Tax residence of individuals

Tax residence of individuals

The rules in force from 2024 and the guidance set out in Circular No. 20/E/2024 issued by the Italian Revenue Agency

1. The context of the reform

The enabling act for tax reform [Law No. 111 of 9 August 2023, Article 3(1)(c)] called on the Government to review the tax residence of individuals, companies and entities, bringing it into line with international best practice and the double taxation conventions signed by Italy, coordinating it with the rules on permanent establishments and with the special schemes for those moving to Italy, whilst also taking into account remote working.

In implementation of this, Article 1 of Legislative Decree No. 209 of 27 December 2023 replaced Article 2, paragraph 2, of the TUIR (Presidential Decree No. 917/1986), with effect from 1 January 2024. In addition to international harmonisation, the measure aims to provide greater legal certainty and reduce litigation. This issue is crucial because residents are taxed in Italy on all income, wherever it is earned (Article 3 of the TUIR, the principle of worldwide income), whilst non-residents are taxed only on income earned within the territory of the State (Article 23 of the TUIR).

The operational instructions to the tax offices are set out in Circular No. 20/E of 4 November 2024, which also notes that the verification of residence requires factual assessments and cannot therefore be the subject of a tax ruling (such applications are inadmissible, as previously stated in Circular 9/E/2016).

 

2. The previous regime (up to the 2023 tax year)

Until 31 December 2023, a person was considered resident if, for the greater part of the tax year (183 days, or 184 in leap years), they met at least one of three alternative conditions:

1. registration on the register of resident population, which served as an absolute presumption;
2. domicile in Italy, defined under Article 43 of the Civil Code as the principal centre of business and interests;
3. residence in Italy, i.e. habitual abode as defined by the Civil Code. For these tax years, the clarifications set out in Circular No. 25/E of 18 August 2023 remain valid.

 

3. Changes from 2024

The new Article 2(2) of the TUIR retains the approach based on alternative criteria: it is sufficient for just one of the four criteria to be met for the majority of the tax year, taking into account fractions of a day as well. As confirmed by the Explanatory Report, the periods need not be continuous: the days of the calendar year are added together until 183 (or 184) are reached.

• Civil law residence – criterion unchanged. According to the Court of Cassation (Order No. 3841 of 15 February 2021), habitual residence requires an objective element (prolonged and significant presence, not necessarily predominant) and a subjective element (the intention to settle there, inferable from lifestyle habits and social, family and emotional relationships).
• Domicile – having abandoned the reference to the Civil Code, the provision provides an independent tax definition, inspired by OECD practice: it is the place where personal and family relationships, which take precedence over economic ones, are primarily developed. Marriage and civil partnerships, stable cohabitation and even long-standing social relationships evidenced by certain facts (e.g. annual membership of a cultural or sports club) are relevant. In the Agency’s view, a person may be deemed to have their domicile in Italy if they are registered with the AIRE and employed abroad, yet maintain a home in Italy with active utility connections and return there at weekends and during holidays. If relationships are equally divided between two countries (children in Italy, spouse in Country Beta; 145 days in Italy, 120 in Beta, 100 elsewhere), the relevant criterion is the length of stay: the individual is deemed to be resident in Italy. From 2024, the clarifications on domicile set out in paragraph 1.1 of Circular 25/E/2023 will no longer apply.
• Physical presence – a new and purely objective criterion, which is independent of the reasons for the stay (holidays, study, visits to relatives or friends, employment, self-employment or business activities, even whilst maintaining a family and registration on the population register abroad). Any fraction of a day counts as a full day: anyone landing in Italy at 23:00 on 1 July 2024 and departing at 01:00 on 31 December 2024 will have accumulated 184 days and will be deemed resident for 2024. Only temporary or occasional stays, such as a stopover for a connecting flight, are excluded. The taxpayer may demonstrate, using documents of equivalent probative value, that they have not reached the threshold. For remote working: anyone working remotely from Italy for 183 or 184 days becomes a resident and is taxed in Italy on all their income, unless otherwise provided for in tax treaties; anyone working remotely from abroad remains a resident if they meet one of the other three criteria in Italy.
• Registration with the registry office – this remains a criterion but becomes a relative presumption: the registered person may rebut it by proving, with objective evidence, that they did not have a residence, domicile or physical presence in Italy for the greater part of the year. Please note that a move to or from abroad must be declared to the registry office within 20 days (Presidential Decree 223/1989) and, for Italian citizens moving abroad, to the consulate within 90 days (Law 470/1988); following the 2024 Budget Law (Law 213/2023), failure to do so is punishable by a fine of between 200 and 1,000 euros for each year that the omission continues.

