Cross-border taxation

A widespread misconception leads many foreign taxpayers to assume that, because they live abroad — or because a Double Tax Convention allocates taxing rights to their State of residence — no Italian obligation can arise on income deriving from Italy. The assumption is unfounded, and the assessments issued by the Italian Revenue Agency (Agenzia delle Entrate) in these cases carry significant financial consequences. This note sets out the sequence of questions a non-resident should work through in order to establish where tax on Italian-source income is actually due, and what has to be filed. Step 1 — Confirm your residence status under the reformed rules The threshold question is not where the income arose, but where the recipient is tax resident. Residents of Italy are taxed on their worldwide income under Art. 3 TUIR; non-residents are taxed only on income considered produced in Italy. Legislative Decree 209/2023 rewrote Art. 2(2) TUIR with effect from the 2024 tax period. Under the current text, an individual is resident in Italy if, for the greater part of the tax period — counting fractions of days — any one of the following alternative criteria is met: residence in Italy within the meaning of the Civil Code (habitual abode); domicile in Italy, now defined for tax purposes as the place where the person’s personal and family relations principally develop — a definition that departs from the previous reference to the Civil Code and gives precedence to personal over economic ties; physical presence in Italy. Registration with the register of resident population (anagrafe della popolazione residente) for the greater part of the tax period no longer operates as a conclusive presumption: following the reform it is a rebuttable presumption, and the taxpayer may prove that the formal record does not reflect the factual position. The Revenue Agency issued operating instructions on these criteria in Circular no. 20/E of 4 November 2024. The exercise matters: if any criterion is met, Italy taxes worldwide income, and the analysis that follows does not apply. Step 2 — Identify which income is considered produced in Italy For non-residents, the taxable perimeter is set by Art. 23 TUIR. Under paragraph 1, the following are considered produced in Italy: income from immovable property (redditi fondiari) situated in Italy; investment income paid by the Italian State, by persons resident in Italy, or by Italian permanent establishments of non-residents — expressly excluding interest and other proceeds from bank and postal deposits and current accounts; employment income for work performed in Italy, including the assimilated income referred to in Art. 50(1)(a) and (b) TUIR; self-employment income from activities carried out in Italy; business income from activities carried out in Italy through a permanent establishment; certain other income (redditi diversi) arising from activities carried out, or assets located, in Italy. Paragraph 2 adds a separate category, taxable irrespective of where the underlying activity was performed, provided the payer is the Italian State, an Italian resident, or an Italian permanent establishment of a non-resident. This covers pensions and assimilated allowances, severance indemnities, various forms of assimilated employment income, consideration for the use of intellectual property, patents and trademarks and for industrial, commercial or scientific know-how, and fees paid to non-resident undertakings for artistic or professional services rendered in Italy. A further rule, at Art. 23(1-bis), treats as Italian-source the capital gain on the disposal of shareholdings in non-resident companies whose value derives, for more than half, directly or indirectly, from immovable property situated in Italy at any point in the preceding 365 days, unless the securities are traded on a regulated market. Article 23 lays down the general domestic source rules applicable to non-residents. Income that falls outside it is not taxable in Italy in the hands of a non-resident. Step 3 — Apply the relevant Double Tax Convention Where a Convention is in force between Italy and the State of residence, it allocates taxing rights between the two States and provides the mechanism for relieving double taxation. Its operation is superimposed on Italian domestic law: depending on the category of income, a treaty may reserve taxation to one State alone, or permit concurrent taxation while capping the rate applicable in the source State. Because rates and allocation rules differ from treaty to treaty, the applicable Convention must be consulted in each case; no general rate can be assumed. Access to treaty benefits is documentary. The Revenue Agency approved standard forms by Provvedimento of 10 July 2013 (prot. 2013/84404): Forms A, B, C and D for refunds, exemption from Italian tax, or application of a reduced rate under a Convention, and Forms E and F for the Parent-Subsidiary and Interest and Royalties Directives respectively. The forms require certification of residence by the foreign tax authority, valid from the date of issue until the end of the tax period indicated. One practical point is frequently misunderstood. Where the required documentation is produced, the withholding agent may apply the treaty benefit directly at source, assuming responsibility for its correct application. If no request supported by proper documentation is submitted, the withholding agent will apply the full domestic rate, and recovery then depends on the refund procedure described below. Step 4 — Establish whether an Italian return must be filed Italian law generally requires anyone in receipt of income produced in Italy, including a person resident abroad, to declare it, subject to the exemptions expressly provided. Non-residents use the same Modello Redditi PF as residents; the instructions for non-residents are contained in Fascicoli 1 and 2, with the general exemption cases set out in Fascicolo 1. Certain income is in no case to be declared, and its receipt by a non-resident therefore generates no Italian filing obligation at all. This includes investment income for which, in relation to non-residents, domestic law or the applicable Convention provides for exemption, for a final withholding tax, or for a substitute tax. Filing may also be advisable where it is not compulsory — for instance to claim deductions or allowances not otherwise granted,