Tax residence Italy: Revisions to identifying the tax residence of natural and legal persons

As of 1 April 2024, there are new rules on international taxation in Italy, especially concerning the identification of the tax residence of natural and legal persons. This is regulated in Legislative Decree 209/2023. The Ecovis experts explain who will be considered tax residents in Italy in the future.

Specifically, article 1 introduces important revisions concerning the criteria and methods for determining the tax residence of natural persons under the consolidated rules laid down in article 2 of the General Income Tax Code (Decree 917/1986 (TUIR)).

Changes relating to the tax residence of natural persons

As a result of the amendment, persons are now considered to be tax residents in Italy if, for the majority of the tax period (calendar year), they fulfil one or more of the following circumstances and conditions:

• have their residence in the territory according to the Civil Code, and/or
• are domiciled in the territory and/or
• are physically present in the territory

These conditions are alternative, with the consequence that just one of them is sufficient to constitute a condition of tax residence in Italy. Unless proven otherwise, persons registered for the majority of the tax period in the resident population register (anagrafe) are also presumed to be tax residents. Fractions of a day, public holidays, and the day of arrival and departure must also be considered when calculating residence.

The recent tax reform follows the definition of residence as formulated by article 43 of the Italian Civil Code: the place where the person has his or her “habitual home/dwelling”. Tax residence is established even if there is no continuity or finality of the habitual home, with the consequence that even prolonged periods of absence will not exclude persons from residence in Italy for tax purposes.

The definition of tax residence

For domicile, on the other hand, an “ad hoc” definition is provided identifying tax residence as the “place where the taxpayer’s main personal and family relationships are established”. This is the main change compared to previous regulations, as the new rules prioritise personal and family interests over patrimonial interests to identify and define the centre of personal interests.

Another important revision is the introduction of the rule of physical presence. In the absence of specific indications, it seems that this must be interpreted literally and tax residence is now also determined based on the actual days spent in the territory, independently of other formal links such as civil residence or domicile.

Finally, the rule of registration in the civil registry continues to apply, although now as a rebuttable presumption rather than an absolute condition. Mere registration can now be challenged by demonstrating the absence of connecting factors established by national legislation.

We would recommend and are available for analyses and case-by-case assessments of where you and your company are tax resident.

Emilio Martinotti, Certified Public Accountant and Tax Partner at ECOVIS STLex, Turin, Italy

Dealing with double taxation

If the application of the Italian rules and those of a foreign state lead to a case of dual residence, the decisive criteria provided for in art. 4(2) (tie breaker rules) of the OECD model apply, in hierarchical order:

1. Permanent dwelling (1st rule)
2. Centre of vital interests (2nd rule)
3. Place of habitual residence (3rd rule)
4. Nationality (4th rule)
5. Agreement between states (residual criterion)

The decree maintains the presumption of residence for Italian citizens who move to states or territories with a privileged tax regime, as outlined in article 2, paragraph 2-bis, of the TUIR. Switzerland has been removed from the list of countries with privileged taxation.

Changes to the tax residence of legal entities

Under the previous legislation, the residence of companies and entities was determined based on the existence of the registered office, the seat of administration or the main business object in the territory for the majority of the tax period.

With the new legislation, the following definitions apply, in addition to the time requirement (the majority of the tax period):

• location of the registered office
• location of the place of effective management
• Location of the place of main ordinary management

The criteria for legal entities will be looked at in depth in a separate article.

For further information please contact:

Emilio Martinotti, Certified Public Accountant and Tax Partner at ECOVIS STLex, Turin, Italy
Email: emilio.martinotti@ecovis.it