Last update of this article: february 2025
FIRST PART - Individuals
In Circular 20/E dated Nov. 4, 2024, the Agenzia delle Entrate (i.e., the Italian tax administration – the Agency) gave its interpretative reading of the legislative change of the “International Taxation” Decree (Legislative Decree 209/2023) regarding the tax residency of individuals and companies.
As is now well known, this regulatory intervention, effective January 1, 2024, made important changes to the criteria for determining the tax residence in Italy of individuals and company.
The purpose of this new legislation is to reduce domestic litigation related tax residence as well as to bring domestic regulations in line with international law and practice.
Let’s take a brief look at what the new Italian tax residency criteria are in effect as of 2024 and how the Agency interprets them.
1. New tax residency criteria - Individuals
Before examining the Italian tax administration’s comments, a comparison between the new criteria and the former ones seems useful.
The criteria for determining tax residence contained in the previous version of Paragraph 2 of Article 2 of the TUIR* (Consolidated Income Tax Act) were rather simple i.e., the residence of individuals was determined, alternatively, as follows:
- Enrolled for most of the tax period (183 days or 184 days in leap years) in resident population registers, or,
- Residence or domicile in the territory of the state within the meaning of the Civil Code most of the tax period.
*Still valid for determining tax residence for years prior to 2024.
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CONTACT USSo stated the law:
<< For income tax purposes, persons who for the greater part of the taxable period are registered in the registers of the resident population or have in the territory of the state their domicile or residence in accordance with the Civil Code are considered residents. >>
With the reform, the changes in tax residency criteria in Italy are as follows:
- The notion of domicile for tax purposes is distinguished from the civil law notion of domicile (having to do with the center of economic interests), with the introduction of the criterion of domicile focusing on “personal and family relationships”
- The criterion of actual physical presence in Italy is introduced to determine residency, including fractions of a day
- Registry registration changes from an absolute to a relative presumption, i.e., the taxpayer’s ability to prove that he or she is a resident in the territory of another state is unaffected.
This is without prejudice to the criterion of residence under the Civil Code, according to which residence is the place of “habitual abode”**.
So states paragraph 2 of Article 2 of the revised TUIR:
<< For income tax purposes, persons who for the greater part of the tax period, including fractions of a day, have their residence within the meaning of the Civil Code or domicile in the territory of the state or are present there are considered residents.
For the purpose of applying this provision, domicile means the place where the person’s personal and family relationships are primarily developed. Unless proven otherwise, persons registered for most of the tax period in the resident population registers are also presumed to be resident. >>
**On this point, see Circular No. 25/E dated August 18, 2023 as well as the interpretation of the concept of residence given by the Supreme Court (Order No. 3841 dated February 15, 2021).
Therefore, as of tax year 2024*, individuals who, for the majority of the tax period**, alternatively :
- Have their residence or habitual abode, within the meaning of the Civil Code, in the territory of the State, or
- Have home understood as the center of personal and family relationships, or,
- Are present in the territory of the state, also taking into account fractions of a day, or,
- are registered in the resident population registry, unless proven otherwise by the taxpayer
are regarded as tax residents of Italy.
Let us now briefly see how the tax administration has commented on this important new piece of legislation.
*N.B. For previous years, former provisions i.e. Article 2 paragraph 2 of the TUIR in its current version continue to apply until 12 31 2023.
**That is, 183 days in a year, or 184 days in the case of a leap year.
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CONTACT US2. Comments from the Italian tax administration on the residency of individuals
The Italian tax administration, after recalling the updating and simplification purposes of the new legislation as well as the central importance of the concept of tax residency in the Italian legal system, reviews each criterion, specifying the methods of assessment and giving practical examples.
2.1. Ascertaining the prerequisites of tax residence
With regard to ascertaining the prerequisites for a person to be considered a tax resident in Italy,
the administration recalls that such a survey, outside the cases of the formal data of civil registration,
“presupposes a factual assessment to be performed on a case-by-case basis*,in order to concretely weigh the elements of verifying place of domicile or residence as well as, from January 1, 2024, physical presence in the territory of the state.”
