Concept of tax residence and practice followed by the Italian Revenue Agency

In its recent Circular No. 20/E dated 4/11/2024, the Italian Revenue Agency explained the effects of the changes introduced by the International Taxation Decree (Legislative Decree 209/2023) on the residency of individuals, companies and entities. Below are the main aspects discussed:

A new “residence” for individuals - as a result of the amendments made, the notion of “personal and family relationships” includes both the typical relationships governed by the current regulatory provisions (such as the relationship of spouse or civil union), as well as personal relationships marked by a character of stability that express a rootedness with the territory of the state (for example, in the case of cohabiting couples). Similarly, the stable dimension of the taxpayer's social relationships may assume significance to the extent that it results from certain elements, such as, for example, annual membership in a cultural and sports club. A few examples are given:

• In the case of a person who enrolls in the Registry of Italians Resident Abroad (“AIRE”) and begins working abroad, but maintains at his or her disposal, for whatever reason, a house in Italy, leaving the relevant utilities active there, to which he or she continues to return on weekends and where he or she spends some periods of abstention from work, such circumstances may represent elements symptomatic of maintaining a close link with Italy and could give rise to the configuration of domicile in Italy.
• In the case where, without integrating any additional residency requirement under Article 2, paragraph 2, of the TUIR, the taxpayer simultaneously maintains in Italy and in another foreign state (State B) a home of property and personal and family relations, it is believed that a useful criterion can be identified in the period of physical permanence on the territory of the state. For example, if during the year, the taxpayer stays an average of 145 days in Italy, 120 days in State B and 100 days in other countries, the taxpayer would be found to be resident in Italy despite not residing for more than 183 days.
• In the case of an individual who spends most of the tax period in Italy, even if in a fractional mode, for vacation, or for study purposes, or to visit friends or relatives. Again, consider the case of a person who comes to work-whether as an employee, self-employed or business person-in the territory of our state, while maintaining his or her residence (including for registry purposes), family and any other emotional and personal ties abroad. Such circumstances may give rise to the configuration of domicile in Italy.

A new “residence” for “smartworkers” - as a result of the new rules, the smartworker's stay in Italy for 183 (or 184, in case of leap year) days determines, per se, tax residence in Italy.

Companies and entities, new criteria for residency - new also for companies and entities. According to the new rules, companies and entities that for the majority of the tax period have their registered office or effective place of management or ordinary management on a principal basis in the territory of the state are considered resident. These are three alternative criteria, i.e., it is enough for only one of them to occur to configure residence in Italy, the important thing being that the existence of the criterion lasts for most of the tax period. Compared with the previous rules, in essence, the premise of the place of administration is declined into the concepts of the place of effective management and principal ordinary management, and “principal object” is eliminated as a criterion for establishing residency. The new rules are effective as of January 1, 2024, for companies and entities whose fiscal year coincides with the calendar year; for those for which the fiscal year does not coincide with the calendar year, the new determination of residency is effective as of the period following the current period as of December 29, 2023.

In any case, in case of double taxation, domestic regulations must still coordinate with international regulations (the DTCs) and, in particular, tie breaker rules that define the residence of taxpayers in cross-border scenarios.
It should be noted that individual taxpayers to the benefit of the expenditure tax regime, unless implemented in the modified global formula, cannot apply the conventional protection in residence conflicts with Italy.

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