Non-Resident Income Tax Return must be filed whenever Italian-Source Income Is Perceived, Even if the Taxpayer’s Tax Residence is Abroad.
Please find below ILF Italian tax attorneys’ suggestions to mitigate Double Taxation.
Are you a foreign resident who has generated income in Italy and wants to know if you have to file a tax return? On this page you can find all the information you need to understand if and how you need to declare income earned in Italy. Italian tax regulations have now harmonized with those of major foreign countries on the subject of:
1. Tax residence and
2. Taxation of income received by individuals who do not reside in Italy.
For example, imagine the case of an Italian individual who decides to move to France for work, registering with AIRE, and becoming for all intents and purposes a tax resident abroad. Assume that the individual has left a rented property in Italy and wonders where he or she should declare his or her income. Conversely think of the opposite case of a French citizen who comes to work in Italy during the summer. In both cases these individuals need to ask themselves if and how they are required to pay taxes in Italy for income earned there. Below you can find all the useful information related to taxation and tax returns in Italy of nonresidents.
Do Foreigners Pay Tax in Italy?
Requirement to Report Income for Non-Residents in Italy
According to Article 3 of the Italian Tax Code, individuals who are not residents in Italy but earn income from an Italian source are obligated to report it to the tax authorities. Non-resident taxpayers must use the standard Redditi P.F. form, which is the same version used by residents of Italy. However, it’s important to note that the procedures for submitting and completing the form differ based on the instructions provided below.
Italian Tax Residence And The Tax Return
Before discussing the non-resident tax return, it is important to understand who is required to file it. As mentioned earlier, individuals who are not residents in Italy must file income tax returns if they have earned income from an Italian source. For tax purposes, individuals are considered “non-residents” if they satisfy both of the following conditions, as stated in Article 2 of the Italian Tax Code (TUIR):
- They are not registered in the population registry for a minimum of 183 days (or 184 days in a leap year) and are instead registered with the Registry of Italians Resident Abroad (AIRE).
- They do not have a permanent residence or domicile within the territory of Italy, as governed by Article 43 of the Civil Code.
Italian citizens who have been removed from the resident population registers and have emigrated to countries or territories with preferential tax regimes are considered residents in Italy, unless they can prove otherwise by demonstrating their actual transfer abroad.
Taxpayers who are not tax residents in Italy are still required to pay taxes to the Italian government if they have earned income or own property in Italy. However, this is subject to any exceptions specified in the double taxation agreements concluded between Italy and other countries.
“Non-Resident Schumacher” Subjects
Non-resident schumachers,” and therefore required to check the appropriate box on the title page, are those non-residents of Italy who meet the following conditions:
- Their income produced in Italy is at least 75% of their total income.
- They do not enjoy similar tax benefits in their state of residence.
- Non-resident schumachers, pursuant to Art. 24, paragraph 3-bis of the TUIR, have the possibility of having deductions and deductions from the gross tax, as well as deductions for family burdens pursuant to Art. 12 of the TUIR recognized by the withholding agent. In this case, the individuals are required to keep and exhibit the documents to the tax authorities if requested to do so.
The Declaration of Income of Non-Residents
Non-residents who earn taxable income in Italy are required to report it to the tax authorities by submitting the Redditi P.F. form. However, there are specific exclusions outlined below. Filing an income tax return allows non-resident taxpayers to fulfill their obligation to pay IRPEF, which is the personal income tax. This tax is based on the receipt of income in cash or in-kind falling into six categories (previously defined in Article 6 of the Italian Tax Code). To determine what income non-residents need to declare in Italy, Article 23 of the Italian Tax Code provides the following reference points:
- Land income – This includes income from land situated in Italy, such as dominical and agrarian income, as well as rental income from buildings located in Italy.
- Capital income – This primarily covers dividends, interest income, annuities, and similar income derived from entities resident in Italy.
- Employment income – This pertains to income earned from employment services under the direction of others, pensions, and similar income provided by entities resident in Italy.
- Self-employment income – This encompasses income derived from professional or artistic activities, income from the exploitation of copyrights, income of directors and auditors of companies operating within the national territory.
- Business income – This refers to income generated from carrying out commercial activities within the national territory.
- Miscellaneous income – This includes income from occasional services, rental of land, capital gains, and other similar sources within the national territory.
Income Produced in Italy Not to be Declared
With the exception of cases where residents are exempt from filing a declaration, certain types of income received by non-residents do not require declaration to the Italian tax authorities. These income sources do not impose an obligation to report them:
Capital income that is exempt or subject to withholding tax at the source or substitute tax for non-residents. This exemption or withholding is determined by national laws or double taxation agreements (e.g., dividends and interest).
Fees related to the use of intellectual works, industrial patents, trademarks, processes, formulas, and information in the industrial, commercial, and scientific fields. These fees are subject to withholding tax at the source in Italy based on national laws or double taxation agreements.
If you fall into the category of non-residents who have received income in Italy, the first step is to determine whether you are required to file a tax return. The following individuals are exempt from the obligation to file a tax return for the relevant tax period:
- Those who have received income of any kind, excluding income that requires bookkeeping, up to a maximum amount of 3,000 euros.
- Individuals who have only received employment or pension income from a single withholding agent responsible for deducting taxes.
- Individuals who have received employee income from multiple withholding agents, with the last agent being requested to consider income from previous reports and perform necessary adjustments.
