From January 2024 on, individuals are considered tax residents in Italy if, for most of the tax period (183 or 184 days in a leap year), they have, alternatively:
- Civil residence: meaning their habitual abode. This criterion remains unchanged compared to the past.
- Domicile: now defined as “the place where personal and family relationships primarily are.”
- Physical presence: taking into account even fractions of a day.
- Registration into the Munipality office: which, however, becomes a “simple presumption” and no morerather a legal one.
To assess the new concept of “tax domicile,” it must be considered family and personal relationships (e.g., cohabitation) and social relationships (e.g., membership in cultural or sports clubs). In the past, personal and patrimonial elements had to be evaluated.
Regarding the new definition of domicile, the Italian Revenue and Custom Agency, in the note 20/E of this year, also explains that case-by-case assessments are left open. An example is: someone who, registered in the AIRE (Registry of Italians Residing Abroad) after starting to work abroad, has a house in Italy with the related utilities, to spend weekends or holidays there.
Considering how frequent this case is, I think the example provided by the Revenue and Custom Agency is quite worrying, even if, according to the Agency, “when it is not immediately clear in which state the personal and family relationships are concentrated and the taxpayer is not present in Italy for most of the tax period, it may be useful to consider the state in which the person stays predominantly.”
And to be honest, I think that considering a person resident in a country solely because they have a property there, or worse, have the availability of one, seems to be contrary to the principles of the free movement of people and capital.
Regarding the concept of a fraction of a day, it is stated that a single hour spent in Italian territory is equivalent to a full day. Therefore, the “day” is added to the other days to determine if more than 183 days, in a year, have been spent in Italy.
In the note 20/E, Revenue and Custom Agency has explained that there may be particular situations for which, despite remaining one or a few hours in Italy, the day is not considered for the purpose of determining tax residence in Italy. An example is the case of an airline stopover due to a connection to travel to a foreign country. It would be absurd if someone became a tax resident in Italy simply because he/she made a stopover at an Italian airport once.
In the case of work from home, the taxpayer must be considered resident in the place where the requirements of residence, domicile, and permanence are met, as explained above, without considering the residence of the employer or client.
I conclude writing that:
- Circular 20/E highlights how the phenomenon of double tax residence can be resolved thanks to double taxation treaties.
- The “relative” presumption of residence in Italy remains unchanged for Italian citizens who have been removed from the population registries to move to blacklisted countries.
Casale Monferrato, 18th November 2024
Key points:
- New criteria for determining tax residence in Italy, including domicile and physical presence.
- The concept of “fraction of a day” and its implications.
- The impact of smart working on tax residence.
- Concerns about the potential for double taxation and the interpretation of certain rules.
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