Jun 24, 2021Remote lifestyle20 min read
Is Italy the new remote living tax haven?
Table of Contents
I.Living in a grey area
II.Regime Impatriati / Inpatriate Regime
2. 0. 1.What does it offer?
2. 0. 2.What are the requirements?
2. 0. 3.What are the risks?
2. 0. 4.How to apply?
2. 0. 5.Is this really for you?
III.Other incentives in Italy
3. 0. 1. Subsidized rent for remote workers
3. 0. 2.1 Euro Homes
3. 0. 3.Italian Flat tax for HNWI
Living in a grey area
A common issue many remote workers find themselves tackling is living within a taxation grey area. The issues at play are numerous; living away from your place of birth could place you outside of compulsory taxation, contract work for a company abroad may be tax-exempt, and you may find yourself passing through a country on a tourist visa, volunteer visa or similar permit which forbids you to work within their borders.
Visa laws are a common subject of discussion in the remote community. Slowly, we are seeing that countries are welcoming remote workers through specific visas made with their lifestyle in mind. With as many as one billion people forecast to be working in a remote capacity by 2035, we can expect to see a dramatic shift in the amount of sway remote workers have in areas such as immigration, tax policy, economy, zoning, town planning and geopolitics.
Society in which institutions are created shapes institutions, and in turn institutions shape society. We are still living under political institutions that were designed hundreds of years ago, in a time where technology was the printing press. - Pia Mancini, CEO at Open Collective, "Mass Collaboration Online"
A change is certainly needed, and judging by the rising popularity of remote work, it should soon be on its way. Still, until substantial change happens, remote workers find themselves fighting an uphill battle when it comes to trying to fit into archaic bureaucratic systems; as Pia Mancini states, "We are 21st-century citizens doing our very best to interact with 19th-century designed institutions built with information technology of the 15th-century." A harsh truth, but a truth nonetheless and one that can cause considerable headaches. However, many countries are beginning to change their visa laws and their taxation policies to encourage this rising tide of remote workers to choose them as a destination to lay their hat for a while. Amongst many countries, Italy has some of the most exciting and varied incentives on paper, but do they stand up to scrutiny?
Regime Impatriati / Inpatriate Regime
Before looking at the details behind these incentives, it's essential to understand why they are created. Since the early 2000s, Italy has undergone a wave of professional diaspora. As a result, many citizens were choosing other EU countries to call home, moving from their homeland due to socio-economic stagnation. To combat this, the government introduced the 'rimpatrio dei cervelli' (repatriation of brains act), which aims to encourage overseas Italians to move back home. The scheme saw some level of success and, in 2019, was extended to entrepreneurs and foreigners, particularly those that are employees or self-employed and choose to relocate their tax residency to Italy.
What does it offer?
- The IRPEF (Italian income tax) taxable income, linked to employment, self-employment or business, is reduced to 30%.
- A reduced tax base of 70% (instead of 50%) is on offer for those that choose to relocate to Northern Italy.
- A reduced tax base of 90% for those who transfer their residence to the regions of southern Italy (Abruzzo, Molise, Campania, Puglia, Basilicata, Calabria, Sardinia and Sicily) is in place.
- The duration of the benefit is five years but could be increased to 10 years for individuals with at least one dependent child.
- Individuals who become owners of residential property in Italy may also have these benefits extended for ten years.
What are the requirements?
All citizens residing abroad (in Europe and outside of Europe) are eligible to apply for this scheme as long as they meet the following criteria:
- You have not been a resident of Italy for the last two years (specifically the last two tax periods).
- You qualify as a ‘tax resident’: According to Article 2 of the Italian Tax Code, an individual is considered an Italian resident for tax purposes if, for the greater part of the fiscal year (i.e. for more than 183 days), they carry out their business activity from a house or office, located in Italy; Are registered in the Records of the Italian Resident Population (Anagrafe) and never have canceled this registration or been removed from it; They have a ‘residence’ in Italy (habitual abode) or a ‘domicile’ in Italy (principal center of business, economic and social interests, e.g. the family).
- You pledge to remain in Italy for at least two years, spending the majority of your time there (more than 183 days per year) whilst keeping your tax resident status.
- If you are applying for the scheme and work for a foreign company, you will need to produce a contract that clearly states that you are expected to work from Italy. Furthermore, you need to continue to work for said company and cannot switch to another whilst taking advantage of the scheme.
- If you are from outside the EU, you come from a country where a convention against double taxation is in force; have a university degree and have been continuously employed, self-employed or have continually carried out business activity outside Italy for the last 24 months; you will also be eligible if you are non-EU citizens and have studied outside of Italy continuously for the previous 24 months or more, earning a university degree or postgraduate diploma.