- Non-residents are also exempt from declaring income if the gross tax amount corresponding to their total income does not exceed 10.33 euros.
Italian Tax Refunds
A taxpayer who resides abroad and has earned income in Italy, but is exempt from filing a tax return, should consider whether to still file a tax return. This is important in order to claim any eligible expenses, unallocated deductions, or request a refund for excess taxes paid based on a previously filed return or advance payments. If the withholding tax incurred in Italy exceeds the amount specified in the current International Convention, it is possible to request a refund for the excess amount paid. The application for a refund must be submitted to the Internal Revenue Office.
The deadline for filing a refund claim is 48 months from the time of the direct payment or withholding. The application can be filed by the individual who received the income (the taxpayer) as well as the withholding agent responsible for the deduction. In all cases, the applications must be accompanied by a residence certification issued by the tax authorities of the resident country, along with the necessary documentation to demonstrate compliance with the Convention requirements. It is important to consult with a tax advisor to understand the specific provisions outlined in different double taxation conventions. The goal is to determine how the income of non-residents should be taxed.
Income From Land And Buildings Of Non-Residents
Income from land and buildings located in the territory of the Repubblica Italiana is taxable in Italy even if it is owned by nonresident taxpayers. However, in cases where the country of residence is linked to Italy by a convention for the avoidance of double taxation, measures are generally provided in the same to prevent double taxation on such income.
IRPEF on real estate is due on income derived from land and/or buildings under ownership, usufruct or other right in rem of enjoyment (framework RA/RB). The taxation rules follow the rules for resident taxpayers, the only special feature being the principal residence. A nonresident taxpayer, who owns a property for residential use in Italy, cannot take advantage of the IRPEF deduction provided for the principal dwelling. This is because it is granted only when the real estate unit is actually used as a principal residence and the taxpayer habitually lives there.
Employment Income Of Non-Resident Persons
Taxpayers who reside outside of Italy are required to declare employment and similar income received within Italy. The following categories of income must be declared using the RC section of the Income PF form:
- Income received by a resident in a foreign country that does not have a tax treaty with Italy, with the possibility of receiving a refund for taxes paid in Italy from their country of residence.
- Income received by a resident in a foreign country that does not have a tax treaty with Italy, which would otherwise require the taxation of income both in Italy and abroad. In this case, the resident has the right to claim a refund for taxes paid in Italy from their country of residence.
- Lastly, income received by a resident in a foreign country that does not have a tax treaty specifically addressing the taxation of income solely in Italy.
It is necessary to always consult the Convention against double taxation existing between Italy and the specific foreign state.
Taxation on Salaries for non Italian Residents
With regard to salaries paid by a private employer for work performed in Italy, in almost all Treaties (e.g., those with Argentina, Australia, Belgium, Canada, France, Germany, the United Kingdom, Spain, Switzerland, and the United States) there is provision for taxation exclusively in the country of residence of the recipient when the following conditions exist simultaneously:
- The worker residing abroad works in Italy for less than 183 days;
- Remuneration is paid by an employer resident abroad;
- The charge is not borne by a permanent establishment or fixed base that the employer has in Italy.
In such cases, the salaries do not have to be declared to the Italian state. However, pensions that are taxable in Italy are those paid by the Italian state, by individuals resident in the territory of the Italian state or by permanent establishments in the territory to nonresidents. Conventions against double taxation on income are in force in some countries, under which pensions paid to nonresidents are taxed differently depending on whether they are public or private pensions.
The Self-Employed Incomes Of Non Italian Residents
Income generated from professional activities by non-residents is subject to taxation in Italy if there is no tax treaty in place. However, if a tax treaty exists, the income is taxable in Italy only if the activity is conducted through a fixed establishment within the country, and the taxable portion is determined based on that establishment. If no fixed establishment exists, the income is not subject to taxation in Italy. The taxation method for self-employment income is as follows:
- For fees paid by withholding agents, a final withholding tax of 30% is applied when the non-resident professional does not have a fixed base in Italy. In this case, the professional is not required to file tax returns in Italy.
- For fees paid by principals who are not tax substitutes, the obligation to file a tax return applies. If the fees are paid by tax substitute principals and there is a fixed base in Italy, a 20% withholding tax is imposed. In this case, the professional is required to file a tax return in Italy.
Self-employment income, as specified, must be reported using the RE section of the Income PF form. If a non-resident professional has a fixed base in Italy, they are also required to obtain a special VAT number to declare the income received within the RE framework.
Business Income Of Non Italian Residents
Business income becomes subject to taxation in Italy if there is a permanent establishment (branch) located within the country, as defined by the various double taxation conventions (specifically, Article 7 of the OECD Model Convention). This means that individuals operating a business in a foreign country may be exempt from taxation on income derived from Italian sources, unless they have a permanent establishment in Italy. It is crucial to thoroughly investigate whether the non-resident entity’s situation qualifies as the presence or absence of a branch in Italy. This investigation involves considering scenarios such as a physical presence, non-physical presence, or personnel presence under Article 162 of the TUIR (Italian Tax Consolidation Act) or the applicable tax treaties. It is important to conduct such an analysis carefully, considering the potential assessments by the Italian Internal Revenue Service.
If business income is derived from a permanent establishment within the country, it must be reported within the appropriate sections (RF, RG, and RD) of the Income PF form.