Italian tax residence: further update on changes

Introduction 

News for individual taxpayers: 

The Italian tax legislator has amended the concept of tax residence 

As from 1 January 2024, for the purposes of income tax, individuals: 

“are deemed to be resident in Italy when, for the greater part of the tax period, including fractions of a day, they have their residence, in accordance with the Civil Code, or domicile in the territory of the State or when they are physically present in Italian territory.” 

The new definition of domicile, the new criterion of "physical presence", but also the new role of the registers of the resident population are among some of the topics covered in the following brief notes. 

All this in the light of the new remarks made by the Italian Revenue Agency in its recent Circular Letter No. 20/E dated 4 November 2024. 

1. Fiscal Residence 

The notion of residence is the only criterion laid down in the new provision that does not seem to have been modified. In fact, the criteria of connection, which consist of determining residence according to the Italian Civil Code in the territory of the State, have not been changed. 

The concept of the residence of a natural person is generally determined by one’s habitual and voluntary presence in a given place, and is characterized by the coexistence of two elements:

• objective element: permanence in a given place for a significant period of time (although not necessarily predominant from a quantitative point of view);
• subjective element: the intention to live there on a permanent basis, as evidenced by living habits and the maintenance of normal social, family and emotional relationships. 

2. Domicile 

The choice made by the legislator regarding domicile privileges personal and family relationships over economic ones and is different from the previous concept of civil domicile as per Italian domestic law. 

Personal and family relationships are

• typical relationships governed by current laws (i.e. spousal or civil partnership relationships);
• personal relationships characterized by stability and expressing a rootedness in the territory of the State. 

The legislator's aim is to reduce the large number of tax disputes that have arisen over the years, by replacing the above-mentioned civil law criterion with a substantive criterion based on international practice and double taxation conventions. 

Each individual case should be carefully evaluated. 

3. Physical Presence 

This is an objective criterion¹  which requires that a person be only physically present in the territory of the Italian State, regardless of the reasons for that presence and without the need for any of the other criteria set forth in Article 2(2) of the TUIR. 

The circumstances in which this requirement may occur are certainly many and varied² and, for the purposes of establishing tax residence in Italy, the mere physical presence in the territory of the Country for most of the tax period is therefore considered a sufficient condition. 

Fractions of a day are also counted for the purpose of calculating the length of stay in the territory of the State³. 

Meeting the criterion of physical presence (as well as tax domicile) could, therefore, actually override, even for a single tax period (e.g. when assisting a sick family member) other formal evidence, such as registration in the Register of Italian Citizens Resident Abroad (AIRE) by an Italian citizen who has moved to another country. 

The actual practical implications concerning the application of this criterion and any related critical issues will need to be understood as case studies on the subject evolve. 

4. Registration in the list of the resident population in Italy 

Residency registration continues to be one of the alternative criteria for establishing tax residence in Italy, although it is no longer an absolute, but a relative presumption for the purposes of Italian domestic law. 

It is therefore left to the taxpayer to prove that formal registration does not reflect the real situation. 

Consequently, persons registered in the resident population registry for most of the tax period continue to be considered resident for tax purposes in Italy, unless they are able to prove that registration in the registry does not correspond to actual residence in the Italian State⁴.

5. Transfer to Black-Listed Countries 

The presumption of residency of Italian citizens who have moved to States or territories with privileged taxation and who have been removed from the register of the resident Italian population remains unchanged. 

In this regard, it should be noted that the list of countries affected by the presumption was most recently updated by the Decree of the Minister of Economy and Finance of 20 July 2023, and that Switzerland was excluded with effect from 1 January 2024. 

6. Impact of the new rule on favourable tax regimes 

The impact that the new discipline will have on Italy's favourable regimes aimed at attracting HNWI clients must be closely watched and monitored. 

6.1. Flat Tax Regime 

Verification of the existence of residence abroad for those who will benefit from the favourable regime provided for by Article 24-bis of the TUIR - which, it should be recalled, provides for the payment of a substitute IRPEF tax of €200,000 upon the fulfilment of specific requirements for each tax period in which the option is operational - must be carried out in accordance with the regulatory wording in force at the time of the period in question. 

The rule requires that persons wishing to take advantage of this relief must have been resident abroad for at least nine out of the ten years preceding the transfer. 

Therefore, in the event of a transfer of residence during 2025, the taxpayer, for the tax period 2024, will have to check the requirements under the new wording, and for the tax periods 2015-2023 under the wording valid until 2023. 

6.2. Impatriate Regime 

Even for workers benefiting from the impatriate regime - i.e. those who benefit from a reduction of taxable income linked to self-employment or income as an employee, under certain conditions - the verification of tax residency criteria should be carried out using the same procedure as in the previous paragraph. 

It is within the framework of this specific preferential regime, that the new rules allow the taxpayer wishing to benefit from it, to prove that he was not resident in Italy for tax purposes during the periods under review, by proving his residence in another State in accordance with a Double Taxation Treaty.

Edited by Giulia Sorci and Davide Greco

¹ Not conventionally included in the so-called tie - breaker rules even though it is included in Article 15 of the OECD Model on Income from Employment.

² Think of the case of those who come to work - whether as employees, self-employed or businesses - in the territory of the State, while maintaining their residence (also for registry purposes), family and any emotional ties abroad.

³ By way of example, let us assume the case of a taxpayer - not registered in the population registry of the resident population and without residence and domicile in the territory of the State - who arrives in Italy in an airplane landing at 11:00 p.m. on 1 July 2024 (leap year) and remains uninterruptedly in the territory of the State until 1:00 a.m. on 31 December 2024. In the example, the days of 1 July and 31 December 2024 are also counted in their entirety, even though the taxpayer spent only one hour in the territory of the State on each day. It follows that, having fulfilled the requirement of physical presence for 184 days, the taxpayer is considered to be tax resident in Italy for 2024.

⁴ It should be noted, however, that irrespective of whether it is a relative or absolute presumption, the civil registration criterion is not covered by the so-called tie-breaker rules for resolving possible conflicts on residency at convention level.