Income tax relief for residents working in Italy

27th Feb 2020

A 50% tax relief, so-called “Lavoratori impatriati” was introduced for individuals a few years ago, performing their working activity with a permanent residency in Italy. Thanks to this tax allowance, taxpayers were able to pay a progressive income tax on only 50% of their income.

A significant increase in tax relief

Recently, the Italian government has increased this tax relief from 50% to 70%. This change affects the new tax residents who will pay a progressive income tax on 30% of their income from 2020.

If the permanent Italian residency is placed into one of the southern regions of the country (Abruzzo, Molise, Campania, Apulia, Basilicata, Calabria, Sardinia, Sicily) because of the high unemployment rate the tax exemption increases up to 90%. This means that the income of the new resident will only be taxed on 10% of his income.

Valid for up to 5 years or more

According to the bill, this special tax status will be valid for the first 5 years (the year of relocation and the following four years).

New residents can still benefit from a 50% exemption for an additional 5 years if:

  1. they have an under-aged child (if they have 3 children younger than 24 years they can benefit from a 90% exemption for 5 years )
  2. they have bought a property anywhere in Italy 1 year before or after moving to Italy

Requirements

The special exemption is open to any employee, self-employed worker, or entrepreneur who is/was:

  • having a permanent residency outside of Italy during the previous 2 years
  • staying in Italy for at least 2 years
  • performing working activity on Italian territory

These exemptions also apply to Italian citizens who have permanent residency in Italy but were tax residents abroad in the previous 2 years.

What happens if I decide to leave earlier than in 2 years?

If you or your employer were applying for this tax relief since the start of your employment (this means, from the very beginning) and you decide to leave Italy earlier than in 2 years, you might be asked by the Tax authority to pay the entire amount back.

What if I worked in the first year in Italy, the second year abroad and the third year again in Italy?

You have a good chance to be entitled to the benefits because the 2 years consecutive is not a condition in the requirements. A consultation with our Italian tax advisor would be necessary.

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