This means that there is no presumption of tax residence that can be defined absolutely by law, but that the existence of this must make the subject of a specific and circumstantial analysis on a case-by-case basis.
*As already stated in the above-mentioned Circular No. 25/E dated August 18, 2023
2.2. Inadmissibility of the tax ruling
An inevitable corollary of the “case-by-case” tax residence assessment is the inadmissibility of the tax ruling.
The administration recalls that “for both individuals and company, the establishment of tax residence presupposes the verification of factual elements that cannot be made at the tax ruling stage and that “any petitions aimed at verifying residence are, therefore, inadmissible.”*
Therefore, it will be left to the good judgment of the taxpayer and/or the tax administration at the time of assessment to evaluate the elements of the taxpayer’s tax residence, as it will not be possible to ask the administration, either on a preliminary or on a post-factum basis, to ascertain tax residence by tax ruling.
*On this point, see Circular No. 9/E dated April 1, 2016.
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CONTACT US2.3. Non-consecutive periods - Fractions of a day
The administration confirms, in continuity with the previous regime, that
“for the purpose of computing the greater part of tax period, non-consecutive periods during the year are also taken account, thus adding them together.
Therefore, for the purpose of tax residence in Italy, it is not necessary that the connecting criteria required by the rule occur continuously and uninterruptedly, but it is sufficient that they occur for 183-or 184 in the case of a leap year-days during a calendar year.”
Moreover, the administration recalls how by now the new legislation allows for the calculation of fractions of a day as well, and how this is particularly useful when it comes to establishing the physical presence of a taxpayer in the territory of the state, in the absence of residence or domicile or registration with the resident population registry.
On this point, the administration brings a practical example as follows:
“Let’s assume the case of a taxpayer – not registered in the registry of resident population and without residence and domicile in the territory of the state – who arrives in Italy by an airplane that lands at 11:00 p.m. on July 1, 2024 (leap year) to remain continuously in the territory of the state until 1:00 a.m. on December 31, 2024.
In the example, the days of July 1 and Dec. 31, 2024, are also fully considered, despite the fact that the taxpayer spent only one hour in the territory of the state on each day. As a result, having integrated the requirement of physical presence for 184 days, the taxpayer is considered tax resident in Italy for 2024.”
With this example, the administration clarifies that attendance of less than half a day is not allowed and, therefore, time spent on two discontinuous half days during the year counts as a full day in computing the period of residence in the tax period.
2.4. Remote working (smart working) and tax residency
Residence tax consequences in the area of remote work is undoubtedly an issue of particular relevance and topicality, which the administration takes care to address in the Circular under comment.
The Agency considers remote work in two scenarios:
- the worker who works remotely from Italy, without having been resident in Italy in previous years
- the worker who works remotely from abroad, and has been an Italian tax resident in previous years.
With regard to the first scenario, it is pointed out that the application of the new criterion of so-called “physical presence” in the territory of the taxpayer means that the remote worker is likely to be considered an Italian tax resident if he or she spends most of the tax period in Italy (i.e., 183 days or 184 days if a leap year), even in the absence of residence, domicile or civil registration in Italy.
In particular, this will result in the taxation of all income produced in Italy and abroad by the “smart working” worker, with the so-called worldwirde taxation principle in force in Italy for residents, subject to the application of international conventions that limit or exclude Italian taxation.
With regard to the second scenario, a worker who spends most of the year in another country working remotely will retain Italian tax residence if one of the other three criteria is supplemented:
That is, if he/she has in Italy:
- His personal and family relationships (domicile within meaning of Article 2, paragraph 2 TUIR), or
- His habitual abode (residence within the meaning of Civil Code) in Italy, or
- Is registered in the resident population registry.
