MGI Studio Pragma publishes detailed overview of the Italian residency requirements for individuals and companies
Italian tax law provides set rules for establishing whether individuals or legal entities should be treated as tax residents in Italy. Both sets of rules contain several criteria which frequently make reference to civil law concepts.
Establishing whether a person should be considered tax resident in Italy or not is of the utmost importance as the tax regime in Italy can change drastically based on the result of the analysis. If a person is considered to be tax resident in Italy they will be subject to tax on all their income wherever earned or derived from (so called, worldwide taxation principle). This person will also be entitled to the benefits of all the double tax treaties established between Italy and other countries as well as the right – if certain conditions are met – to be granted a credit for taxes paid abroad.
On the contrary, if a person is not considered to be tax resident in Italy, such person will be subject to tax therein, only with respect to income that is deemed to be sourced from Italian territory (pursuant to the sourcing rule contained in Art. 23 of the Italian TUIR).
Finally, the criteria to establish the residence of both individuals and legal entities are connected to a temporal threshold. In other words, the relevant criteria must be met for most of the relevant fiscal year for a person to be considered resident in Italy and no split-year mechanism applies.
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