The concept of tax residence is renewed taking into account the guidelines, practices and principles of double taxation treaties worldwide.
Tax residence – Individuals
According to the proposed new wording, individuals are considered to be resident in Italy for tax purposes if they have their domicile, residence or physical presence in Italy for most of the tax year, including fractions of days.
Compared to previously circulated drafts of the decree, the concept of ‘residence‘ is better defined, which is now understood according to the definition in the Civil Code, i.e. the place where the person has his or her habitual abode.
Domicile is now defined for tax purposes as the place where a person’s personal and family relationships are primarily developed.
Registration in the Italian register of resident population, on the other hand, previously qualified as an autonomous tax residence criterion, does not disappear but degrades to a presumption iuris tantum of residence, it being therefore always possible to provide proof to the contrary.
The new law introduces the following key changes
- the definition of domicile focuses on personal and family interests;
- counting days of presence is a sufficient condition when most of the year is spent in Italy, considering that even a single minute of the day is worth as much as a whole day;
- registration in the register of resident population now constitutes a mere ‘relative’ presumption of residence.
The tax reform does not change Article 2, paragraph 2-bis, of the TUIR, which provides that Italian citizens who have been removed from the civil register and transferred to ‘black list’ countries are also considered resident, unless proven otherwise.
Fiscal residence – Corporate Entities
Also noteworthy is the intervention on the residence of legal persons. The proposed amendment, by emphasising the relevance of the concept of place of effective management (in line with international conventions against double taxation), specifies that this concept must be understood as the continuous and coordinated taking of strategic decisions concerning the entire company. Similarly, relevance is given, also for residence purposes, to the place where day-to-day management primarily takes place, understood as the continuous and coordinated performance of day-to-day management acts concerning the company/entity.
References to the ‘principal object’ criterion (main activity of the company), which has given rise to disputes and risks of double taxation, and to the administrative seat criterion are eliminated. The residence of companies and entities is thus related to three alternative criteria, each independently establishing the link with the taxation of legal persons:
- the ‘registered office‘ criterion, with a formal character, which represents an element of necessary continuity with the legislation in force before the reform;
- the criterion of the ‘place of effective management‘;
- the criterion of ‘ordinary principal management‘.
Finally, it should be noted that, compared to the previous drafts, in the final text of the decree the renewed rules on the residence of legal persons are extended, through the amendment of Article 5 of the TUIR, also to partnerships.
The new rules are scheduled to come into force on 1 January 2024.