Subject, of course, to the application of international conventions and subject to the right (in our opinion) to make contrary proof of foreign residence in any case, even in the absence of conventions*.
This is because the new legislation included in the text the possibility of making proof against the formal datum of civil registration, a previously insurmountable obstacle in the absence of conventions.
Therefore, the “smart working” Italian worker who stays abroad for most of the tax period,
can now bring proof that he is not an Italian tax resident,
if he proves that he has not been physically present, resident or domiciled in Italy for most of the tax period,
and this is regardless of whether or not he maintains his civil registration in Italy and whether or not a convention exists.
*See on this point Section 2.1.4. of Circular No. 20/E of November 4, 2024.
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CONTACT US2.5. New rules on tax residence and double taxation
Under Italian law, international agreements prevail over domestic law*, unless the latter is more favorable to the taxpayer.
Italy has entered into a rather large number of bilateral Double Taxation Conventions on income and wealth taxes.
The purpose of these Conventions is to allocate the power of taxation between two contracting states in order to limit or eliminate double taxation of income produced in their territory by residents and nonresidents.
It may happen that an individual, residing and/or working between the two contracting states, is considered to be a tax resident in each of them by virtue of their domestic legislation.
Conventions entered into by Italy generally contain (in accordance with the OECD Model) a clause aimed at resolving conflicts relating to tax residence namely Article 4.
Article 4 – par. 1 indicates that tax residence for conventional purposes is determined according to the domestic law of each contracting state.
If by virtue of the application of national regulations the person is considered to be resident in both states, Paragraph 2 of the same article “comes to the rescue”, since it contains a set of criteria (so-called Tie-Breaker Rules) that serve to resolve residency conflicts.
These criteria, which are applicable alternatively and according to their order, make the criterion of permanent residence prevail first; if this criterion does not resolve the conflict, the criterion of the center of vital and economic interests follows, and then, ultimately, the habitual residence and nationality of the taxpayer.
Regarding the new criterion of physical presence, which can establish tax residence in Italy regardless of the individual’s residence, domicile or civil registration, the tax administration points out that the Tie-Breaker Rules will apply even in the presence of this criterion.
In this regard, the example of a frontier worker working in Italy is given, in which the Agency clarifies that:
“in such a hypothesis, it seems appropriate to clarify that, the workers in question qualify as tax residents also in the state of origin under the relevant domestic legislation, the residence conflict with Italy can be resolved by applying the tie breaker rules contained in the double taxation convention concluded by our state.
This also applies in cases where the existing double taxation convention between Italy and the worker’s home state does not expressly regulate the taxation of the labor of so-called frontier workers, as is the case, for example, with the double taxation convention between Italy and Slovenia.”
Regarding dual residency issues, we take this opportunity to mention that Italian tax residency regulations do not cover the so-called “Partial Residency”.
In other words, when you are considered a tax resident in Italy, you are a tax resident for the entire tax year.
However, the Agency is careful to point out that partial tax residence in Italy, that is, residence only for a certain period on the calendar year, can be configured in two cases:
- when applying the Conventions concluded with Germany, Switzerland and Panama, which expressly provide for such a criterion to resolve cases of residence conflicts with Italy
in general and in deference to the OECD Model Commentary, when applying the Tie-Breaker Rules in Article 4(2), where the tax administrations of each state agree to resolve the residency conflict using this criterion (e.g., each contracting state recognizes that the taxpayer, in year N, was a resident from January to April in one state, and from May to December in the other).
*See Articles 169 of the TUIR and 75 of Presidential Decree No. 20 600 of September 29, 1973.
The Commentary Circular can also be viewed in English here.
SECOND PART on new tax residency criteria for company and companies will follow shortly.
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CONTACT USThe opinion expressed in this article is for informational purposes only.
This article does not constitute legal advice.
In addition, it is important to remind that each client’s tax issue is different because each client’s personal situation is different.
Should you have a similar tax issue, please contact us for an initial discussion of your case.