Tax regime for workers returning to Italy following a posting abroad: the Inland Revenue answer

With answer to question no. 42 of 18 January 2021, the Inland Revenue has expressed its opinion on the application of the favourable regime introduced by art. 16 of Italian Legislative Decree no. 147/2015 for repatriated workers. The Inland Revenue focused on the possibility for workers returning to Italy, following a posting abroad, to benefit from the above regime.

The taxpayer’s question

In formulating his question, an Italian citizen stated that:

• until 14 February 2016 he had been working in Italy for an Italian company;
• since 15 February 2016 he had been seconded to a group company based in China, with a contract under foreign law;
• since 1 January 2021, he had been re-employed by the same Italian company with a permanent contract.

The taxpayer asked the Inland Revenue whether it was possible to benefit from the special regime reserved to repatriated workers starting from the tax year 2021.

The Inland Revenue’s opinion

The Inland Revenue summarises the tax benefit conditions, considering the latest regulatory changes, pointing out the possibility for the worker to benefit from the abatement of the taxable income up to 70 per cent if:

• workers transfer their residence to the country under Article 2 of the Consolidated Law on Income Tax – TUIR;
• have not been resident in Italy for the two tax periods prior to the transfer and undertake to reside in Italy for at least two years;
• they work mainly in Italy.

The benefit is available starting from the tax period in which the worker transfers their tax residence to Italy and for the following four tax periods.

However, as already expressed in the previous Circular no. 33/E/2020, the Inland Revenue specifies that, for taxpayers returning to Italy following a posting abroad, the tax benefit cannot apply:

• “with the same contract and the same employer; and 
• “if the worker is in a situation of “continuity” with the previous work position held in the country before the expatriation at the time of repatriation, even if there is a new contract for a different company position.”

The Inland Revenue provides an example, and identifies the following as indicators of “continuity” which determine the worker inability to access the tax benefit including:

• holidays accrued before the new contractual agreement;
• seniority from the date of first hiring;
• absence of a probationary period;
• clauses to avoid paying the accruals of the additional months’ salary and the severance indemnity at the time of signing the new agreement;
• clauses which state that at the posting’s completion, the seconded person will be reinstated within the home company organisation under the same employment terms and conditions at the home company before the posting.

These indicators suggest a substantial continuity with the employment relationship established before the posting in which the original contractual terms and conditions before the posting abroad continue to apply and exclude the applicability of the favourable regime.

If work carried out by the worker, after their return to Italy, constitutes a “new” activity which involves signing a new employment contract for a company role completely different from the original it would be a different case. In this situation, the worker would be entitled to benefit from the favourable regime.

Since it is unable to verify the applicant’s employment situation, the Inland Revenue outlines the principle according to which the taxpayer could benefit from the favourable regime starting from 2021 only if the work carried out in Italy after the posting abroad is completely “new” and does not have continuity with the previous employment relationship existing before the expatriation.