The Italian government offers a program called the “Lavoratori Impatriarti” regime to attract and retain highly skilled workers. This program provides significant tax benefits to qualified individuals who transfer their tax residence to Italy. The Impatriarti regime aims to boost Italy’s technological, scientific, and cultural development by encouraging talented workers to live and work in the country.
New Regime Applicable from 2024
A new Impatriati Regime applies to individuals who become tax resident in Italy for the first time in the past 3-7 years. This applies to those starting from the 2024 tax year (ending December 31, 2024) and registering residency after January 1, 2024. It’s important to note that those already benefiting from the old regime before December 31, 2023 will remain on that regime for its full term.
Who Can Qualify?
To be eligible for the Impatriarti Gain regime under the new rules, workers must meet several requirements. First, they must transfer their tax residence to Italy on or after January 1, 2024. Additionally, they cannot have been tax resident in Italy for the three years preceding the transfer, with some exceptions for certain intra-group transfers.
The work performed by the applicant is also a key factor. Workers must perform their work activities (employment or professional self-employment) for the majority of the tax period in Italy. Furthermore, they must meet certain high qualification or specialization requirements as defined by Italian law. Finally, to maintain the tax benefit, workers must remain tax resident in Italy for a minimum of four years.
Benefits of the Impatriarti Regime
The Impatriarti regime can provide significant tax savings for eligible workers. The new regime offers a 50% tax exemption on qualifying income for a maximum of five tax years. Qualifying income includes employment income and self-employment income from professions. There is also a cap on this benefit, with a maximum annual salary of €600,000 being eligible for the exemption.
Workers with a minor child at the time of transfer receive an even greater benefit – a 60% exemption. This extends to children born or adopted during the initial five-year period. However, to qualify for this increased exemption, the child must be tax resident in Italy throughout the benefit period.
Important Considerations
The Impatriarti regime is a complex tax law. Workers who are considering taking advantage of the program should carefully review the eligibility criteria and consult with a tax advisor to ensure that they are in compliance with all of the requirements. It’s important to remember that the tax exemption applies only to income tax, not social security contributions or wealth tax. However, some self-employed workers might benefit from a reduced social security base. Additionally, the EU regulates the tax benefit to comply with de minimis aid limitations.
Key Changes Between Old and New Regimes
The table below summarizes the key changes between the old and new Impatriati regimes:
| Feature | Old Regime | New Regime |
| Years of foreign residence | 2 tax years | 3 tax years |
| Years of Required Italian residence | 2 tax years | 4 tax years (7 if for the same company) |
| Taxable income | Employment income, self-employment income, business income of an individual entrepreneur | Employment income, self-employment income from professions |
| Annual income limit | None | €600,000 limit |
| Taxable Basis | Varied (10% to 50%) | 50% (with an option for a 40% rate for families) |
| Duration | 5 Tax Years | 5 + 3 Tax Years (with family or property purchase) |
| Work activity carried out in Italy | No specific requirement | Work activity must be performed in Italy for a majority of the tax period |
| Qualification or specialization | None | Possession of high qualification or specialization requirements |
Extending the Benefit and Grandfathering Clause
The initial five-year benefit can be extended for three years if a residential property is purchased in Italy before December 31, 2023, or within 12 months before residency registration. This extension offers an opportunity to potentially enjoy the tax benefits for a total of eight years. However, there are some important points to remember:
- Property Purchase Requirements: The property must be a residential dwelling, and the purchase must be documented and registered according to Italian law.
- Timing is Key: To qualify for the extension, the property purchase needs to occur within the specified timeframe.
It’s important to note that individuals already benefiting from the old regime before December 31, 2023, will remain on that regime for its full term (typically 5 or 10 years). This “grandfather clause” ensures those who qualified under the previous rules won’t be disadvantaged by the changes in the new regime.
Does Social Security quality for Impatriarti Tax Benefits?
A recent clarification from Italy’s National Institute for Social Security (INPS) brings positive news for self-employed and business owner repatriates. INPS Circular 52/2023 confirms that “the taxable base is the same identified for IRPEF purposes [Italian personal income tax],” according to the article. In simpler terms, this means their social security contributions will be based on their income declared for tax purposes, which is already reduced under the special regime for impatriates. As the article states, “This thesis of ours is today confirmed by the aforementioned Circular 52/2023.” This translates to a double benefit for these repatriated workers: reduced income tax and lower social security contributions.
However, there’s a cloud of uncertainty hanging over employee income. The good news is that the tax on employment income is also reduced for repatriates under the regime. The concerning aspect is that social security contributions for employees “may still be calculated on the full income amount, not the reduced amount,” the article highlights. This inconsistency creates a situation where repatriated employees may be paying more into social security than their self-employed or business owner counterparts, despite having the same reduced tax benefit. The author argues that this situation has “doubtful profiles of unconstitutionality” and “does not appear to correspond at all to the correct application of the aforementioned special regime for impatriates.” The article concludes by emphasizing the urgent need for a “final clarifying intervention on the part of the Administrations of interest,” to rectify this discrepancy.
Social Security Contributions and the Repatriation Regime
While the tax implications of the repatriation regime are becoming clearer, the treatment of social security contributions for repatriates remains a subject of debate. Social security contributions are mandatory payments that fund public social security programs in Italy. These contributions are typically calculated based on a percentage of an individual’s income.
The main point of contention lies in the calculation base for social security contributions for repatriates. There are two opposing viewpoints:
- Full Income Approach: This view maintains that social security contributions for repatriates should be based on their full income earned abroad, regardless of the tax exemption.
