Italian tax incentives for employees working for foreign employers

Question: Does the Italian 70%-90% tax exemption apply to people who move to Southern Italy while working for a non-Italian employer?

Answer: The Italian 70%-90% employment income-tax-free program (the percentage depends on which region of Italy you live in), in Italian called “Regime Impatriati”, is aimed to attract workers to move to Italy. It can apply to remote workers of any nationality living in Italy even if they are employed by foreign companies.

The Italian tax authorities have confirmed this principle through the tax ruling no. 157 published on March 25, 2022.

The government is working on several tax changes within the 2024 budget law, expected to be finalized by Dec. 31, 2023. 

This topic has become a more frequent question in the post-pandemic work dynamics.

It is notable that the employee’s citizenship does not matter for the purposes of this Italian tax incentive. Additionally, it is irrelevant whether or not the foreign employer has a branch in Italy.

Here is an example of how you can apply the tax incentives above:

• You are a person who in the past few years lived and worked for a company based outside of Italy (for example, in the U.S., UK, France);
• You were not an Italian tax resident in the past two tax years;
• You move to Italy permanently and continue to work remotely for a non-Italian-based company.

In this scenario, you would be entitled to the Italian 70%-90% employment income tax exemption pursuant to the tax program above.

If the non-Italian-based company does not have an Italian permanent establishment, you will apply for the 70%-90% tax exemption directly in your Italian income tax return.

The standard tax exemption rate under this program is 70% whereas it is 90% if you live in Abruzzo, Basilicata, Calabria, Campania, Molise, Puglia, Sardinia or Sicily.

This program applies for 5 tax years and can be extended to another 5 years if you have a child or buy an Italian residential property.

It is notable that employee’s citizenship is irrelevant for the purposes of this Italian tax incentive. Additionally, it is irrelevant whether or not the foreign employer has a branch in Italy and if, after relocating to Italy, the employee starts working for an Italian based employer or starts self-employment business.

Social Security

The Italian tax authorities have also clarified that, for people under relocation tax program above, Italian social security applies on the employment taxable basis. This means that also for the purposes of Italian social security taxation, there will be either a 70% or 90% exclusion.