Tax residency in Italy for digital nomads is something to think about if you are planning to live la dolce vita in Italy. Are you planning to enjoy the local Italian cuisine and the beauty and history Italy has to offer?
Before making the plunge, you probably want to read this post about the tax consequences of such a decision.
Living in Italy
If you a citizen of another country of the Schengen Area, you can freely travel and move to Italy based on the freedom of movement and establishment.
Nevertheless, you do need to register yourself with the local authorities if you plan to stay there longer than three months.
If you aren’t a citizen of another country of the Schengen Area, the upcoming Italian digital nomad visa could be an option for you.
Italian tax rules
If you plan to spend some time in Italy, you also need to be aware of the possible tax consequences.
So, let’s look deeper in the Italian tax rules. When do you become a tax resident and what tax rates can you expect to pay?
Tax residency in Italy for digital nomads
You become a tax resident in Italy if you register yourself with the local authorities.
However, also if you don’t register yourself, you can become a tax resident in Italy.
This is the case if you have strong personal or economical ties to the country. This also applies if you spend more than 183 days in the country.
So, the starting point for having Italian tax residency is rather formal. However, if you wouldn’t formalize your stay in Italy, the tax authorities could still regard you as a tax resident based on other elements.
That’s of course when tax rates and other contributions come into play.
Tax residency in Italy: tax rates
Italy charges taxes on three levels.
First there are the national income tax rates. These national income tax rates are applied nationwide and are progressive. They start at a rate of 23% and go up to 43% as from an income of around €55.000.
Apart from the national income tax rates also the region levies income taxes. These vary on the region you are living and currently range from 1,23% to 3,33%.
Finally, also the local municipality charges an income tax rate. These currently range from 0% to 0,90%.
Consequently, depending on where in Italy you plan on living your highest tax bracket will end up somewhere around 45%.
Flat tax scheme for freelancers
The aforementioned means that settling in Italy is a costly affair from an income tax point of view.
Luckily, Italy introduced the regime forfettario for freelancers in 2015.
Under this regime you pay a flat tax rate of 5%.
This rate applies for your first five years.
After that, the rate goes up to 15%.
The tax is applied on your revenue instead of on your actual profit. So, it is mainly interesting for people with a business with low expenses like consultants.
However, in order to qualify for the regime you cannot earn more than €85.000 per year.
You can also not have an additional income from employment that is higher than €30.000.
Furthermore, the regime also does not apply to ‘fake’ freelancers who started freelancing for their former employer. Neither can you apply the regime forfettario if you own another company.
If you qualify under these conditions and you really want to spend more time in Italy due to which you will become at tax resident there, the regime forfettario could be a good option for you.
Tax cut for new tax residents – old regime
Another regime that could benefit you is the tax cut for new tax residents or lavoratori impatriati.
With application of this regime you can get a tax cut of up to 90% (depending on the region) of your income taxes.
In order to qualify the regime, some conditions apply. The most important are:
- You cannot have been a tax resident in Italy for the past two years;
- Commit to reside in Italy and become a tax resident for at least the next two years;
- Spend the majority of your time during those years in Italy;
- Hold a university degree or a highly specialized qualification (not applicable if you are a Italian citizen).
You can benefit from this tax break for up to five years. If you meet certain conditions, you can even extent for five more years bringing the total duration of the benefit to ten years.
This tax break is not only applicable to freelancer but also to employment income. So, you can also apply this regime if you work for a remote company.
Tax cut for new tax residents – new regime as from 2024
The aforementioned lavoratori impatriati changes as from 2024.
People who got in on the old regime, can still benefit from it.
However, if you move to Italy as from 2024, you need to take into account the new conditions. These conditions are similar to the ones before, but a bit more strict:
- You cannot have been a tax resident in Italy for the past three years (compared to two before);
- Commit to reside and become a tax resident of Italy for at least five years (compared to two before);
- Spend the majority of the year in Italy;
- Hold a university degree or a highly specialized qualification (not applicable if you are a Italian citizen);
- Move to Italy because of a new job or business; relocation within the same group of companies doesn’t qualify.
You will get a tax break of 50% (compared to up 90% before) and you get it for up to five years.
Unlike before, you cannot extent for five additional years. Therefore, the maximum duration is five years.
Furthermore, you only get the tax break of 50% up to an income of €600.000. If you exceed this income, the normal tax rates apply on all income above this threshold.
Tax residency in Italy for digital nomads: social contributions
The actual rate of social contributions depends on your personal and social situation.
However, as a self-employed individual you can expect to pay around 30% in social contributions.
Thus, like in most Western countries, social contributions in Italy are on the higher end.
Tax residency in Italy for digital nomads: conclusion
You have various options in Italy to limit your income tax burden. This can make Italy an interesting pick if you just look at from the perspective of income tax rates.
However, you’ll also need to take into account social contributions. If you combine the rate of your income taxes with the rate of social contributions, you will still pay a large amount of taxes to the government.
Therefore, Italy is probably not the place to look for an optimal tax structuring. Nevertheless, if you want to move to Italy as a lifestyle choice, you can use one of those regimes in order to limit your tax burden.
