Italy Introduces New 183-Day Tax Residency Rule

In November 2024, Italy's tax framework has undergone significant changes, with the introduction of new regulations, affecting how tax residency applies to individuals spending time in the country. The updated guidelines, which include a new 183-day physical presence rule, prompted many HNW individuals to review their travel schedules, personal ties, and overall compliance obligations.

Under the new regulations, physical presence now serves as an independent criterion for determining tax residency in Italy. Individuals who spend more than 183 days (or 184 in leap years) in Italy during a calendar year will be considered tax residents, regardless of the duration of their stay. This change requires meticulous record-keeping, as every day or part of a day spent in Italy counts towards the total.

Updates on Tax Residency Criteria

Italy's updated tax residency framework now consists of four distinct criteria:

• Residency (habitual residence)
• Domicile (personal and family connections)
• Enrollment in the Anagrafe (Italian civil registry)
• Physical presence

Meeting just one of these criteria is sufficient to establish tax residency under domestic rules.

The changes are expected to have various effects, including more individuals qualifying as tax residents, a greater focus on personal and family ties, and tighter control over Italians in tax havens.

However, the updated regulations also make it easier for individuals to prove non-residency by presenting counterproof to show they are tax residents elsewhere.

Double Tax Treaties and Residency Conflicts

While meeting the criteria under Italian domestic tax law establishes residency, double tax treaties (DTTs) can prevent Italian tax residency classification. Italy's treaties with other countries place international agreements above domestic legislation, using tie-breaker rules to resolve residency conflicts.

To avoid unintended Italian tax residency, individuals must carefully plan their travel, limit their stays within the allowable days, and document their ties to other jurisdictions. Understanding treaty provisions alongside these strategies can help manage residency status effectively.

Tax Liabilities and Special Regimes

Italian tax residents must declare worldwide earnings and disclose any financial assets and accounts held abroad.

This can significantly impact overall tax obligations. However, Italy does offer preferential rates for specific groups, including:

• A 200,000-euro flat tax aimed at high-net-worth individuals
• A 7% flat tax for pensioners relocating to regions in southern Italy

Such measures may appeal to certain categories of new residents, but they require a thorough understanding of the broader implications of global taxation.