By Andrew Lawford
This article is published on: 9th January 2024
Happy New Year to everyone! I hope that you have had an enjoyable festive season and are feeling ready for 2024.
In keeping with the long tradition of Italian governments fiddling with tax rules, 2024 brings with it a number of changes, so let’s dive in and have a look at what to expect.
IRPEF marginal tax rates
For 2024 we will have only 3 marginal tax rates:
| € 0 – 28,000 | 23% |
| € 28,000 – 55,000 | 35% |
| € 55,000+ | 43% |
This abolishes the previous band from €15 – 28,000 which was taxed at 25%, which will result in a net saving for someone with an income of €28,000 of €260 per annum. Don’t get too excited though, because if you have an income above €50,000, the reduction in IRPEF rates is offset by the withdrawal of certain tax breaks, which could lead to you paying the same amount as before.
Residency rules
2024 introduces a modified formulation of the definition of tax residency, in particular through Art. 2 of the TUIR (the Italian tax code). Without getting too deeply into the details, the emphasis seems to have moved from a strict presumption based on whether you have, in fact, declared residency in your local municipality to one based more generally on your physical presence and an evolved conception of domicile. Not much will change for you if you live year round in Italy and are already used to filing tax returns, but if, for example, you have made a determination that you aren’t tax resident in Italy in spite of the fact that you spend a large amount of time here, it would be a good idea to review your position to make sure that it is (relatively) clear under the modified formulation. The changes also need to be considered in the light of any double tax agreements and, from what I have been reading, even the experts are confused about what all this will mean in practice. None of the above is helped by the fact that the Agenzia will not give an advance ruling on whether a given individual is tax resident or not – they will tell you what they think if they ever subject you to an audit!
Careful planning and prudence remain key to protecting your position, so do get in touch if you would like to discuss further, as I can provide an introduction to an experienced tax adviser as part of an overall review of your financial situation.
Inbound Workers Incentive
Those who took up residency before the end of 2023 can continue to use the previous rules, which are far more generous than the updated version, in force from the beginning of 2024.
The incentive currently available is reduced from the previous 70 – 90% income tax reduction to a 50% reduction, capped at an annual gross income of €600,000. The requirement for the time spent as non-resident of Italy prior to making use of the incentive has been increased to 3 years, (or 6 – 7 years if there is continuity in the employment relationship). There is also an increased requirement to maintain Italian residency for 4 years (previously 2), and a requirement for a high level of specialisation in the qualifications necessary for the job in question.
Given the growing complexity of the requirements, it is worth spending some time assessing your personal situation if you are considering making use of these incentives. It is also worth noting that the incentives do not apply to pension contributions, which may reduce considerably the value of the tax break for anyone not planning on being resident in Italy for the long-term.
It is worth reminding anyone making use of these incentives that they apply only to work income; any investments or passive income generated must be declared and taxed according to the ordinary rules. There are plenty of tax planning opportunities available for people transferring residency to Italy, so please do get in touch to discuss your own particular situation – it is never too early to start this process, as a number of potential tax efficiencies are lost if they are not put in motion before becoming Italian tax resident.
Short-term rentals and cedolare secca
For anyone offering short-term property rentals in Italy through Airbnb or similar, there are some changes coming in 2024. In particular, in order not to be considered a business activity, you can’t be renting out more than 4 separate properties. You are also only eligible for the cedolare secca flat tax of 21% on 1 property, while the rest will be taxed at a
rate of 26%. Platforms like Airbnb will continue to withhold 21% from the amounts charged, but this will only be by way of a provisional tax payment, with the property owner having to make up any shortfall in their tax returns.
Aside from the above, you should also take care to register for the new obligatory CIN (codice identificativo nazionale), details of which should be available in the coming weeks. This is a new registration requirement and the CIN must be displayed outside the building in which the short-term rental property is located, or you risk a fine of up to €8,000. There are also new safety requirements relating to fire extinguishers and gas alarms, so make sure you review the new regulations as soon as you can.
Increased IVIE (wealth tax applied to foreign real estate)
As if life wasn’t already tough enough for those owning property outside of Italy (and particularly outside of the EU), the IVIE rate goes up in 2024 from 0.76% to 1.06%, calculated either on the equivalent of the valore catastale (if the property is within the EU), or on the lower of cost or market value if it is outside the EU.
For many people, owning foreign property is simply a sign of the connection they maintain with their country of origin. However, unless you really do need a property in another country, it may ultimately be more trouble (and cost) than it is worth once you take into consideration the difficulty of managing property from afar and its tax treatment. Consider that financial assets, which are vastly easier to manage and can provide a tax-efficient income if set up correctly, are subject to a wealth tax that is more than 80% lower than the tax applied to real estate and can qualify for a 100% inheritance tax exemption. I can provide an objective financial analysis for anyone considering alternatives to their foreign property investments.
CFCs and holding companies
Controlled Foreign Companies (CFCs) have long been a difficult area and tend to get mixed up in the general issue of residency, given that foreign corporate entities can be classified as Italian residents in a similar way to individuals who may consider themselves to be non-resident for tax purposes. The Italian tax treatment of CFCs has hitherto based itself on a threshold level of taxation for the CFC in question: if it is taxed at less than 50% of the equivalent Italian tax, this will attract negative consequences. This threshold level has since been simplified to 15%, with further consideration being given to holding companies that may enjoy a participation exemption. This is a very complicated area, but suffice to say that reviewing any holdings you might have in foreign corporate entities, especially if these are controlling interests, should be part of your Italian financial planning. I can provide appropriate introductions to experts in this field as part of an overall review of your situation.
