Any experiences with the Italian inbound regime?

[heliotrope]

Can you show me where this is stated? I have not seen this and I have read quite a bit about it.

'i lavoratori non sono stati residenti in Italia nei due periodi d'imposta precedenti il predetto trasferimento e si impegnano a risiedere in Italia per almeno due anni'

The worker was not resident in Italy in the previous two fiscal years and undertakes to remain in Italy for at least two years, from the link I quoted in my first post.

You can create a private limited company and pay yourself 100% of the profit as a salary. Then you pay no corporate tax and only the reduced income taxes plus social contribution tax (I have to check how much this would be, could be still too much).

No, you can't do this. Market rates are set for salaries so you can't just pluck a figure out of the air. Individuals with SRLs get taxed over 60% and you won't have to look far to find people who got harassed by the tax authorities. Quora is a good place for example.

The social contribution tax for employers is massive.

Italy is a good set up if you can contrive to just work via a partita IVA for the years you stay there. I.e. mainly sell your time for money, possibly some ebooks and anything not needing limited liability. As soon as you're trading or doing more ambitious company stuff, expect fiscal colonscopy.

 

[Utah]

No, you can't do this. Market rates are set for salaries so you can't just pluck a figure out of the air. Individuals with SRLs get taxed over 60% and you won't have to look far to find people who got harassed by the tax authorities. Quora is a good place for example.

The social contribution tax for employers is massive.

It seems you can get taxed below 40% in Italy with an SRL.

You can use the tax transparency scheme if you use an SRL. This means you effectively get taxed like a self-employed person but with the legal protections of an SRL. This eliminates the corporate tax and you get taxed with the reduced personal income tax rates. Unfortunately, there seems to be a limit on the income for which this is possible and I can't seem to find that limit.

So then you're paying:

- Social security contributions (~25%, deductible on profit and with a maximum payment of ~100000 euros)
- Personal income tax (4.3% or 12.9% effective tax rate, depending on if you live in North or South)
- IRAP (4-5%)

With the inbound regime and using an SRL for more liability protections you can get your effective tax rate below 40%.

However, it's mostly attractive if you have a very high income (500k+) due to the cap on social security contributions. If you earn a million, your effective tax rate can get down to 17.5% or so.

 

[heliotrope]

It seems you can get taxed below 40% in Italy with an SRL.

You can use the tax transparency scheme if you use an SRL. This means you effectively get taxed like a self-employed person but with the legal protections of an SRL. This eliminates the corporate tax and you get taxed with the reduced personal income tax rates. Unfortunately, there seems to be a limit on the income for which this is possible and I can't seem to find that limit.

So then you're paying:

- Social security contributions (~25%, deductible on profit and with a maximum payment of ~100000 euros)
- Personal income tax (4.3% or 12.9% effective tax rate, depending on if you live in North or South)
- IRAP (4-5%)

With the inbound regime and using an SRL for more liability protections you can get your effective tax rate below 40%.

However, it's mostly attractive if you have a very high income (500k+) due to the cap on social security contributions. If you earn a million, your effective tax rate can get down to 17.5% or so.

If you’re pulling in enough cash, you can always pay one of the big four enough for creative arrangements, sure. And servicing costs to ensure that you have a managing director etc in a more business-friendly country.

Another aspect to consider (this is also true of Portugal) is that, in most cases, to benefit from this regime, you need to issue electronic invoices via a central government portal. Just in case CRS isn’t enough So it may not be the best solution for a typical digital nomad working remotely all over the place.

 

[khinkali]

you need to issue electronic invoices via a central government portal

I have never heard of this before.

 

[heliotrope]

I have never heard of this before.

"In the business-to-government (B2G) sector, Italy is already following the international standard and trend towards electronic invoicing. However, electronic invoicing is now also mandatory in the business-to-business (B2B) sector. Since 1 January 2019, every invoice in Italy must be exchanged in B2B via the Sistema di Interscambio.

This applies both to Italian businesses with a VAT number and to suppliers and service providers registered in Italy who issue invoices for Italian businesses. This means that companies in other countries with a branch in Italy are also affected.

