see Tax Rulings No. 50 and No. 55 of January 17, 2023).
The assessment of whether the conditions for tax residence are met is based on case-specific and ad hoc factual investigations, as clarified by Circ. 25/E 18.08.2023: “The verification of the requirements for establishing tax residence—other than the formal criterion of registration in the population register—requires a factual assessment on a case-by-case basis, in order to concretely weigh the elements that make it possible to determine the place of domicile or residence, and, as of 1th January 2024, physical presence in the territory of the State”.
It is therefore necessary to clarify the meaning of the aforementioned terms.
Residence under the Italian Civil Code
Article 2 of the Italian Income Tax Code (TUIR) refers to the definition of residence set forth in art. 43 c.c., which defines residence as “the place where the individual has their habitual abode”.
According to the Italian Supreme Court (see Cass. civ., Sez. I, 1 December 2011, No. 25726 and Cass. civ., Sez. I, Ord., 15 February 2021, No. 3841), residence is determined by the individual’s habitual and voluntary dwelling in a given place, which requires the coexistence of:
- an objective element (physical presence in the place), and
- a subjective element (the intent to reside there on a stable basis),
as evidenced by personal routines and the conduct of ordinary social relationships.
Moreover, as already clarified in Circolare Ministeriale 2 dicembre 1997, n. 304, neither continuity nor permanence of the habitual abode is required for residence to be established. As a result, even prolonged periods of absence do not necessarily negate a person’s residential connection to Italy (see Cass. civ., Sez. I, Ord., No. 8982/2023 and No. 3841/2021). Accordingly, an individual who works abroad may still be considered resident in an Italian municipality if they maintain their habitual abode there and return periodically to such location.
In this regard, the Italian Revenue Agency, in Circ. 26 gennaio 2001, n. 9/E, clarified that: “An individual shall be considered resident in Italy if, despite having moved their professional activity abroad, they maintain the centre of their family and social interests in Italy. This circumstance may be deemed to exist, for instance, when the taxpayer’s family continues to reside in Italy during the period of employment abroad”.
The New Concept of “Tax Domicile”
The notion of domicile no longer refers to Article 43 of the Italian Civil Code but is now defined independently in Article 2, paragraph 2 of the TUIR, as “the place where an individual’s personal and family relationships primarily develop”. In its new formulation, the TUIR departs from the civil law definition of domicile, which traditionally focused on the economic dimension (“a person’s domicile is in the place where they have established the principal seat of their business and interests”), adopting instead a notion centered on personal and family ties.
This legislative innovation has, on the one hand, resolved interpretative ambiguities present in the previous version of Article 2 TUIR; on the other hand, it has introduced a discrepancy between civil law and tax law, potentially leading to a disconnect between the general and the fiscal meaning of domicile.
Although case law on the matter is still limited, the literal wording of the provision confirms that only the tax law definition of domicile is relevant for the purposes of applying Article 2, thus expressly excluding the civil law interpretation. This reading is arguably supported by the lex specialis derogat generali principle, under which a special provision overrides a general one in matters of the same subject.
Two main issues arise in relation to this new notion of tax domicile:
- the meaning of “the place where an individual’s personal and family relationships primarily develop”.
Circular No. 20/E of 2024 clarifies this expression as follows: “[t]he notion of ‘personal and family relationships’ includes both legally recognised relationships governed by current legislation (such as marriage or civil unions), and stable personal relationships that demonstrate a connection to the territory of the State (for example, cohabiting partners). Likewise, the taxpayer’s stable social interactions may also be relevant, provided they are supported by objective evidence, such as an annual membership in a cultural or sports association”.
- Practical application: how should situations be assessed in which an individual maintains personal and family ties in multiple States?
Which jurisdiction would be deemed to be the primary centre of these relationships?
Consider the example of a family of three where one spouse, along with the child, relocates abroad, while the other spouse retains their residence in Italy. In such a case, which country would be considered the main centre of the taxpayer’s personal and family relationships?
Scenarios of this kind—frequently encountered in practice—may give rise to uncertainties in determining tax residence. Although Circular No. 20/E provides some operational guidance, further clarification is advisable in order to define more precisely the elements that delineate the scope of family interest.
Factual Presence in the Territory of the State
A significant innovation introduced by the amended Article 2 concerns the recognition of factual presence in Italy as an independent condition for being deemed tax resident in the country.
As explained in Circ. 20/E/2024, this is an objective criterion, based solely on the physical presence of the individual in the Italian territory for the greater part of the tax year, regardless of any qualitative assessment.
This applies, for example, to individuals who spend more than 183 days (or 184 in leap years) in Italy for purposes such as study, vacation, or other non-work-related reasons.
