The query presented by our firm to the Italian Tax Agency (Agenzia delle Entrate) has clarified relevant aspects of the repatriation regime for many taxpayers (Agency response to query 223/2022).


This complex query, discussed and analyzed in recent months by the main fiscal and tax newspapers, as well as by several prestigious accounting firms in Italy, has been considered a “paramount question” within the repatriation regime.


Let us first analyze the repatriation regime and then clarify the Agency’s response to query 223/2022.




It is an incentivized taxation regime for workers (employees or self-employed) who have transferred, or who transfer, their residence to Italy.


Three conditions apply:

• the worker was not a resident of Italy in the two tax years prior to the transfer;

• the worker pledges to declare and maintain residency in Italy for at least two years;

• the work is performed mainly on Italian soil.


For taxpayers who adhere to these conditions, in the tax period in which the residence is transferred and in the following four (for a total of 5 years), 30% of the income from employment (or its equivalent) and self-employment performed in Italy is taxed for personal income tax purposes; therefore, the taxable income is reduced by 70%. There is a reduction of 90% if residency is established in one of the following Italian regions: Abruzzo, Molise, Campania, Puglia, Basilicata, Calabria, Sardinia, and Sicily.

The benefits of the repatriation regime apply for an additional five years to workers with at least one minor or dependent child and to those who become owners of at least one residential property in Italy after the residency transfer or in the previous 12 months. For the extension period (the following 5 years), the subsidized income amounts to 50% of the total (the taxable income is reduced by 50%) or for 10% in the case of workers with at least three minor or dependent children, whereby the taxable income is reduced by 90%.

Individuals engaged in professional sports are an exception to the repatriation regime, whose income is always tax-free up to 50%, provided they pay a contribution equal to 0.5% of the taxable amount, which is intended to support the youth sports sector.




Below is a summary of the relevant points of query 223/2022 that our firm presented to the Tax Agency:


1) Remote workers in Italy, who lend their expertise to a foreign employer, can also benefit from the regime;


2) There must be a convergence between the return to Italy and the performance of work;


3) The simultaneous performance of a second job abroad does not invalidate the regime as long as the worker ensures that the prevalence of the work is performed on Italian soil and provided that he or she maintains residency in Italy;


4) The tax incentive applies only to income produced on Italian territory, even if paid by a foreign entity; therefore, the exemption does not apply to income derived from work performed outside Italian borders;


5) If the work terminates before the two-year period for reasons not attributable to the worker, the latter does not lose the benefits of the regime provided that he or she maintains residency in Italy for the duration of the two-year period;


6) The benefit is not lost if the worker’s employer changes during the validity of the regime;


7) Failure to recognize the tax credit (for taxes paid abroad) by deducting the tax paid abroad from the tax due in the country of residence (this represents the thorniest argument within the query).


With regard to the income produced in Italy and subject to the regime, the tax credit is not due if this income was first subject to foreign tax, as the Agency believes that according to Article 15 of the Italy/USA convention against double taxation (in general, all OECD conventions), the income is taxable and therefore subject to taxation exclusively in the country where the activity is performed; therefore, foreign taxation does not establish the right to equalize it in Italy through the tax deduction.


In our opinion, the Agency’s interpretation is unconvincing, erroneous, and in contrast with the principles of the same agreement on which the Agency expressed its opinion.


We believe that any interpretations must be based on daily operational realities and not on abstract, simplified ones. Therefore, even if Article 15 of the aforementioned convention clearly defines the place of taxation (in this case Italy), it can be the case, for various reasons or circumstances – including the condition provided for by Article 1/Paragraph 2 of the same convention, or simply by mere error – that such income may also be taxed at the source (foreign country). Consequently, and unsurprisingly, Article 1/Paragraph 3 of the convention establishes the possibility of avoiding double taxation by taking advantage of the tax credit for tax paid in the foreign country (in this case, the USA). This article specifies: “the provisions of Article 2 are without prejudice to the benefits granted by a contracting state under . . . Articles 23 (elimination of double taxation) and 24 (non-discrimination)”.

Article 23 represents the true essence of the convention, as it allows the elimination of a prejudice resulting from double taxation using the tax credit.

The Agency’s position raises doubts, as it conflicts with the essential principles on which the very nature of the taxation convention is based, whereby the substantial aim is to eliminate the duplication of taxation.

Therefore, even if Article 15 defines Italy as a country of taxation, what happens to the taxpayer who, for circumstances out of his or her control, has paid taxes abroad, or has paid withholding taxes?


