The legislative decree draft implementing the international tax reform, known as the “Draft Decree,” appears to introduce changes related to fiscal residence for individuals and entities, along with significant modifications to tax incentives for expatriate workers.
In particular, the reform brings about a significant shift in the rules of fiscal residence for individuals. The traditional criterion of domicile is replaced by a substantial criterion, defining domicile as the primary location where the taxpayer’s personal and family relationships develop, adding the crucial aspect of physical presence within the territory of the State. The traditional legal criterion of residence remains valid. These criteria must be verified for the majority of the tax period, considering non-consecutive periods, including days and fractions of a day.
In the current version of the article, fiscal residence is defined by considering registration in the population registry, domicile, or residence. Domicile and residence follow the legal definitions of the civil code, signifying the primary place of business and interests of the individual and habitual abode, respectively.
Registration in the population registry for the majority of the year becomes a presumptive element, subject to rebuttal.
The notion of domicile differs from that defined by the civil code and is identified as the place where personal and family relationships primarily develop.
The regime for expatriates is also set to undergo significant changes with the approval of the regulatory text for the 2024 budget law. The new provisions aim to narrow the scope of the tax incentive, creating a more selective framework for beneficiaries.
Specifically, it appears that the tax incentive will be excluded for those with business income, while it will be confirmed for individuals with dependent work income, income assimilated to dependent work, and self-employment income.
Additionally, a quantitative limitation is introduced: the incentive will apply only to the first 600,000 euros of income, and the incentive rate will be reduced from the previous 70% (90% in cases of transfer to certain Southern Italian municipalities) to 50%.
Regarding eligibility requirements for the regime, significant changes are anticipated. Workers must not have been fiscally resident in Italy in the three preceding tax periods before transferring to the country, and they must commit to fiscal residence in Italy for at least five years. Furthermore, the work activity must be primarily conducted in Italy, and workers must possess qualifications or specializations.
The changes will enable dependent or self-employed workers transferring their fiscal residence to Italy to benefit from a 50% reduction in taxation within the income limit of 600,000 euros. However, it is crucial that they maintain fiscal residence in Italy for the following five years to avoid having to repay the incentives with interest.
It also appears to have been clarified that the rule change will not affect those who acquire registry residence in our country by December 31, 2023. Therefore, it will be sufficient, for the application of the “old rules,” to transfer registry residence by the end of the current year.
These changes represent a significant evolution compared to the previous regulations (Article 16 of legislative decree no. 147 of 2015 and Article 5 of decree law no. 34 of 2019) and create a more restrictive framework for beneficiaries of the “expatriate regime,” while maintaining a tax incentive to attract highly qualified workers to Italy.