Furthermore, Article 2, paragraph 2 includes the phrase “including fractions of a day”, which implies that non-continuous stays are also taken into account. Even days where the individual is physically present in Italy for less than 24 hours contribute to the total period required to determine tax residence.
Registration in the Resident Population Register: no longer an irrebuttable legal presumption
The criterion of the taxpayer’s registration in the Italian resident population register (Anagrafe Nazionale della Popolazione Residente) for the majority of the tax year is no longer listed among the three principal criteria for establishing tax residence. It has been replaced by the criterion of factual presence in the territory of the State. Nevertheless, registration still operates as a legal presumption of tax residence in Italy.
A crucial clarification is warranted here. A question arises regarding the exact moment (dies a quo) at which a taxpayer may be deemed registered as a resident in Italy: does this status take effect upon the submission of the declaration by the taxpayer, or only upon the completion of the administrative procedure by the relevant registry office?
Under the D.P.R. 223 del 30 maggio 1989 (Article 18), the municipal officer must record the registration within two days of receiving the declaration. However, the legal effects of such registration are retroactive to the date of the submission of the declaration. In brief, a taxpayer is considered a resident as of the date they submit the declaration to the competent registry office, regardless of the formal completion of the administrative process.
This innovation was addressed in Circular No. 20/E/2024, which confirmed that registration in the resident population register constitutes a rebuttable legal presumption (presunzione legale relativa) rather than an absolute one. Consequently, it can be challenged by the taxpayer through coherent and adequate documentary evidence. The formal act of registration is therefore subordinated to the demonstration of a differing factual situation, objectively verifiable.
Amended Paragraph 2-bis of Article 2: Rebuttable Presumption for Transfers to “Black List” Jurisdictions
Paragraph 2-bis of Article 2 TUIR remains unchanged and continues to establish a rebuttable legal presumption of Italian tax residence for Italian citizens who, although removed from the resident population register, transfer their residence to States or territories with preferential tax regimes (so-called blacklist jurisdictions) as identified in the Decree 04.05.1999.
The blacklist has recently been updated by the Decree 20 July 2023, which removed Switzerland from the list with effect from 1th January 2024.
It is important to analyse the notion of “transfer abroad”. A taxpayer’s fiscal relocation abroad requires both de-registration from the Italian resident register and registration with the AIRE (Anagrafe degli Italiani Residenti all’Estero).
According to Article 6, paragraph 9-bis of the relevant legislation, registration with AIRE becomes effective as of the submission of the declaration to the competent Italian consular office. However, to be legally recognised as transferred abroad, the individual must not only satisfy this formal requirement but also demonstrate factually that their centre of personal and family interests has shifted abroad (see, inter alia, Comm. trib. reg. Piemonte Torino, Sez. IV, Judgment No. 574/2017; Cass. civ., Sez. V, No. 19484/2016; No. 14071/2011; Cass. 19843/2024).
Regarding this particular regime, Circular No. 20/E/2024 refers back to Circular No. 140/E/1999, which states that “[t]o overcome the legal presumption, the taxpayer must provide full evidence of the loss of any meaningful connection with the Italian State and, at the same time, proof of genuine and lasting relocation to the privileged tax jurisdiction, regardless of whether tax obligations are fulfilled in that foreign country”.
Only by meeting these evidentiary requirements can a taxpayer effectively relinquish Italian tax residence and be recognised as non-resident.
Consistent with the position of the Italian Revenue Agency, the Italian Supreme Court (e.g. Cass. civ., Sez. V, No. 6081/2019 and No. 6501/2015) has held that the taxpayer bears the full burden of proof to rebut the legal presumption of Italian tax residence under Article 2, paragraph 2-bis TUIR.
Source-Based Taxation
The distinction between resident and non-resident individuals is fundamental to determine the applicable tax regime. For non-resident individuals, taxation is regulated by Articles 23 and 24 of the TUIR, under which only income sourced in Italy is taxable. The worldwide taxation principle does not apply; instead, taxation is based on the source principle (source-based taxation).
According to Article 3 TUIR: “[t]ax is levied on the taxpayer’s overall income, composed […] in the case of non-residents, only of income earned in the territory of the State”.
Thus, establishing a nexus between income and the Italian territory is essential. Article 23 TUIR identifies such nexus through the following:
- location of the income-generating asset within Italy – taxable income includes real estate income, miscellaneous income from assets located in Italy, and capital gains from the sale of shares in resident companies;
- location of the activity in Italy – taxable income includes employment income earned in Italy, self-employment income from activities carried out in Italy, business income from permanent establishments in Italy, and other income generated through activities conducted within the State;
- residency of the income payer in Italy – taxable income includes capital income paid by the State, resident entities, or Italian permanent establishments of non-resident entities, excluding interest and other income from bank or postal deposits and current accounts.
