Income Tax Relief
In order to foster economic growth, art. 5 of the, “Decreto Crescita” which was passed in to Italian law in December 2019, provides for significant changes to the income tax system for anyone who transfers their tax residence to Italy from 2020. The law is retrospectively applicable to anyone who transferred their tax residence to Italy from 30th April, 2019.
The legislation on income tax extends to foreign football players and other professional sportsmen and women. The law establishes a 50% reduction on income tax and applies for 5 years provided that the sports professional maintains their tax residence in Italy for at least two years.
For those who work outside the sports arena, tax relief of 70% is available on income generated in Italy through employment, self-employment or from business start-up activities. Tax relief on income generated in Italy rises to 90% for those who transfer their residence to one of the following regions: Abruzzo, Molise, Campania, Puglia, Basilicata, Calabria, Sardinia, Sicily.
To benefit from tax relief, anyone transferring their tax residence to Italy must comply with the following requirements:
- not resident in Italy in the 2 tax years prior to tax residence transfer;
- undertake to reside in Italy for at least 2 years;
- work-related activity carried out mainly in Italy.
It is not a requirement that Italian citizens who return to Italy as tax residents from 1st January 2020 have been previously registered with AIRE (the Registry Office for Italian Citizens Residing Abroad).
Tax relief is applicable for 5 tax years. However, a 50% income tax reduction on income generated in Italy can be applied for a further five tax years, if the taxpayer:
- becomes the owner of at least one residential real estate unit in Italy, after the transfer to Italy or in the twelve months preceding the transfer. The real estate unit can be purchased directly by the taxpayer or by the spouse, cohabitant or children or in co-ownership;
- has at least one minor or dependent child. This also applies if the child is in pre-adoptive foster care.
High net worth individual tax system
The Stability Law of 2017 remains in force with reference to foreign source income from real estate investments, dividends, capital gains and other income, for those who transfer their tax residence to Italy.
This tax regime can be accessed on the condition that new residents have not been tax resident in Italy in the nine (out of ten) years prior to transferring to Italy. The advantage consists in paying a substitute tax of € 100,000 on all income derived from abroad.
Sports professionals (football players, basketball players, etc.) can also benefit from this tax system. More detailed information on the Italian high net worth individual tax system is available here.
The Stability Law of 2019 regarding flat tax has been confirmed. The flat tax regime provides that individuals in receipt of a pension or income from a source outside of Italy, who transfer their residence to certain municipalities in the south of Italy, may opt to pay a flat rate tax of 7% on the income of any category produced abroad provided that they have not been resident in Italy in the five previous tax years. Read more details about flat tax flat tax.
Deductions for energy re-qualification (65%), building renovation (50%) and furniture and household appliance bonuses (50%) concerning the purchase of new furniture for renovated buildings have been extended.
A new “Facade Bonus” deduction has been introduced in 2020. A 90% deduction is available for documented expenses incurred in 2020 relating to interventions aimed at refurbishing or restoring the external facades of buildings.
The above interventions have to be assessed before being carried out as they must comply with certain technical regulations.
The budget law also introduced changes for real estate capital gains. The real estate capital gain is taxed through a substitute tax if the first or second home has been sold in the presence of a series of conditions. The taxable capital gain is calculated on the basis of the difference between the amount collected and the acquisition cost. The substitute tax goes from the 20% rate, for the sales of properties that took place until 31 December 2019, to the 26% rate for the deeds of sale of properties completed from 1 January 2020. The application of this regime is optional and should be requested to the notary on the date set for the completion of sale.
The budget law reintroduces the terms for the recalculation of the value of investments in unlisted companies, held up to January 1, 2020. The drafting and certification of the appraisal, as well as the payment of the substitute tax that is due (or of the first instalment), must be made by 30 June 2020. The equity investments affected by the revaluation are those held by natural persons for transactions unrelated to the business activity. In particular, the aforementioned legislation allows the revaluation of the equity investments held in companies not listed on regulated markets, held on 1 January 2020, provided that the appraisal report is drafted and sworn by 30 June 2020 and the established substitute tax corresponding to 11% is paid.
Finally, the budget law proposes the revaluation of company-owned assets and for the revaluations that will be carried out in the 2019 financial statements, the substitute tax rates are significantly reduced as follows:
– from 16 to 12 per cent for depreciable assets;
– from 12 to 10 percent for non-depreciable assets.
Other than the revaluation of corporate assets, a new provision allows to release the credit balance recorded in the accounts against the recognition of the higher values with a rate equal to 10% in continuity with that provided for by the previous revaluation measures.
This option does not concern the IRPEF subjects with simplified accounts.
A new IMU has been introduced. It sees the merger of former property tax IMU (Imposta Municipale Propria) and the municipal service tax TASI (Tributo Servizi Indivisibili) to create a new IMU (Imposta Municipale Unica) tax. For more detailed information, please read our article on the
By the beginning of February the Inland Revenue Agency will issue a circular providing interpretative and operational clarifications on provisions contained in the 2020 Budget Law.
If you need help with any aspect of Italian tax, please get in touch with us.