Southern Europe is home to great weather, a relaxed lifestyle, as well as a number of excellent tax incentives that should be on your radar in 2023. Today, we look at Italy’s tax incentives for employed and self-employed individuals…
Why a move to Europe might make a lot of tax sense in 2023…
Exceptionally high taxes have long discouraged productivity and entrepreneurship in Southern Europe. To compound the issue, once you’ve paid your social welfare contributions there, you’d generally have parted with over half your earned income.
And that’s before you’ve been hit by an annual wealth tax, which is levied in places like Spain…
Over the past few decades, these factors have led to quite a significant brain drain from the region.
After the devastating impact of the 2008 financial crisis, Portugal, in particular, had to come up with some groundbreaking solutions to turn their economy around.
Their now famous Golden Visa program was one such initiative; the highly popular Non-Habitual Tax Residency – a tax status offering beneficial tax rates to new foreign residents – was another. But attractive tax incentives were one of the most effective tools at their disposal.
The word spread, and thousands of professionals and business people arrived in Portugal, bringing their expertise and money with them. And while taxes weren’t cut for ordinary residents, the country really rolled out the red carpet for new, foreign residents.
(Also for returning Portuguese nationals that haven’t been tax residents for a period of 5 years prior.)
And other countries in the region – including Italy – followed suit.
Why Italy may be an excellent choice if you’re a remote worker…
When discussing the best places to live and retire in Europe, it’s impossible to overlook Italy.
Offering gorgeous landscapes, friendly people, a rich culture and history, a reasonable cost of living and the world’s most loved cuisine – which you can enjoy at its source – Italy is a fantastic lifestyle destination.
(Residency wise, the country also offers both a Golden Visa and retirement residency program.)
But it has to be said – for ordinary Italians, taxation is hefty: They’re taxed on their worldwide income, with a 43% top marginal tax rate on incomes exceeding just €50,000.
The ordinary corporate tax rate is 24%, and both companies and individuals face regional taxes of up to 3%+. (There’s also an annual wealth tax on certain assets held outside the country (0.2 – 0.76%) to contend with.)
The good news is that, as a new resident, you can enjoy a tax holiday – as an employed or self-employed worker – and avoid most of the above for up to 10 years, depending on your situation.
Italy’s tax incentive for employed and self-employed people at a glance
Let’s take a look at what you can expect as a new Italian tax resident under the so-called Regime Impatriati…
WHO CAN APPLY: Foreign employees and self-employed individuals who transferred their tax residency to Italy are eligible to benefit from the special “Regime Impatriati” or Impatriate Workers regime.
THE OFFER: Enjoy a 70% discount on your taxable income if you move to Northern or Central Italy, or a 90% discount if you settle in Southern Italy. Accordingly, any of your Italian-sourced employment or self-employment income will be reduced to 30% of the total amount (a 70% discount), or to just 10% (a 90% discount).
THE CONDITIONS: You cannot have been an Italian tax resident for at least 2 years prior to your move there. You must also commit to staying in Italy for at least 2 years.
VALIDITY PERIOD: You can benefit from this incentive for a period of up to 5 years, with a possibility to extend for another 5 years (conditions apply).
Thus, if you plan to live in Italy and work for your employer or run your business remotely, for the next five years, you will be able to do it much more tax-efficiently.
Let’s review how the applicable rates will look for you:
|Personal Tax Rates in 2022|
|Annual Taxable Income||Ordinary Income Tax Rates||Impatriate Regime (Northern and Central Italy)||Impatriate Regime (Southern Italy)|
|€0 to €15,000||23%||6.9%||2.3%|
|€15,001 to €28,000||25%||7.5%||2.5%|
|€28,001 to €50,000||35%||10.5%||3.5%|
|€50,000 and over||43%||12.9%||4.3%|
So what happens after the initial five years?
After the five initial years expire, you have an option to extend the deal for another five years, but the offer ain’t going to be as sweet – only 50% of your Italian taxable income will be exempted. And even then, you still need to meet the following new conditions:
- You must have at least one dependent child younger than 18 (or children of any age dependent on you financially), OR
- You must purchase a home during your stay in Italy, or within 12 months preceding your arrival there.
And you can still qualify for a full 90% discount again for the following five years in case you have more than three underage children (or three children of any age dependent on you financially).
IMPORTANT: None of the above accounts for your tax situation in your home country. While most countries’ citizens will be able to fully disconnect from their respective home tax nets, Americans will always remain on the IRS’ hook.
As a US citizen, you will generally only be able to benefit from limited US tax breaks such as the FEIE. Also, always be sure to discuss your specific tax situation with a knowledgeable tax specialist before making any immigration decisions.
Sovereign Confidential members, please feel free to get in touch if you’d like the details of one of our vetted service providers in either Italy or the US. You can also look forward to a deep-dive report on ALL of the Southern European tax incentives for remote workers, retirees and wealthy individuals shortly. Stay tuned…
The bottom line
Legally reducing your tax bill is the best risk-free return on investment you can make – and with tax savings of up to 90%, Italy is certainly a compelling option.
Sure, moving to a new country is typically a big decision. But given the lifestyle and tax related benefits, relocating to Italy might be well worth the effort and energy required.