The definition of tax residency is provided by Article 2, paragraph 2, of Presidential Decree No. 917/1986, which states:
“For income tax purposes, individuals are considered tax residents if, for most of the tax year, they are registered in the civil registry of the resident population or have their domicile or residence within the State, according to the Civil Code.”
This means that tax residency is determined not only by formal registration in the Italian Anagrafe (Registry of Residents) but also by substantial factors such as actual domicile and habitual residence.
An individual—whether Italian or foreign—can be considered a tax resident in Italy if they meet one of the following criteria:
- Habitual Residence: The individual habitually resides in Italy.
- Domicile: The primary center of business and personal interests is located in Italy.
- Center of Vital Interests: If habitual residence or domicile is unclear, tax residency is determined by the place where the individual has the strongest personal and economic ties.
How to Be Considered a NON-Resident in Italy
To avoid being considered a tax resident in Italy, an individual must:
- Not only move their habitual residence abroad but also formally deregister from the Italian Registry of Residents (formal requirement).
- Not only deregister from the registry but also permanently and effectively relocate outside Italy (substantial requirement).
- Transfer the primary center of economic, professional, and personal interests abroad, considering factors such as family presence (center of vital interests).
Tax Residency in Cases of Dual Residency
Determining tax residency is particularly important when an individual is claimed as a tax resident by two different countries, which can occur when:
- The person qualifies as a tax resident in both states according to their respective national laws.
- The same foreign income is taxed in both the country of residence and the country where the income is generated.
To avoid double taxation, countries enter into Bilateral Tax Treaties.
When an individual is considered a tax resident in two countries, they can apply the criteria set forth in the Double Taxation Agreements (DTA) to be recognized as a tax resident in only one country and pay taxes accordingly.
Italy has signed a large number of DTAs, reducing the risk of double taxation issues.
Additionally, non-signatory states often have low tax rates, making taxation less burdensome.
Foreigners with Permanent Homes in Italy and Abroad
A foreigner who owns property both in Italy and in their home country may have two permanent homes.
A permanent home is defined as a dwelling owned or rented that is continuously available to the person, even if only for short periods.
Unlike habitual residence, which can only exist in one country at a time, an individual can have multiple permanent homes in different countries.
If a person owns a permanent home in two countries, they are considered a tax resident in the country where they have the strongest personal and economic ties (center of vital interests).
If the center of vital interests cannot be determined, habitual residence is established by considering all stays within the country.