Also taxable are partnership profits and income from transparent corporations under Article 115 TUIR.
The territorial link outlined in Article 23 must generally be proven by the taxpayer. However, for certain categories of income, the territorial connection is presumed by law, including:
- pensions and similar allowances;
- specific severance payments;
- income equivalent to employment income;
- royalties and other income from the use of intellectual property, industrial patents, trademarks, and know-how;
- fees paid to non-resident companies or entities for artistic or professional services performed in Italy on their behalf.
Following the ECJ judgment C-279/9 del 14.2.95 (the Schumacker case), Italian law introduced a new taxpayer category: the so-called “Schumacker residents”. These are individuals who, while habitually resident in one EU Member State, earn most of their income in another Member State where they work (e.g., cross-border workers). In such cases, Article 24, paragraph 3-bis TUIR provides that if a non-resident earns at least 75% of their total income in Italy and does not benefit from equivalent tax reliefs in their country of residence, the income earned in Italy shall benefit from the same deductions and allowances granted to Italian residents.
Resolution of Conflicts in Cases of Dual Tax Residence: The OECD Model Tax Convention
Domestic tax rules must be harmonised with international treaty provisions, pursuant to the principle of the supremacy of international agreements over national law, as established by Article 117(1) of the Italian Constitution and, in tax matters, by Article 75 of D.P.R. 29 settembre 1973, No. 600 (see Italian Revenue Agency Tax Rulings No. 50/2023 and No. 73/2023). In the event the domestic law is more favourable to the taxpayer than the relevant treaty, Article 169 TUIR confirms that domestic law shall prevail.
Double taxation scenarios may arise when:
- an individual is resident in one country but derives income in another (“residence vs. source” conflict);
- an individual is regarded as tax resident in two countries simultaneously (“dual residence” or “residence vs. residence” conflict).
In cases of positive conflict of tax jurisdiction (risk of double taxation), the resolution is generally found through international treaties, particularly Double Taxation Conventions (DTCs) usually based on the OECD Model Convention (see Cass. 2878/2024).
Disputes may arise for two main reasons:
- a State asserts taxing rights in violation of a bilateral treaty;
- there is uncertainty or disagreement regarding the correct interpretation or application of the treaty provisions.
Article 4 of the OECD Model Convention: Dual Residence and Tie-Breaker Rules
Article 4 of the Model Tax Convention provides rules for determining tax residence and resolving dual residence situations.
Although the initial determination of residence is made under domestic law, paragraphs 2 and 3 of Article 4 set out the so-called “tie-breaker rules”, which apply when both countries claim residence simultaneously. These rules aim to allocate exclusive residence to one State and differentiate between the State of residence and the State of source.
The criteria in paragraph 2 are cumulative and hierarchical, not alternative (see Cass. 26638/2017), and are as follows:
- Permanent home available in one of the two States;
- Centre of vital interests (personal and economic relations);
- Habitual abode (habitual physical presence);
- Nationality.
If these rules do not resolve the conflict, paragraph 3 provides for the initiation of a Mutual Agreement Procedure (MAP) under Article 25(3) of the Convention.
The Procedure for Resolving Tax Residence Conflicts
The dispute resolution mechanism in cases of dual residence follows these steps:
- assessment of tax residence under domestic law in each country;
- application of the bilateral DTC (if in force);
- use of the tie-breaker rules (OECD Model, Art. 4(2));
- initiation of the Mutual Agreement Procedure (MAP) where needed.
Once the competent jurisdiction is determined, double taxation may be relieved through:
- Exemption method: one State waives taxing rights in favour of the other;
- Tax credit method: one State allows a credit for tax paid in the other State.
In practice, the Italian legal system generally prefers the foreign tax credit method, as governed by Article 165 TUIR.
Right to Tax Refunds in Cases of Double Taxation
Where a taxpayer is taxed in both countries, they may claim a refund. The Italian Supreme Court has clarified this right in Cass. Civ. No. 30779/2023, which concerned an Italian citizen residing in Switzerland.
The Court held that: “[a] non-resident taxpayer, in order to obtain a refund of excess taxes paid in Italy exceeding the amount provided under the applicable tax treaty, need only submit a certificate issued by the foreign tax authority confirming tax residence, without the requirement to prove actual taxation (i.e., payment) in that country”.
In other words, the right to a refund does not require evidence of the actual tax levied or paid abroad; it is sufficient to provide a valid foreign certificate of tax residence.
