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NOTE: this article covers the rules for the "Regime degli Impatriati" up to 31/12/2023. New residents from 2024 can still benefit from the scheme - but it will not be quite as attractive. See more details here.
If you're considering relocating to Italy for work or self-employment opportunities, you may be eligible for the new expat tax scheme, called "Regime degli Impatriati." This specialized tax scheme is designed to attract expats and offers significant financial benefits. In this article, we will delve into the details of this scheme and its advantages for newcomers.
Who Can Benefit From The Expat Tax Break?
To qualify for the Regime degli Impatriati, there are a few key criteria you must meet. Firstly, you must not have been a tax resident in Italy for the two previous tax years. Additionally, you must commit to working primarily in Italy, either through employment, self-employment, or starting a new business. You do not need to hold a degree or be a researcher - that's another scheme altogether aimed at scientists and researchers.
Substantial Tax Reduction - Up to 90% for 10 Tax Years
One of the most appealing aspects of the Regime degli Impatriati is the substantial reduction in taxable income. Under this scheme, you can enjoy a 70% to 90% reduction, resulting in an effective tax rate of approximately 5% to 15%. It's important to note that this is a far cry from the often misunderstood flat 30% tax rate that is sometimes cited.
Moreover, if you choose to reside in the southern regions of Italy, such as Abruzzo, Puglia, or Sicilia, you can even benefit from a larger tax reduction of up to 90%. This geographical incentive is a significant advantage for those considering these regions as their new home.
The tax incentives initially last for 5 years. However, under specific conditions like property purchase or having three or more dependents, this tax break can extend to 10 years. This extended duration allows for more stability and financial planning for expats settling in Italy.
An Attractive Scheme For New Business Owners, Too
The "Regime degli Impatriati" in Italy is an attractive incentive not only for employees but also for individuals looking to start a new business. This tax break is designed to attract and retain talent and investment in Italy by offering substantial income tax reductions for new residents. If you're planning to start a physical business like running a Bed & Breakfast, opening a restaurant, or any other type of physical enterprise, you can benefit from this tax break. Similarly, if you're setting up a digital services business such as an advertising agency or a business consultancy, the tax break applies to you as well.
Note that the business setup - the legal form of the business - must fit certain criteria. It does not, for instance, apply to the traditional "family business" setup as defined in the Italian tax code. Similarly, it would not apply if you were to buy-to-let a property - though it would if you were to run a hospitality business like a hotel professionally. Devil's in the details! So it is crucial to plan things appropriately beforehand.
Tax Break Also Applies To Social Security Contributions
Another notable benefit of the Regime degli Impatriati is the calculation of social security contributions. These contributions are based on the reduced taxable income, leading to lower overall payments. This can be advantageous, especially when considering the social benefits like national health coverage and pension contributions that come with these contributions. This is a very misunderstood point as it is widely believed that people who benefit from this scheme still have to pay the 25%+ social security contributions. This isn't the case at all as contributions are calculated based on the rebated tax amount under the scheme. In a nutshell, you'll be looking at paying between 3% and 7% in social security contributions while you're covered under the scheme.
Note that while the authorities have explicitly confirmed that self-employed individuals would benefit from the rebate on social security contributions, it is unclear if this also applies to employees. In the interim, most employers play it safe and charge the full social security contributions.
Additional Perks If You Have Children Or Buy A Property In Italy
In addition to the tax benefits and reduced social security contributions, the Regime degli Impatriati offers some additional perks. If you decide to purchase property in Italy during the scheme, you can receive an additional 5-year tax rebate at a 50% discount. This incentive can make owning property in Italy even more financially appealing.
Moreover, if you have three or more dependents, you can benefit from a 90% tax reduction during the second five years of the scheme. This is particularly advantageous for expat families who are planning to settle in Italy for an extended period.
Common Misconceptions
There are some common misconceptions about the Regime degli Impatriati that need to be clarified. One of these misconceptions is the perceived complexity of the scheme. While it is true that the scheme is nuanced, seeking guidance from an Italian accountant can help you navigate the requirements and ensure you benefit from the available tax incentives.
It's also important to clarify that the Regime degli Impatriati is not a simplified flat tax scheme, like those found in countries such as Portugal, Malta, or Cyprus. However, when properly understood and utilized, Italy's regime can offer significant financial advantages for expats.
Conclusion
The Regime degli Impatriati is a powerful financial tool aimed at attracting and retaining skilled expats in Italy. By offering substantial tax reductions, lower social security contributions, and additional perks, this scheme provides an attractive incentive for those considering a move to Italy. However, due to its complexity, it's crucial to seek professional advice from an Italian accountant to navigate the bureaucratic aspects and maximize the benefits of this scheme.
