"Decreto Crescita" Tax Incentives for Expatriate Workers in Italy
As of 2019, the Italian government has modified a special tax regime for expatriate workers, wherein anyone who decides to live outside their native country and move to Italy can benefit from a 70% tax exemption on their personal income. The tax bill, which was originally passed in 2015, had initially been restricted to EU nationals and Italian citizens registered with AIRE (the registry of Italian nationals living abroad); however, the bill recently has been extended to citizens of any nationality, with which Italy has signed a treaty to avoid double taxation on income taxes or an agreement on the exchange of information on tax matters. The requirement to be registered with AIRE has also been lifted.
How to Calculate the Tax Exemption:
For the first 5 years after transferring their residency, foreign nationals can write off 70% of their taxable basis on their personal income taxes, and therefore their taxes would only be calculated on the remaining 30% of their income. This means that they would fall to a much lower tax bracket. For example, a worker residing in the north of Italy with no children and no purchased properties, in other words having no additional deductions, and with an income of €50,000, his net personal income tax to be paid will only be €1,492, instead of the ordinary €13,152. The tax savings will be a whopping €11,660!
What’s more, for people who decide to settle in one of the eight Southern regions (Abruzzo, Basilicata, Calabria, Campania, Molise, Puglia, Sardinia and Sicily), the tax exemption is 90%. They would be paying taxes only on 10% of their earnings! Plus, if you have a dependent minor or if you buy a house in Italy at any time during the first 5 years of moving, you can extend the eligibility period by an additional 5 years, totaling 10 years of tax exemptions!
During the additional 5-year period the exemption is only 50%, unless you have 3 or more dependent children, in which case the exemption is 90%. As a side note, professional athletes, including soccer players, regardless of how many children they have, can only deduct up to 50% of their earnings, even if they decide to relocate to the South or the islands.
What types of Income does the Tax Exemption apply to?
The 70% tax exemption applies to the following categories: 1) employment income, 2) income from independent professional services such as a sole proprietorship, and 3) business income. This exemption applies just to income earned primarily in Italy, not your global income. Eligible taxpayers include Italian and foreign nationals who: 1) were not residing in Italy in the last two tax years, 2) commit to maintaining their tax residency in Italy for at least two years, and 3) will spend the majority of the year (at least 183 days) in the country. As of now, there is not limit on the maximum number of expatriates to whom the benefits can be granted.
Expatriates with an income from independent professional services or business income, can apply for the incentives when they submit their first tax return in Italy. The ones earning an employment income instead, can make a specific written request to their employer to directly apply the deductions on their paychecks.
To read the full decree, see Article 16 of the Legislative Decree of 09/14/2015 n. 147, and for more information about tax incentives and real estate investing, subscribe to my newsletter. Ciao!