With Circular no. 25/E of 18 August 2023, the Italian Revenue Agency provided interpretative clarification and operating instructions on the tax aspects of remote work.
In particular, with the Circular in question, the Revenue Agency focused on remote working and on the application of tax relief for individuals who transfer their tax residence to Italy to carry out a work activity mainly within Italy, governed by Article 16 of Italian Legislative Decree no. 147/2015 (so-called “special scheme for impatriate workers”), and by Article 44 of Italian Decree-Law no. 78/2010 converted into law, with amendments, by Italian Law no. 122/2010 (“special scheme for teachers and researchers”).
In its Circular, the Agency reviewed developments in recent years with respect to the constant increase in the use of forms of work characterised by services provided remotely, defined as ‘agile’. These services are provided without the need for physical presence on premises made available by the employer or, in any case, in a fixed location, and are better known as remote working or agile work: they have been favoured by technological progress and strongly accelerated by the Covid-19 pandemic emergency, which has forced most sectors to redefine working methods.
Therefore, in the face of significant organisational changes within companies, the Revenue Agency’s Circular has defined, based on internal legislation and the methods of performing work, the criteria and the application of tax rules and the determination of residence for tax purposes.
Residence in accordance with Article 2 of the TUIR
The concept of “tax residence” is regulated by Article 2, paragraph 2, of the Italian Income Tax Consolidation Act (Testo unico delle imposte sui redditi, ‘TUIR’) approved by Italian Presidential Decree no. 917/1986. Under this provision a person will be considered to be tax resident in Italy if, for most of the tax period (i.e. 183 days in a year, or 184 days in the case of a leap year) he/she:
These conditions are in the alternative, so that the existence of only one of them is sufficient to anchor a person’s residence in Italy.
The concepts mentioned above relating to Article 2 of the TUIR must be interpreted, by express regulatory provision, in accordance with the rules contained in the Italian Civil Code, which defines domicile as the place where a person has established the main location of his/her business and interests and defines his/her usual residence as his/her place of residence.
In particular, as already clarified in Ministerial Circular no. 304/1197, continuity or permanence of usual residence is not necessary to constitute residence, with the consequence that even prolonged periods of absence do not exclude the establishment of residence in Italy. As regards domicile, it is also necessary to take into account relationships of a non-pecuniary nature, such as personal and emotional ones, to establish whether the centre of business and interests are located in Italy.
In this regard, as already clarified by the Revenue Agency with Circular 9/E/2016, assessment of the conditions for establishing residence, other than the formal registry data, requires a factual verification to be carried out on a case-by-case basis, in order to actually weigh the information establishing the place of domicile or residence as defined under civil law.
Fictitious transfers of residence abroad
The need to provide interpretative clarification in relation to cases characterised by the performance of work activities remotely is closely connected to the need to combat cases of non-genuine residence abroad. In this regard, in fact, Article 2, paragraph 2-bis of the TUIR introduced a relative presumption of tax residence, according to which, unless evidence to the contrary is provided by the taxpayer, persons deleted from the registry of the population resident in Italy and transferred to states or territories with a privileged tax regime as identified in the decree of the Minister of Finance of 4 May 1999 are considered residents of Italy.
The above-mentioned paragraph 2-bis was introduced specifically to counter frequent fictitious migration to countries with privileged taxation. Therefore, even following the formal registration in the Registry of Italians residing abroad, with respect to citizens transferred to countries or territories with privileged taxation, there continues to be a (relative) presumption of tax residence in Italy as a result of the aforementioned paragraph 2-bis.
The residence of remote workers under the domestic legal system
Therefore, it is evident that the Agency, in its Circular, has confirmed that, even in the face of the significant organisational changes within companies, no changes have been made to internal legislation that have affected the rules for determining residence for tax purposes. Consequently, the criteria for establishing the tax residence of individuals remain those provided for in Article 2 of the TUIR (as set out in the previous paragraph) which remain unchanged for those who work remotely.
In other words, the methods of performing work do not affect the criteria for determining tax residence, which remain anchored to fulfilment of at least one of the above-mentioned conditions set out in Article 2 of the TUIR.
Special schemes applicable when working in Italy
Therefore, on the basis of the clarification provided by the Revenue Agency and referred to in the previous points, the Agency has confirmed that the criteria for establishing the tax residence of individuals remain those provided for in Article 2 of the TUIR and that this issue is also relevant for the purpose of applying tax relief for individuals who transfer their tax residence to Italy to carry out a work activity mainly within Italy, governed by the above-mentioned Article 16 of Italian Legislative Decree no. 147/2015 and Article 44 of Italian Decree-Law no. 78/2010 converted into law, with amendments, by Italian Law no. 122/2010.
Ultimately, a person who transfers his/her residence to Italy can access the “special regime for impatriate workers”, while continuing to work remotely for a foreign employer, starting from the tax period in which the transfer to Italy takes place.
In contrast, a person who, having moved to work in Italy, subsequently moves abroad while continuing to carry out his/her work remotely from the new location for the same Italian employer, will not be able to continue to benefit from the tax relief in question, since in this case the income is considered to be produced outside Italy.
The position on the application of the tax relief in question to the “special regime for teachers and researchers” differs. For the purpose of applying this tax relief, in fact, there must be a link between the transfer of the teacher’s or researcher’s residence to Italy and the performance of the activity producing the income subject to tax relief.
As already clarified by the Revenue Agency with Circular no. 17/E/2017, establishing the above-mentioned connection corresponds to the rationale of the rule to facilitate all residents abroad, both Italians and foreigners, who, due to their particular scientific knowledge, may favour the development of research and the dissemination of knowledge in Italy, through their acquisition of know-how from their work activities carried out abroad.
Therefore, in contrast to the provisions of the impatriate regime, a teacher or researcher who has moved to Italy who has an employment relationship with an institution or university located in a foreign country, for which he/she carries out his/her teaching or research activity remotely, will not be able to benefit from the tax relief for the related income because there is no connection between moving to Italy and carrying out a teaching and/or research activity in Italy.