The Sdl platform is used to record the entire invoice data transfer. Invoices that are not sent via FatturaPA are not valid and are subject to penalties."

Global e-invoicing and live reporting compliance made easy - Avalara

Avalara E-Invoicing and Live Reporting can help streamline your company’s e-invoicing and tax reporting processes on a global scale.

www.inposia.com

Apparently this has also been the case in Portugal for many years.

 

[Utah]

"In the business-to-government (B2G) sector, Italy is already following the international standard and trend towards electronic invoicing. However, electronic invoicing is now also mandatory in the business-to-business (B2B) sector. Since 1 January 2019, every invoice in Italy must be exchanged in B2B via the Sistema di Interscambio.

This applies both to Italian businesses with a VAT number and to suppliers and service providers registered in Italy who issue invoices for Italian businesses. This means that companies in other countries with a branch in Italy are also affected.

The Sdl platform is used to record the entire invoice data transfer. Invoices that are not sent via FatturaPA are not valid and are subject to penalties."

Global e-invoicing and live reporting compliance made easy - Avalara

Avalara E-Invoicing and Live Reporting can help streamline your company’s e-invoicing and tax reporting processes on a global scale.

www.inposia.com

Apparently this has also been the case in Portugal for many years.

Thanks for mentioning this, however this seems to be the case if both parties of a transaction are based in Italy.

If you have foreign customers something else seems to apply: the 'Esterometer'. Basically, you need to submit information about each invoice to foreign customers to the government.

There also seem to be other obligations:

- Communicate the data of periodic VAT-settlements (is this the standard VAT-reporting?)
- Intrastat for transactions with EU-subjects (I don't know what this means)

There may also be some thresholds for which these apply. Should probably be handled by your accountant/bookkeeper.

This is based on Google translations because I don't know Italian.

 

[Utah]

If you’re pulling in enough cash, you can always pay one of the big four enough for creative arrangements, sure. And servicing costs to ensure that you have a managing director etc in a more business-friendly country.

I'm only interested in legal setups that actually reflect the reality of my business. If you're going down this route why not just move to a 0-tax country?

 

[heliotrope]

Thanks for mentioning this, however this seems to be the case if both parties of a transaction are based in Italy.

If you have foreign customers something else seems to apply: the 'Esterometer'. Basically, you need to submit information about each invoice to foreign customers to the government.

That's being replaced.

"Italy is to extend its SdI e-invoicing regime to cross-border invoices, and will withdraw the requirement to complete an Esterometro return. This will apply from January 2022."

Italy extends e-invoicing to cross-border 2022 - Avalara

Italy is to extend its SdI e-invoicing regime to cross-border invoices, and will withdraw the requirement to complete an Esterometro return. This will apply from January 2022. From 2022, sales invoices issued to non-residents must be reported through SdI within 12 days of the invoice.

www.avalara.com

 

[kkein]

That's being replaced.

"Italy is to extend its SdI e-invoicing regime to cross-border invoices, and will withdraw the requirement to complete an Esterometro return. This will apply from January 2022."

Italy extends e-invoicing to cross-border 2022 - Avalara

Italy is to extend its SdI e-invoicing regime to cross-border invoices, and will withdraw the requirement to complete an Esterometro return. This will apply from January 2022. From 2022, sales invoices issued to non-residents must be reported through SdI within 12 days of the invoice.

www.avalara.com

Summing it up: stay away?

 

[heliotrope]

Summing it up: stay away?

That depends. If you're going to work primarily in Italy (this is actually a condition of the 'lavoratori impatriati' regime, you need to do six months+ per year there and carefully check the other conditions), and if you can limit yourself to visiting countries which only tax on work from *sources* in that country, and aren't particular about work permits (especially if you're not poaching local jobs), then the tax can be very low indeed, and it's Italy which is super-attractive for some.

But if you're travelling all over the place with your laptop, maybe there is a possibility with this electronic invoicing lark that you make yourself a low-hanging fruit?