- Net Income Approach: This perspective argues that social security contributions should be calculated only on the reduced income amount that is subject to tax under the repatriation regime.
The INPS Circular 52/2023: A Step Forward, But Not the Final Answer
The recent INPS Circular 52/2023 provides some positive developments for self-employed and business owner repatriates. The circular clarifies that their social security contributions will be calculated based on the reduced income amount that is subject to tax under the repatriation regime.
This aligns with the spirit of the tax benefits offered by the regime and ensures a more consistent approach. The circular references previous INPS guidelines that established the total declared taxable income for self-employed and business owners as the base for social security contributions. By explicitly stating that the repatriation regime’s tax exemption applies to the social security contribution base, the circular brings welcome relief to this group of repatriates.
The Remaining Uncertainty: Employee Income and Social Security
While the INPS circular provides clarity for self-employed and business owner repatriates, the issue of employee income remains unresolved. Repatriates receiving employment income also benefit from a reduced taxable portion under the regime. However, there is no definitive answer yet regarding the social security contribution base for this category.
The concern is that the current system might be calculating social security contributions for employee income based on the full pre-tax amount, not the reduced taxable amount. This would create an inconsistency where employee repatriates would be paying a higher percentage of their income towards social security compared to self-employed or business owner repatriates.
The Need for Further Clarification from INPS
To ensure fairness and consistency, the Italian social security agency (INPS) needs to provide clear instructions on calculating employee contributions under the program. Specifically, they need to clarify if the reduced tax base for repatriates also applies to employee social security contributions. Additionally, payroll software may not be programmed to handle this program’s impact, leading to potential errors. Collaboration between INPS and software developers is crucial for consistent application across platforms.
While waiting for official guidance, some potential solutions exist. If the INPS confirms the reduced tax base applies to employee contributions, they could allow a mechanism for reclaiming any overpaid contributions. Long-term, legal changes could explicitly address the social security contribution base for employee income under the program.
Beyond the immediate question of social security contributions, repatriates should consider other social security factors. If you previously contributed to social security in another country, you might be able to transfer those contributions to the Italian system to maintain benefit eligibility. It’s also important to remember that the reduced income under the program could potentially affect how your future Italian pension benefits are calculated. Consider this when planning for retirement.
Incompatibility between Forfettario and Impatriarti
In a recent response (n. 190/2023), the Italian Revenue Agency has reiterated that opting for the flat-rate tax regime precludes the option to switch to the different regime for returning professionals (impatriates) at a later date.
Taxpayer’s Request
In the request submitted to the Agency, the taxpayer clarified that after returning to Italy in 2020 following a period abroad, they started a freelance activity and opted for the flat-rate tax regime for determining their income (Article 1, paragraphs 54 to 89, Law n. 190/2014).
The taxpayer then asked the Agency if they could benefit from the impatriate regime (Article 16 of Legislative Decree n. 147/2015) for the fees related to a future position as a member of the Board of Directors of some companies, classified as income assimilated to employment income, pursuant to Article 50, paragraph 1, letter c-bis), of the TUIR (Italian Consolidated Income Tax Code), given that the conditions normally required for the application of this special regime would still be met.
Agency’s Clarification
In its response, the Agency first recalls the regulatory frameworks of the two regimes.
Impatriate Regime
The impatriate regime was introduced to incentivize the transfer of highly qualified workers to Italy and to promote the technological, scientific, and cultural development of the country.
The regulatory changes introduced in 2019 provided for a reduction in the taxable income applicable to the categories of employment income and similar income, freelance income, and business income obtained in the form of an individual enterprise, which are considered to be produced in the territory of the state.
Such income, under the conditions set out in paragraph 1 or paragraph 2 of Article 16, contributes to the formation of overall income only to the extent of 30%, starting from the tax period in which the transfer of residence took place and for the four subsequent tax periods.
Flat-Rate Tax Regime
The flat-rate tax regime, on the other hand, which represents the “natural” regime for individuals who carry out a business, art, or professional activity in an individual form, involves determining the taxable income on the basis of a flat-rate criterion, applying to the amount of compensation received a coefficient of profitability in a diversified measure depending on the activity carried out, on which a substitute tax is then applied replacing income tax, regional and municipal surcharges, and the regional tax on productive activities equal to 15%.
This means, therefore, that the income thus determined does not contribute to the formation of overall income.
Final Considerations
In this regard, Circular n. 33/E of 2020 (see paragraph 7.11) clarified that a taxpayer who returns to Italy to carry out a freelance activity and benefits from the flat-rate tax regime cannot avail themselves of the regime for impatriates, since the income produced under the flat-rate tax regime does not contribute to the formation of overall income.
The possibility remains, however, to choose, if the requirements are met, to adhere to the tax regime provided for impatriates, where greater convenience is assessed.
In line with the practice document, the Agency therefore confirms that the taxpayer, who upon returning to Italy opted for the determination of income according to the flat-rate tax regime, does not have the possibility to subsequently express the option for the different impatriate regime.
This is because the option already exercised constitutes conclusive behavior from which emerges the will not to avail oneself of the impatriate regime, from the moment of returning to Italy.
Conclusion
The Impatriarti regime offers a compelling opportunity for highly skilled workers to live, work, and save money in Italy. By carefully considering the eligibility requirements, benefits, and additional factors outlined in this guide, you can determine if this program aligns with your career goals and personal circumstances. Remember, consulting with a qualified tax advisor specializing in the regime is highly recommended to ensure a smooth application process and to maximize the benefits available to you.
