Tax Residence in Italy
How to know if you are tax resident in Italy?
What’s happen when you acquire the tax residence in Italy?
In this article for expats I will shortly talk about tax residence in Italy. This is a topic very important, since many clients ask to me advice about tax residency in Italy
The tax residence of natural persons
The issue of tax residence assumes an important aspect in tax law. Before analyzing the relevant aspects regarding tax residence in Italy, it is necessary to make two observations. First of all, it should be noted that having tax residence in Italy means, according to the principle defined worldwide taxation, that all income earned by the resident will be taxed in Italy. The second observation is that international taxation profiles cannot be resolved in the light of the domestic legislation of a country alone, precisely because they involve more than one tax system, which means that a taxpayer could find himself with the attribution of a double tax residence in two different countries and for this reason suffer double taxation.
In order to avoid double taxation, and solve the problem of dual tax residence, the OECD has developed a series of tests, called tie breaker rules, which will be examined in another article. Having said that, let’s move on to examine how our legal system recognizes tax residency in Italy.
Tax residence according to national legislation (TUIR)
The tax residence of natural persons is governed by Article 2 of the TUIR, which establishes, in paragraph 2, that: for income tax purposes, persons who for most of the tax period are registered in the registries of the resident population or have their domicile or residence in the territory of the State pursuant to the Civil Code are considered residents.
The rule in question therefore identifies three criteria for establishing the tax residence in Italy of natural persons, criteria that are alternative to each other, i.e. it is not necessary for all three to exist but simply one.
With regard to the first criterion, the registration in the registries of the resident population can be considered a formal criterion, where, if the subject is registered in this registry, an absolute presumption of tax residence in Italy will be created, regardless of the substantive data, or the fact that the taxpayer may actually be resident in another country.
Residence according with civil code
On the other hand, as far as the concept of residence is concerned, the main element is the habitual residence. By dwelling we mean the place where the subject remains permanently, and in particular that place where the so-called “vital center of interests” of an individual can be identified, where the interests are not only those of an economic nature, but the general ones, and therefore affective and moral. On closer inspection, the concept of residence could be superimposed on that of domicile, but it should be remembered that in the case of domicile, the case law on the merits, in qualifying it as a legal relationship between interests and a place, has established that the physical presence of the individual is not necessary.
The jurisprudence, in marking the difference between domicile and residence, also points out that in the case of residence two elements must coexist, namely the objective one, i.e. the stable permanence of a person in a given place, and the subjective one, i.e. the desire to want to live in that place.
Calculation of the “majority of the tax period”
The additional requirement set by Article 2 of the TUIR is the time requirement. In fact, it is established that the taxpayer must have domicile, residence or be registered in the registry of the resident population for most of the tax period.
Domicile (Legislative Decree 209 of 2023)
Recently, the concept of tax domicile for the purposes of tax residence in Italy has been modified by Legislative Decree 209 of 2023 (legislative decree of the new expatriate regime click on this link to find out more)
In particular, a domicile is considered to be the place where a person has his or her family and personal interests. This aspect is very important in order to verify the actual place of tax residence, and therefore to verify whether the subject will be fully taxed in Italy according to the world wide principle.
Timig in Italy for tax residence
It is therefore necessary to determine how the “longer tax period” is calculated. Circular 201/1996 of the Ministry of Finance established that the calculation of days will vary depending on whether the year is a leap year or not, so in the first case the requirements must be present for at least 184 days during the tax period, while in the case where the year is not a leap year, the period will be 183 days.
The OECD has developed the criterion for calculating the days to be taken into account to determine whether or not a taxpayer has crossed the threshold of 183 or 184 days in the tax period.
According to the indications contained in this document, it is to be considered “the days of physical presence should be calculated by including:
– a fraction of a day;
– on the day of arrival;
– on the day of departure;
– Saturdays and Sundays if they are spent in the State in which the activity takes place
is exercised;
– public holidays if they are spent in the State in which the activity takes place
it is exercised;
– the days of leave taken in the State in which the work is carried out
Exercised:
(a) before the exercise of the activity;
(b) during the course of the activity;
(c) after the cessation of activity;
– short interruptions within the State in which the activities are
Carried out;
– sick leave, unless such illness prevents the person from
to leave the country when he would otherwise have had the right to be there
exempt from taxation on income from employment activities;
– the days spent in the country where the activity is carried out for the following
Reasons:
(a) death or illness of a family member;
(b) interruption due to strikes or lockouts;
(e) interruption due to delivery delays.
On the other hand, it was decided to exclude:
– the duration of the time spent in the country where the activities are carried out,
in transit between two places located outside that country, if the duration is
less than 24 hours:
– days of leave spent outside the country in which the
activities;
– short interruptions (for whatever reason) that take place at the end of the
outside the country in which the activity is carried out.
If you are interested in Italian taxation matters, you could read also about “Impatriati regime”. Impatriati regime is a tax benefits for those who move the tax residence in Italy
- When to pay taxes in Italy - 6 Febbraio 2024
- Quando pagare le imposte? - 6 Febbraio 2024
- Tax Residence in Italy - 20 Gennaio 2024
