Rientro dei Cervelli – Tax Break for Foreigners

Taxes – such a small word yet it can produce such intense emotions in many. Knowing that they can be a sore spot for many, Italy’s decision to entice more people to return – or enter – Italy by offering a special tax break has alleviated some financial pressure for residents.

Luckily, for new expats in Italy, you too can take part in this tax scheme if you meet certain requirements. Of course, consult with a tax advisor for help, but read on to see if you should explore this financial benefit.

In 2019, Italy started the Lavoratori Impatriati, also known as the Rientro dei Cervelli – which translates to “return of brains.” With more young people leaving each year heavily due to employment-related issues, the Italian government was hoping that by implementing a tax break if they return may begin to entice them home or encourage the entry of new residents.

According to Eurostat data, the youngest segment of the population has insufficient work contracts, wage levels compared to the cost of living, and a lower employment rate than older workers and other European peers. In addition, in 2021, the employment rate of young people aged between 15 and 24 in Italy was 17.5% compared to the European average of 32.7%, which puts Italy in third to last place in Europe. 

So, with the Rientro dei Cervelli, this tax break’s goal is to incentivize the relocation of “human capital” – Italian or foreign workers – to Italy. Recently though, it came under massive changes that affects new applicants as of January 1, 2024. 

The old provisions continue to operate for subjects who have transferred their registered residence to Italy by 31 December 2023, according to Lexia Law and Advisory.

With recent changes, people who have applied for the tax break have new qualifications to follow and will see changes to the tax percentage break. For example, the income exempted from taxes will drop to 50% for all, and the possibility of extending the first five years will be eliminated. 

Under the old provisions, it exempts 70% of income from employment completed in Italy from income tax, which means only the remaining 30% can be taxed. And another bonus under the old set of provisions is that if you reside in the Southern regions of Abruzzo, Molise, Campania, Puglia, Basilicata, Calabria, Sardinia, or Sicily, you will receive a whopping 90% exemption from income tax.

In addition to the tax percentage decrease, for those living abroad, you must now have resided for three tax periods outside of Italy as opposed to the previous two, and there will now be an income limit of €600,000 as opposed to there being no income limit before.

Another change is that there is no more extension to the initial five-year break. Recipients grandfathered under the old regime, will still be able to extend their additional five years if they have at least one dependent under 18 years old, or if they purchased a property.

To sum it up, the new regime provides for a 50% tax base reduction in personal income tax, to a maximum income of €600,000. The requirements to take part in the regime include the applicant: is a highly skilled professional, was not a resident for tax purposes in Italy in the three tax periods preceding the year of the transfer, commits to reside in Italy for at least five years, and carries out an activity in Italy, which is based on a new employment relationship other than when abroad, and that which must be performed for most of the tax period in Italy. 

Sure, applying now under the new regime doesn’t seem as enticing as the old one. But, even if you are a new applicant to this regime and unfortunately don’t get the perks of the past provisions, it is still something to consider because even a portion of a tax break is better than no break at all! 

However, as with many issues concerning finances, these are not decisions to be taken lightly or to attempt to encounter on your own in a new country without understanding all of the ins and outs.

As mentioned above, your best bet is to hire a tax consultant to review your options if you decide to take part in this regime and to make sure that you handle it correctly. 

Article by Mary Catherine Holcomb for Easy Milano

Featured image from Wikimedia Commons