Italy extends 70 per cent income tax relief to workers employed by foreign companies

March 5, 2021

Italy has extended its special taxation regime to include workers who move their tax residency to Italy while working remotely for an overseas employer.

 

The regime, introduced in April 2019, grants remote-working taxpayers a 70 per cent exemption from employment income tax for five tax years. This is extendable to ten years under certain circumstances, such as if the worker buys an Italian dwelling or has children, although the relief in such cases is usually reduced to 50 per cent.

The exemption is 90 per cent where the taxpayer takes up residence in one of the country’s economically deprived southern regions, even if they carry out their work in a different Italian municipality while maintaining their residence in the south.

Until now, the concession has been restricted to people working directly or indirectly for Italian-resident companies. The employee must also become Italian tax-resident and spend the majority of their work time in Italy.

However, the Italian tax authority (Agenzia delle Entrate) has now announced in Circular 33/E that other remote working foreign individuals can also be eligible, although there are extra restrictions on sports professionals and seconded workers. The regime can also apply to income derived directly by authors or inventors of intellectual works, industrial patents and processes. The worker’s nationality is irrelevant, even if they come from a non-EU jurisdiction without a double taxation treaty with Italy.

To benefit from the regime, an employee must issue a written declaration to their employers asking for the application of the reduced tax rates. Self-employed workers and business executives will be able to apply the regime autonomously when filing their tax return, as well as presenting written requests to their clients for reduced rates.

The regime ‘represents a great opportunity for employees moving their tax residency to Italy to perform remote working for non-Italian-based entities,’ commented Simone Viligiardi of Deloitte Italy. However, the employee’s presence in Italy may trigger Italian permanent establishment risks for the foreign employer, she added.