Tax residency in Italy: a brief guide
One of the questions that often puzzles expats in Italy is whether they are tax residents or not. This distinction is crucial, as it determines the payment of taxes. Let’s take a look together at 1) when a person is considered a tax resident, 2) the differences between being a tax resident and not, 3) what happens when one is resident in more than one country.
1) When are you considered a tax resident?
There are two criteria for determining whether one is a tax resident in Italy, a formal one and a substantial one. The formal criterion is intuitive. When a person moves to Italy and gets registered by the Register Office (Anagrafe), they become residents for all intents and purposes. It is, however, important to note that the residency doesn’t always start automatically in the same year of the registration.
Case 1.
John moves from the UK to Italy and registers at the Anagrafe in February 2021
He is registered in Italy for most of 2021 → He is a tax resident starting from January 2021
Case 2.
John registers at the Anagrafe in Italy in November 2021
For most of 2021, he is not registered in Italy → He will be an Italian tax resident starting from January 2022
The substantial criterion is when the centre of a person’s interests is Italy. This means that if a person is centred in Italy for most of the year, they will be considered tax residents even if they are not officially registered. As you can imagine, establishing where a person’s centre of interests is, is not a straightforward process.
2) Tax resident vs. non-tax resident
But let us come to the prickly questions. What is the difference between being resident and non-resident from a taxation point of view?
Whoever is an Italian tax resident has to pay taxes on all incomes, properties and assets, including the ones abroad. This is the so-called worldwide taxation principle.
A person who is not a tax resident but produces an income in Italy is only required to pay taxes on said income.
3) What happens if I am a tax resident in 2 or more countries?
There are agreements between countries, called Bilateral Agreements, to avoid double taxation so that a taxpayer does not have to pay twice. You will need to speak to your tax advisor (possibly one in your home and one in your host country) to determine what to pay and where.
For further information, please contact us:
Tax Residency Italy Guide / Tax Residency Italy Guide