In the query, the Agency refers exclusively to Paragraph 1/Article 15 of the convention, which states: “the wages, salaries, and similar remuneration that a resident of a Contracting State receives from an employee are taxable only in that State, unless such activity is carried out in the other Contracting State. If the activity is carried out there, the remuneration received in this capacity is taxable in this other State”.


As referenced by the Agency, Article 15 of the agreement mentions two variables:

1) Place of residence

2) Place of activity


Even Paragraph 2/Article 15 (not mentioned by the Agency) refers to the aforementioned variables, stating that: “notwithstanding the provisions of Paragraph 1, the remuneration that a resident of a Contracting State (Italy) receives from an employer in the other Contracting State (USA), is taxable only in the first State (Italy) if . . . (b) the remuneration is paid by or on behalf of an employer (Italian) who is not a resident of the other State”.


What does “place of activity” mean?


According to the interpretation inferable from query 223/2022, for the Agency the place of activity coincides with the territory where the taxpayer is physically present while performing his or her work. In our view, although the work is performed in a certain territory, the place of performance may be different considering the workplace changes introduced during the Covid-19 pandemic, such as remote working. This place may not coincide with the territory in which the worker is present and where he or she performs the work; in fact, it corresponds with the environment that benefits from this activity. In the case in question, the foreign employer (e.g., psychiatry clinic) and its end-customers (patients) are physically located in the USA, whereas the doctor/psychiatrist (worker) employed by the clinic is physically based in Italy. The doctor, through remote working, connects online with the patient in the workplace (portal of the US-based clinic). Therefore, even if the work is performed on Italian territory (condition for being able to take advantage of the repatriation regime), the service is carried out abroad, for American patients (condition for being eligible for the tax credit for taxes paid abroad). This is true for most remote-based jobs, whereby there is a foreign employer, and with the worker who is also conditioned by the time in the foreign environment. In the aforementioned case, in order to perform his or her job, the psychiatrist must be based in the time zone of the patients, and therefore he or she must be based in the place where the work will be performed.


“In our legal system, there is no specific ruling that expressly defines the workplace. For some years, however, our legal system has developed an understanding that seems to define the workplace; specifically, Article 62/Paragraph 1, legislative decree of 9 April 2008, no. 81, which provides a definition of the workplace as a space intended to host employment positions, located within the company or production facility, as well as any other space pertaining to the company or production facility that is accessible to employees while performing their work. This pronouncement is the first that seems to give a legislative definition of the workplace; however, despite its presumed clarity, this ruling does not have a general scope which can be used for any employment relationship and in any situation.” (Monica Napolitano - The place of work performance - Annals of the Faculty of Law of the University of Camerino no.1/2012).


Remote work falls precisely under “any employment relationship” that is not defined by the law.


Furthermore, in the case of an employment relationship, the employer is obliged to provide the worker with information regarding the place or places of work (Article 1, Legislative Decree no. 152 of 26 May 1997, implementing European Directive no. 533 of 14 October 1991, relating to the employer’s obligation to inform the worker of the conditions applicable to the contract or the employment relationship). There are two limitations of this ruling in the context of the double taxation convention and the repatriation regime: 1) The obligation is required for Italian employers and not for foreign ones, and 2) If the activity in remote working is defined as a workplace, the question of defining the reference country is not resolved.


Returning to the Paragraph 2/Article 15 of the convention against double taxation, the text specifies: “the remuneration that a resident of a Contracting State (Italy) receives from an employer in the other Contracting State (USA) is taxable only in the first State (Italy) if . . . (b) the remuneration is paid by or on behalf of an employer (Italian) who is not a resident of the other State”. Reasoning that if a statement is true, then the negation of its opposite will also be true, then we must ask ourselves if we can affirm the following: if the remuneration is paid by or on behalf of an employer (USA) who is a resident of the other State (USA), then taxes are not due only in the first State (Italy).


And here, as a final remark, the foreign employer may feel obliged to apply withholding taxes at the source (payment of taxes) on the income of the worker who – on the principle of non-discrimination between workers, on the constitutional principle of taxation, and on the fundamental principles of the convention against double taxation – must have the right to the deduction of taxes paid abroad through the use of the tax credit.


Believing that the repatriation regime still requires numerous clarifications, we are hopeful for forthcoming interventions by the Agency or the Ministry to provide answers that will place taxpayers in conditions of greater certainty.


Prof. Dr. Hooman Banihashemi