Revenue Agency: operational instructions on the tax residence of individuals 

On 4 November 2024, almost one year after the entry into force of Legislative Decree no. 209/2023 (hereinafter the “Decree”), Revenue Agency Circular no. 20/E has been issued to provide the first operating instructions regarding the new criteria for determining tax residence contained in Chapter I of the Decree. 

Decree no. 209, which implements Legislative Decree no. 111 of 2023, has revised the rules on the tax residence of individuals, companies and entities not related to companies, provided for respectively in articles 2 and 73 of the Consolidated Income Tax Law (hereinafter “TUIR”), to bring these rules into line with international practice and with the conventions signed by Italy in order to avoid double taxation, as well as coordinating the same rules with the provisions on permanent establishments and with the tax regime applicable to employees working remotely. 

To analyze what the new legislation has introduced with regard to individuals, it is first necessary to point out the principle laid down in article 3 of the TUIR on taxation, according to which (i) residents in Italy are taxed in our country on all income, wherever generated (without prejudice to the application of double taxation conventions), whilst (ii) non-residents are taxed only on income generated in Italy. 

The new concept of domicile 

Based on this principle, the first important amendment provided for by Article 1 of Legislative Decree no. 209/2023 concerns the amendment of paragraph 2 of Article 2 of the TUIR, which introduces a completely new criteria for determining tax domicile, according to which “for the purposes of income tax, natural persons shall be deemed to be domiciled if, for the greater part of the tax period, including fractions of a day, they have their domicile within the meaning of the Civil Code or are resident or present in the territory of the State. For the purposes of this provision, the place of residence shall be the place where the person’s personal and family relationships are primarily developed. Unless proven otherwise, persons who are registered in the census of the resident population for the greater part of the tax period are also presumed to be resident”. 

Prior to this provision, which according to the Revenue Agency’s circular will enter into force on 1 January 2024, the amended article 2 of the TUIR provided that individuals who, for the greater part of the taxable period (i.e. 183 days in a year, 184 days if it is a leap year), were alternatively: (i) registered in the register of residents, (ii) had their domicile in Italy, and (iii) had their residence in Italy, were considered resident for tax purposes and therefore subject to taxation on all income, wherever generated.  

Therefore, first of all, the concept of domicile has been modified, no longer based on the civil law definition (which returns it to the place where the taxpayer has established the main seat of his business and interests), but now identified as “the place where the taxpayer’s personal and family relations are principally developed”, a definition, moreover, consolidated by international practice and double taxation treaties, to which our domestic legislation had to be adapted. 

Registration with the population registry office: the new relative presumption  

What has also changed is the value of registration with the resident population registry office, which has now become a relative presumption for determining tax residence, as it can be rebutted if the taxpayer is able to prove – notwithstanding registration with the registry office – that he has no habitual abode or domicile in Italy or that he is not physically present in Italy for most of the tax period.  

In this regard, it should be recalled that the requirement of registration with the population registry office determined, under the previous legislation, an absolute presumption that could not be rebutted by demonstrating the absence of the above-mentioned requirements.   

Finally, the Revenue Agency reiterates – in continuity with what was already provided for in the previous legislation – that for the purposes of determining the permanence in the State for the “greater part” of the tax period, non-consecutive periods are also relevant, provided that they add up to at least 183 – or 184 in the event of a leap year – days in the course of a calendar year. 

Remote work under the new provisions  

A further reference contained in Circular no. 20 of 4 November, concerns the tax rules to which workers who perform remote work are subject (i) both in cases in which they perform work from Italy for a foreign employer, for which the stay in Italy for 183 days (184 in leap years) will determine the tax residence in our country, with the consequent taxation in Italy of the income wherever produced (subject to the possible application of double taxation conventions), (ii) in the case of workers working for a foreign employer for at least 183/184 days, who will still be considered tax resident in Italy if they meet one of the other three requirements of the new Art. 2 paragraph 2 of the TUIR: (i) civil residence, (ii) domicile in Italy or (iii) registration in the resident population registry. 

Finally, the Revenue Agency reiterates the effectiveness of the new rules with effect from the tax period following the issuance of Decree 209, i.e. from 1 January 2024, specifying that the application of the new principles will also be relevant for the purposes of the new inbound workers regime in force from 2024.