It's important to note that there is no link between "tax residence" and Italian citizenship.
What are the risks?
If someone who has applied for the Inpatirate Regime breaks the condition of staying in Italy for two years, then the benefits they have already acquired will be recovered together with the range of penalties that can be anywhere from 90% to 180% of the tax due and not paid, for each year they benefited from the scheme. These fines are certainly something to consider if you’re thinking of applying.
Andrea Papitto (and a special thanks to Enzo Piccolo M.) from the Italian Tax Academy shared more information on this:
“Once you have applied for the inpatriate regime, you have to keep in mind two important constraints:You have to acquire your Italian residence and keep it for at least two years. You have to work most of the year (each fiscal year) from Italy. Meaning that, for at least 185 days, you are supposed to work from the Italian territory. It is not important where your clients or employers are legally located; they can also be abroad, but what is important is that the Italian economy will benefit from your physical presence in the area. A remote worker or a digital nomad who wishes to move to Italy for at least two years (but keep traveling around the world for some months per year) could benefit from the Impatriate Regime.”
How to apply?
There are two ways that this can be applied to an individual.
- As long as all the requirements have been met, employers will directly apply income tax on a reduced tax basis. So, if you’re an individual working for an Italian employer, you need to formally let them know that you qualify for the scheme and want to take part in it. After that, the reduced tax will be applied to your monthly pay packet.
- Alternatively, an individual can elect to take this scheme when filling out their tax returns. So, if you’re working autonomously and have fulfilled all the necessary requirements to become a tax resident, then the reduced tax can be directly applied to your tax statements.
Here are the steps/timeline for it:
- Apply for the scheme by proving that you have not spent the last two tax years in Italy.
- Prove that you are now an official tax resident in Italy, and in particular, make sure that you are registered on the Italian Population Register. This process is more complex for non-EU citizens and might require additional documents.
- Pledge to spend the majority of the next 24 months there.
- If you are employed by an Italian company or a company operating from Italy then you need to make sure that you formally request for them to register you for this scheme.
- If you are employed by a foreign company, you will need to produce a formal contract which shows that you are required to work from Italy. You will not be allowed to switch companies.
- If you are self-employed, you simply check the box on your tax returns that says you wish to participate in this scheme after ensuring you have met all the requirements listed.
- Maintain a stay of at least 185 days of the fiscal year in Italian territory.
- Uphold the promise of residency and maintain your listing on the Italian Population Register for 24 months.
As long as you abide by the above restrictions then you will be able to benefit from the inpatriate scheme. The specific tax benefits you receive will be dependant on the geographical location of your residence in Italy.
Is this really for you?
It’s fair to say that, when it comes down to tax, bureaucratic processes are still far behind our modern means of business. With this scheme, Italy has attempted to strip back its notoriously complex bureaucratic barriers and offer something that appeals to expatriates and foreigners alike. Those willing to take part in the scheme and take advantage of the most significant tax cuts are limited to specific geographic locations, namely, the north and south of Italy. Luckily those areas still hold many options when it comes to beautiful locales.
In general, the inpatriate scheme focuses heavily on encouraging people to plant roots in the country for most of its tenure. For those looking to find a home base to operate remotely from, maintaining 183 days of residency per fiscal year in Italy might seem like a dream, whilst those of a more nomadic nature may find this extremely limiting and even risky when considering the hefty tax penalties applied to those that break the agreements laid out in the regime.
It’s worth considering that this scheme had initially been created to get Italian professionals back into their home country. It wasn’t designed with remote workers in mind and was adapted to accommodate them. With the remote workforce still being largely misunderstood by legislators, many schemes like this often miss the mark by lacking in versatility, limiting a remote workforce that is driven by location independence. Lately, there seems to be a visible increase in governments and legislators throwing certain buzzwords into their policies in order to lure in this demographic, but quite often, what we see in a catchy headline just doesn’t hold up when we get down the bare bones of the policies. The flexibility that is such a crucial part of the remote lifestyle seems to be ignored.
With that being said, the overall benefits of this scheme are highly favorable to the remote worker who is looking to base themselves somewhere for at least half of the year. The substantial tax cuts that could be applied may lead to considerable financial gain. Bookkeepers with a clear understanding of the scheme could be employed using savings garnered from the tax cuts, making the often daunting task of tax returns a breeze.
Overall, the scheme itself offers sizeable benefits to those able to locate themselves in Italy for a certain period of time. Although it might not be the perfect solution that many living within the ‘grey area’ are looking for, it does demonstrate a desire to bring in remote workers and offers a fair reward for those willing to relocate and work within the confines of the inpatriate regime.
