In today’s post, we explore the intricate legal and tax consequences for both EU and non-EU nationals who are resident or domiciled in Italy.

Residency Rules for EU Nationals

EU nationals enjoy the advantage of not needing a visa to enter or work in Italy. A valid identity document issued by their home country is sufficient to grant them access to live and work in Italy.

Residency Rules for Non-EU Nationals

Non-EU nationals face more stringent requirements. Italian Immigration Law stipulates that it must be verified whether a non-EU individual intends to work in Italy.

– Work Visa for Non-EU Citizens:
If a non-EU citizen plans to work in Italy, they must apply for and obtain a work visa from the competent Italian Consulate in their country of citizenship or residency. The work visa permits non-EU nationals to work in Italy through quotas or extra-quotas.

– Elected Domicile Visa for Non-Working Residents:
Alternatively, if a non-EU national does not intend to work in Italy and will rely on their financial resources, they may apply for an elected domicile visa. With this visa, they can reside in Italy without engaging in any work activity.

Requirements for Elected Domicile Visa

To obtain an elected domicile visa, individuals must demonstrate to the Italian Consulate in their country of citizenship or residency that they can sustain themselves in Italy without working or relying on Italian state benefits. Regular and constant financial resources are necessary, and individuals can derive them from various sources, such as real estate property, regular economic and commercial activities, pensions, trusts, or other legal sources.

Applicable Tax Laws: Domicile vs. Habitual Residence

Italian tax laws determine an individual’s tax liability based on whether they are domiciled or habitually resident in Italy.

Domicile and Its Types

An individual generally establishes domicile by intending to permanently or indefinitely reside in Italy, often accompanied by physical presence. The three types of domicile recognized are:
– Domicile of Origin: Usually acquired from one’s parents.
– Elected Domicile: Acquired by residing in Italy with the intention of permanent or indefinite stay. If an elected domicile is later given up without acquiring a new one, the domicile of origin is automatically regained.
– Domicile of Dependency: A domicile held by a minor when the parent’s domicile changes. When the minor turns 18, they hold an elected domicile.

Determining Habitual Residence

The country where an individual predominantly resides, considering their intentions, determines their habitual residence. The EU test for habitual residence is based on an individual’s interests rather than a specific duration of residence. In 2014, the European Commission published a practical guide on the Habitual Residence Test.

Italian Tax Residency Test

Under Italian tax law, an individual’s tax liability is determined annually through three alternative tests, each requiring more than 183 calendar days of compliance.

– Registration Test*: Fulfilled when an individual is registered as a resident with the local municipal office where their residential address is located.

– Residence Test: Based on physical presence, this test requires regular and continuous stay in Italy. An individual’s intention to live in Italy is also taken into account, considering various factors like conduct, social habits, family relationships, and business activities.

– Domicile Test: Unlike the residence test, this test revolves around an individual’s intention to establish and maintain their primary center of relations and interests in Italy. Tax implications arise based on the nature, extent, and quality of connections an individual has with Italy compared to other countries. As a result, even if primarily living abroad, an individual can still satisfy the domicile test by maintaining their principal interests in Italy.

Recent Court Decisions

Recent rulings suggest that extensive economic interest may outweigh personal connections in determining an individual’s domicile, thus making them liable to pay taxes in Italy.

Guidance from Italian Tax Administration

The Italian tax administration provides specific guidelines for the application of the domicile test for determining Italian tax residency in Circular n. 304/E of December 2, 1997. The circular instructs the tax agency’s control and audit activities, including collecting information from the tax agency database system, public documents related to real estate, gifts, company formations, and capital contributions, as well as information on money transfers to and from foreign countries.

Conclusion

Understanding the intricacies of being resident or domiciled in Italy is crucial for compliance with tax laws. Remember to seek expert advice tailored to your specific circumstances from professionals like lawyers and accountants.

If you have any thoughts, questions, or experiences related to residency and domicile in Italy, feel free to leave a comment below or get in touch.