Observatory

Tax regime for repatriated workers: taxpayers returning following posting abroad (Andrea Di Nino, Sintesi – Ordine dei Consulenti del Lavoro, March2021)

26 March 2021

The Italian Tax Authority, in its answer to question no. 42 of 18 January 2021 provided guidance on the special regime’s applicability for repatriated workers under Art. 16 of Legislative Decree no. 147/2015, “Internationalisation Decree”, particularly returning from posting abroad.

By introducing an ad hoc tax regime, the decree provided self-employed workers and employees with an incentive to return to the country and allowed them to benefit from a significant reduction in their taxable income following the transfer of residence to Italy under art. 2 of the Consolidated Income Tax Law (TUIR) varies according to the date of transfer and the applicable regulations.

To benefit from this regime, considering the various changes that have taken place over the years, under paragraph 1 of art. 16 of the decree, it is necessary that the worker (i) transfers the residence to Italy under art. 2 of the Consolidated Income Tax Law (TUIR), (ii) has not been resident in Italy in the two tax periods preceding the transfer, undertaking to reside in Italy for at least two years, and (iii) carries out the work mainly in Italy.

Under paragraph 2 below, the tax benefit is available to a European Union or non-EU country citizen with which a double taxation convention or agreement on the exchange of information on tax matters is in force, who (i) have a university degree and have been “continuously” employed, self-employed or engaged in a business outside Italy for at least 24 months or (ii) have been “continuously” studying outside Italy for at least 24 months, obtaining a university degree or a postgraduate degree.

The case involved an Italian worker, who was a graduate and employed with a permanent contract by an Italian company since 2013. Since 15 February 2016, the worker was seconded to an international group company, based in the People’s Republic of China (“PRC”), under a local employment contract, regulated by the foreign country’s legislation.

In his application, the worker declared he had been employed again – as of 1 January 2021 – by the same Italian company, with a permanent contract, and that he registered on the Register of Italians Resident Abroad (AIRE) in June 2016, given his financial and personal interests in the PRC.

The applicant asked whether he could benefit from the special regime for repatriated workers under Article 16, paragraph 2, of Legislative Decree no. 147/2015, as from the 2021 tax year.

After examining the application received, the Inland Revenue first provided a general overview of the rule, defining its scope and conditions. In detail, the tax authority explained that the tax benefit is available to taxpayers for five years starting from the tax period in which they transfer their tax residence to Italy and for the following four tax periods (under Article 16, paragraph 3 of Legislative Decree no. 147/2015). To access the special regime, the above art. 16 presumes that the person has not been resident in Italy for two tax periods preceding the re-entry.

For taxpayers returning following a posting abroad, the Inland Revenue cites the recent Circular 33/E of 28 December 2020 (paragraph 7.1), which specifies, that “the tax benefit is not applicable to the posting abroad with subsequent return, if there is the same contract, with the same employer. On the contrary, if the work carried out by the repatriated constitutes a “new” work activity, after signing a new employment contract, different from the one in place in Italy before the posting, and assuming a different business role, they can access the benefit from the tax period in which they transferred their tax residence to Italy. The benefit does not apply when the subject, although in the presence of a “new” recruitment contract for a “new” company role at the time of repatriation, falls into a situation of “continuity” with the previous work position held in the country before the expatriation.

This happens when, regardless of the “new” company role and related remuneration, the contract terms and conditions remain unchanged upon return to the employer under agreements of a different nature, such as the signing of clauses included in secondment letters, or agreements where a new company role is conferred where it is clear the original contractual conditions in force before the expatriation continue to apply.”

This circular lists some examples of “substantial continuity”:

  • the allocation of leave accrued before the new contractual agreement;
  • the recognition of seniority from the date of first recruitment;
  • the absence of a probationary period;
  • clauses aimed at not paying thirteenth (and possibly fourteenth) salary accrued and severance indemnity at the time of signing the new agreement;
  • clauses according to which, at the end of the secondment, the seconded person will be reintegrated into the seconding company organisation and employment terms and conditions before the secondment will be applied again.

On the contrary, “where the new contract objective conditions (work, term, remuneration) require a new obligatory relationship to replace the previous, with new and autonomous legal situations followed by a substantial change in the service subject and relationship title, the repatriated may access the tax benefit.”

In this case, the tax authority held that the applicant worker could benefit from the favourable regime “only if the “new” work was not in continuity with the previous position, as defined in the circular. This circumstance cannot be verified as part of the question and is not subject to control here, and provided that all other legal requirements are met.”


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