Interestingly, this isn’t the only scheme in place.
Other incentives in Italy
Subsidized rent for remote workers
A select few villages in Italy are beginning to market themselves as "smart working villages", such as Santa Flora & Rieti. In a bid to drive tourism, boost their economy and up their population, these areas are transforming themselves, installing fiber optic broadbands whilst offering to subsidize the rent for people who can prove that they have active employment and plan on staying there for a certain amount of time.
What’s on offer?
- Subsidies or ‘rent vouchers’ of up to 50% on rent.
- The villages that are a part of this scheme offer quintessential rustic vibes for those wanting to immerse themselves in Italian culture.
What are the requirements?
- An application form must be submitted alongside a document clearly detailing what you do for a living.
- People on a pension can benefit from the voucher, but only if they're still working as independent contractors, professionals or online consultants.
- Proof of rental with contract details and your new address.
- The majority of these villages require a lease agreement that lasts six months which can often be extended.
What are the risks?
If you break the agreement, you will be liable to pay the total unsubsidized amount in rent and will no longer be eligible for rent vouchers. You should also consider that many of these areas are very remote, so those looking for a more cosmopolitan lifestyle might feel a little isolated.
How to apply?
There is a range of websites that aim to show off the different villages. Most of them rely on housing agents to liaise with people wanting to move there, and these agencies can also help with the application processes involved in that municipality. Follow the links for more info: Santa Fiora & Rieti.
1 Euro Homes
What’s on offer?
There is a well-publicized scheme in place within Italy where individuals can purchase houses for the symbolic price of 1 Euro.
Why does it exist?
The majority of the houses are based out in the countryside. As a homeowner, individuals are expected to pay taxes and maintenance costs. These can often be extremely high, especially if the house they have inherited is in a state of disrepair. Due to these high costs, many of the houses end up being donated to the local municipalities. As a reaction to the rising number of unwanted properties, the 1 Euro house scheme was drawn up in an attempt to bring in outsiders who wish to restore and revitalize properties in the beautiful Italian countryside. The majority of these properties are found in the south of Italy in rural areas that have suffered from declining populations.
What are the requirements?
- There is often a mandatory commitment from the buyer to restore, remodel and refurbish these homes.
- Some properties require that the ‘historical significance’ and ‘cultural feel’ of the house are retained, meaning that properties cannot be transformed too drastically and must keep their original aesthetic appeal.
- Some houses are required to comply with ecofriendly measures. Ecofriendly home refurbishment can be subsidized by various tax credits making this an effective way for homeowners to transform their 1 Euro house.
What are the risks
- Restoration costs are likely to be high.
- Terms and conditions of contracts have been known to vary throughout the country.
- Some houses are literal ruins and may be beyond repair, leaving the buyer with a property they can’t do anything with.
“You can throw a dart at a map of Italy and pretty much anywhere it lands, there’s a 1-euro house “initiative.” Many programs are established and successful. Others are ad hoc, with houses coming and going, and mayors and local officials making up the rules, then changing them on a whim.” - Dispatches Europe
How to apply?
1 Euro property auctions often take place in towns and villages. A list of the towns currently participating in this initiative can be found here.
Italian Flat tax for HNWI
In 2017 Tuscany began to offer a flat tax for high network individuals that substituted the usual tax imposed by the IRPEF (Italy’s income tax system).
What’s on offer?
A flat tax of 100,000 Euros per year for any income earned outside the country by residents.
What are the requirements?
- You have not lived in Italy for nine of the past ten years.
- You have to be/become a tax resident of Italy.
- To pay 25,000 Euros for each additional family member living within your residence.
These incentives are yet another example of countries making slow progress towards forming societies based on ideas encompassing the future of work. Most countries still lack understanding of the core values we have as remote workers and digital nomads: flexibility, location independence and the freedom to choose our lifestyle.
Governments that start developing policies to incentivize the remote community to set up digital roots on their territory will see that there is a big demand for these schemes. As members of the remote work movement, we need to reflect on what we really need from governments worldwide.
If you are working remotely, traveling full-time as a digital nomad, living as an expat outside of your country of residence, or simply prefer staying location independent - what kind of policy regarding taxes do you expect from countries trying to develop them at the moment? Tweet us at @safetywing and we'll collect all the tweets we get on this topic!
About the author
Researcher & Writer
Luke has been traveling around the globe for the last decade and is currently based in Chiang Mai, Thailand. He's been working remotely on everything from directing music festivals, to online ESL coaching, to writing and contributing as a researcher for Borderless. He is a passionate advocate for the modern nomadic way of life and enjoys getting others started on their journey towards remote living.