2021 Italian Price range Legislation What the growth of latest tax incentives for personal people means

Tax treatment is a key factor for individuals such as employees, executives, entrepreneurs and professional athletes moving to new jurisdictions. Recent changes in tax law can influence the decision to move to Italy and must be carefully analyzed.

Special tax system for inbound employees and (individual) entrepreneurs

An employee, self-employed person or individual entrepreneur can be subject to Italian income tax (IRPEF) on 30% of his income and thus receive an exemption of 70% resulting from an activity carried out in Italy if the person: (a) becomes after Italian tax law resident in Italy; (b) was not resident for tax purposes in Italy for the past two years; (c) endeavor to remain a resident taxpayer in Italy for the next two years; and (d) works or has an employment activity primarily in Italy.

The exemption is increased to 90% – and consequently only 10% of income is subject to income tax – if the incoming workers move to one of the southern Italian regions (i.e. Abruzzo, Molise, Campania, Puglia, Basilicata, Calabria, Sardinia or Sicily) .

The new tax incentives are valid for five years and can, under certain conditions, be extended for a further five years (a total of ten years) – with an income exemption of 50% in the extended period – i.e. a residential property is bought in Italy in the last 12 months since the acquisition of the Italian residence or in the following 12 months or if there is a dependent child; if there are three dependent children, the exemption is increased to 90% over the extended period).

New provisions of the Italian Budget Act 2021

The extension for the additional five-year period was originally granted to people who move to Italy from the 2020 financial year.

The latest Italian budget law of 2021 has given the possibility of granting the extension of five years to people who have already moved their tax residence to Italy before 2020, provided that they are subject to the favorable tax system from December 21, 2019.

These individuals can opt for the additional five-year benefit if they pay an amount equal to 10% of the income from employment earned in Italy in the financial year prior to the option. The option can only be exercised if the applicant has at least one dependent child or has owned a residential property in Italy after the first transfer or in the last 12 months, or if he does so within 18 months of the option. The amount payable for the option is reduced to 5% if the employee has at least three dependent children and becomes or has become the owner of a residential property within the specified periods.

Specific guidelines must be published by the Italian tax authorities within 60 days of the entry into force of the new regulations.

Tax incentives for professional athletes

The incentives for “inbound workers” also apply to professional athletes if all the conditions mentioned in the previous paragraph (a, b, c, d) are met. In such cases, however, the athletes (e.g. football players) are subject to Italian Income Tax (IRPEF) on 50% – instead of 30% – of their income (therefore they receive a 50% exemption).

The incentives are valid for five years and can be extended for a further five years (a total of ten years) – with an income exemption of 50% over the extended period – if a residential property in Italy has been purchased in the last 12 months since the acquisition of the Italian residence or in the following 12 months or if there is at least one dependent child. The 90% exemption in connection with the transfer of tax residence to one of the southern Italian regions does not apply. The scheme applies to a specific option and the payment of an amount equal to 0.5% of taxable income.

The new extension of the Italian Budget Act of 2021 for people who moved to Italy before 2020 does not apply to athletes.

The incentives could apply to sports stars (players, coaches and sports managers) who move to Italy as employees of Italian clubs (as well as self-employed professionals). This would make Italian clubs more competitive internationally when it comes to hiring sports stars.

For the sports sector, tax incentives for inbound workers are an alternative to the tax incentive system aimed at attracting HNWIs moving to Italy (annual taxation of EUR 100,000 for all income from abroad). The new regime for inbound workers could allow significant savings on their Italian annual salary, while the HNWI tax incentive could allow significant savings in income from abroad (e.g. dividends from foreign companies, license fees).

Time is of the essence

The regimes briefly analyzed here provide a great tax and wealth planning opportunity for employees and self-employed, as well as for Italian companies looking to attract a talented workforce. Such opportunities should be carefully considered once a thorough preliminary tax, wealth and immigration analysis has been properly carried out with the assistance of trusted professionals. The analysis must include sources of income, asset allocation / protection structures, the Italian network for tax treaties and the solutions available for succession planning.