 

4. Relocation to countries with preferential tax regimes

Paragraph 2-bis of Article 2 of the TUIR remains unchanged: Italian citizens who have been removed from the register of residents and have moved to states or territories with a preferential tax regime as listed in the Ministerial Decree of 4 May 1999 are presumed to be resident in Italy, unless proven otherwise. The list was last updated by the Ministerial Decree of 20 July 2023, which, in implementation of Article 12 of Law 83/2023, excluded Switzerland with effect from 1 January 2024. To rebut this presumption, it is necessary to fully demonstrate both the loss of any significant connection with Italy and an actual and lasting presence in the foreign country (Circular No. 140 of 24 June 1999).

 

5. Effective date and related preferential schemes

The new rules apply from the 2024 tax year (Article 7(1) of Legislative Decree 209/2023); up to and including 2023, the previous legislation and related practice apply, including the absolute presumption linked to the civil register (mitigated by the rules of the double taxation convention). Anyone who was resident on the basis of their civil domicile remains so until 2023 and, from 2024, must verify compliance with the new definition or the other criteria. This affects access to tax regimes for those transferring their residence to Italy (substitute tax on foreign income, Article 24-bis of the TUIR; regime for foreign pensioners in Southern Italy, Article 24-ter of the TUIR; new regime for returnees, Article 5 of Legislative Decree 209/2023), all of which are conditional upon not having been resident in Italy in previous years: this requirement is assessed under the new rules for 2024 and subsequent years and under the old rules for the years up to 2023. For repatriates (Article 5, paragraph 6) and for the previous ‘ ’ scheme under Article 16 of Legislative Decree 147/2015 (paragraph 5-ter, returns from 2020 with a change of registered address by 31 December 2023), proof of having been resident in another country under a double taxation agreement is, in any case, admissible.

 

6. Coordination with double taxation treaties

Convention law takes precedence over domestic law (Article 169 of the TUIR; Article 75 of Presidential Decree 600/1973; Court of Cassation judgments nos. 1138/2009 and 14476/2016; Constitutional Court judgments nos. 311/2009 and 348 and 349/2007).

Article 4 of the OECD Model Convention refers to domestic definitions and, if both States consider the same person to be a resident, resolves the conflict using the tie-breaker rules, in the following order of priority: permanent home, centre of vital interests, habitual residence, nationality.

The criterion of physical presence may give rise to new cases of dual residence, for example in the case of cross-border workers who enter Italy every day, even if only for part of the day: the conflict is resolved by the tie-breaker rules even where the Convention does not expressly cover cross-border workers (such as the Convention with Slovenia, signed in Ljubljana on 11 September 2001).

These same rules may override the presumption based on the register of residents, as was already recognised prior to the reform (responses to rulings nos. 50, 73 and 79 of 2023; Court of Cassation nos. 26638/2017 and 20285/2013).

The double taxation agreements with Germany, Switzerland and Panama also include a ‘split year’ clause: a person who permanently transfers their domicile ceases to be resident in the first country from the day following the transfer (Resolution 471/E/2008).

 

7. Numerical examples from Circular 20/E/2024

First case. A previously non-resident individual is present in Italy during non-consecutive periods in 2024 (a leap year): 11–31 January (21 days), 5–10 February (6), April (30), 12–26 May (15), June–July (61), October (31), 5–12 November (8), 27 November (1), 2–12 December (11). The total is 184 days: for 2024, they are tax resident in Italy, even without a permanent residence.

Second case. A resident has their habitual abode in Italy until 29 February 2024, is abroad from 1 March to 29 August, and is back in Italy from 30 August until the end of the year. Adding the two periods together (60 + 124 days) results in 184 days of habitual abode in Italy, and they retain their tax residence for 2024.

 

8. Tax return obligations and combating tax evasion through offshore arrangements

Once residence in Italy has been established, all income, wherever generated, must be declared in Italy. Resident individuals, non-commercial entities and simple partnerships and equivalent entities (Article 5 of the TUIR) holding investments or financial assets abroad capable of generating taxable income in Italy must declare these in Section RW (Article 4 of Decree-Law 167/1990). For assets held in countries with preferential tax regimes (Ministerial Decree of 4 May 1999 and Ministerial Decree of 21 November 2001) without complying with monitoring obligations, Article 12(2) of Decree-Law 78/2009 presumes, subject to proof to the contrary and for tax purposes only, that they were established using untaxed income; furthermore, the time limits for tax assessments are doubled (Article 43(1) and (2) of Presidential Decree 600/1973 and Article 57(1) and (2) of Presidential Decree 633/1972). These measures are designed to combat ‘foreign residence sham’, i.e. the mere appearance of residence abroad in order to obtain more favourable tax treatment by those who, in reality, live in Italy: as it is based on untruthful declarations, it constitutes tax evasion rather than tax avoidance (on the presumptions underpinning the audits, see GdF Circular No. 1/2018, Vol. III).

 

9. Update

The text of Article 2 of the TUIR examined here remains in force until 31 December 2026: the article is repealed with effect from 1 January 2027 by Article 376(1)(e) of the Annex to Legislative Decree No. 117 of 19 June 2026 (new consolidated text). Unless otherwise specified, references to the repealed provision are deemed to refer to the corresponding provisions of the new consolidated text.