 

[kkein]

That depends. If you're going to work primarily in Italy (this is actually a condition of the 'lavoratori impatriati' regime, you need to do six months+ per year there and carefully check the other conditions), and if you can limit yourself to visiting countries which only tax on work from *sources* in that country, and aren't particular about work permits (especially if you're not poaching local jobs), then the tax can be very low indeed, and it's Italy which is super-attractive for some.

But if you're travelling all over the place with your laptop, maybe there is a possibility with this electronic invoicing lark that you make yourself a low-hanging fruit?

Idk, with all the bad things we hear about that, the bureaucracy (apparently now even digital one), maybe only for the massive earners this could be interesting (so to cap taxes at 100k or so).
For everyone else, why giving up the convenience of the many others nice regimes (like Malta, for example, with their 5% taxes) to sink with a sinking ship like that?

 

[heliotrope]

For everyone else, why giving up the convenience of the many others nice regimes (like Malta, for example, with their 5% taxes) to sink with a sinking ship like that?

Malta would be totally fine -- as long as you don't actually need to spend any time there. An island you can literally walk from one side to the other (past a littler of 'Keep Out' signs) is not my idea of a happy six months per year.
As to why Italy -- the answer is either immediately obvious or not. Heart or head. I don't totally disagree with your comment about the leaks in the ship.

 

[Utah]

That depends. If you're going to work primarily in Italy (this is actually a condition of the 'lavoratori impatriati' regime, you need to do six months+ per year there and carefully check the other conditions)

You don't have to stay 6 months in Italy.

To establish tax residency in Italy there are 3 options. It's actually very easy to establish tax residency, you can just register in the Municipal population register. You can stay as long as you want in Italy and then travel around. From the OECD report:

According to Article 2 (2) of the Italian income tax code, an individual is considered resident in Italy for tax purposes if at least one of the following conditions are met for a period of time that is greater than half of the tax period:

1. registration of the individual in the Municipal population registers. The fact that the individual is entered into the Register for a certain period of time is a sufficient condition for her/him to be classified as a resident in Italy for tax purposes;

2. presence of a domicile in Italy related to the individual according to the Civil code definition. According to Article 43 (1) of the Civil code, the term domicile means the individuals principle place of business or interests. The presence of a domicile in Italy is regardless of the effective presence of the individual;

3. residence of the individual in Italy according to the Civil code definition; According to Article 43 (2) of the Civil code, the term residence means a location where the individual has her/his habitual abode.

 

[heliotrope]

You don't have to stay 6 months in Italy.

To establish tax residency in Italy there are 3 options. It's actually very easy to establish tax residency, you can just register in the Municipal population register. You can stay as long as you want in Italy and then travel around. From the OECD report:

According to Article 2 (2) of the Italian income tax code, an individual is considered resident in Italy for tax purposes if at least one of the following conditions are met for a period of time that is greater than half of the tax period:

1. registration of the individual in the Municipal population registers. The fact that the individual is entered into the Register for a certain period of time is a sufficient condition for her/him to be classified as a resident in Italy for tax purposes;

2. presence of a domicile in Italy related to the individual according to the Civil code definition. According to Article 43 (1) of the Civil code, the term domicile means the individuals principle place of business or interests. The presence of a domicile in Italy is regardless of the effective presence of the individual;

3. residence of the individual in Italy according to the Civil code definition; According to Article 43 (2) of the Civil code, the term residence means a location where the individual has her/his habitual abode.

From the Italian tax office website, one of the two key conditions for the 'lavoratori impatriati' tax relief: Cittadini - Che cos'è - Agenzia delle Entrate
"l’attività lavorativa è svolta prevalentemente nel territorio italiano." (The work activity is carried out predominantly in Italy. Any time 'prevalentemente' is used it means more than 183 days).
While you are formally correct about tax residency, you risk being cancelled from the population register if you are absent for more than six months per year.

 

[boy20hki]

I posted a calculation of the Italy 90% tax deduction in another thread that went into details of the total cost for this setup, could someone from this thread confirm that this is correct? Thanks

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