Italy’s Tax Incentives for Professors and Researchers

In 2019, Italy expanded tax incentives applicable to foreign Professors and Researchers who transfer their residence to Italy after working abroad.

Read also: International taxation: mistakes to avoid to protect yourself

1. Italian tax incentives for Professors and Researchers: requirements

In 2019, Italian tax law provided an expansion of the tax incentives for the “brain return” (according to art. 44 of Legislative Decree n. 78/2010),  to facilitate also the transfer of Italian and foreign Professor and Researchers to Italy.

Notably, the Italian tax law provides that  Professor and Researchers can benefit from these tax incentives provided that they:

• have a university degree or equivalent;

• have not occasionally been resident abroad;

• have carried out documented research or teaching activity abroad at public or private research centers or universities for at least two consecutive years;

• consequently, acquire tax residence in the territory of Italy.

The tax incentive for professors and researchers transferring to Italy concerns the income of employees or self-employed workers they produce in Italy upon their return.

Furthermore, regarding self-employment, the perceived fees do not contribute to the value of net production for the Italian tax “IRAP”.

2. Tax incentives for Professors and Researchers: duration of benefit and reduction of taxes to 10% of income

Tax benefits for Professors and Researchers can be considered the most convenient among the other tax incentives for the “brain return” since they involve a reduction of 90% of the taxable income so that taxes remain due only on the remaining 10% of the income perceived.

The ordinary benefit duration for Professors and Researchers is 6 years, provided that the taxpayer remains resident in Italy.

Instead, tax benefits rise to 8 years if the Professors or Researchers have one minor or dependent child (even in pre-adoptive custody).

Also, tax incentives last for 8 years for Professors or Researchers who become owners of at least one residential property unit in Italy following the transfer to Italy of the residence or in the twelve months before the transfer, provided that they remain resident in Italy. The real estate can be purchased directly by the Professor or Researcher, his spouse, cohabiting partner, or children, even in co-ownership.

Furthermore, the benefit rises to 13 years for Professors and Researchers who have at least three minor children or dependent children (even in pre-adoptive custody), after their transfer of residence in Italy, provided that tax residence remains in Italy.

3. Pay attention to the details of the concrete case

Although the tax regime mentioned above may appear easy to understand, things are not always so clear in practice.

Each situation could have particularities that interact with the legislation involved to produce different effects.

The information provided has a purely general nature, given that the discipline of special tax regimes in practice proves to be full of exceptions and derogations that cannot be underestimated.

As already mentioned, there are numerous exceptions, limitsderogations, and cases of non-applicability of the tax incentives which, in summary, have not been discussed above and which, in the specific case, could push the Tax Authority to deny the tax advantage.

Therefore, the assessment of the applicability of the tax regime cannot disregard the examination of each concrete case.

In fact, as in all international tax analyses, it is essential to frame all the crucial details of the case examined to understand the applicability of special tax regimes.

This assessment is fundamental, on the one hand, to allow the application of the special tax regime to hypotheses that look like they don’t fall into and, on the other hand, do not apply the special tax regime to cases that only apparently fall into them.

This approach is essential to not jeopardizing the special tax regime and avoid the Tax Authority would recover the evaded taxes and applying sanctions.

Any assessment by the Tax Authority of the non-applicability of the special tax regime involves not only the recovery of the taxes not paid because of the tax regime for each previous year of use of the special tax regime but also the application of tax sanctions in the way to erode a large part of the income produced by the taxpayer, with severe economic damage for the latter.

4. International tax advice for the specific case

For taxpayers who would like to apply to the special tax regime, it is fundamental to have a verification conducted by a Professional specialized in international tax law.

This Professional can deeply assess if the special tax regime is applicable in the specific case to avoid the Tax Authority legitimately denying the special tax after several years, recovering the tax evaded as well as penalties and interests.

Again, in daily practice, it happens that the special tax regime results in applying to hypotheses that only apparently (in the eyes of the contributor) did not seem to be included or, on the contrary, can not apply to cases that only apparently (in the eyes of the contribution) seemed to fit into it.

For this reason, it is not advisable to apply special tax regimes without a successful in-depth analysis.

The ITAXA Law Firm has gained vast experience in analyzing special tax regimes and understanding the Tax Authority’s approach concerning related cases, which is also based on unpublished Tax Authority responses.

If you wish to request international tax advice from the ITAXA Law Firm regarding verifying the conditions for the applicability of the special tax regime in your specific case, write to us at info@itaxa.it or fill out the Contact Form.

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Antonio Merola, LL.M.

Tax Lawyer specialized in International Taxation at the International Tax Center of the University of Leiden (The Netherlands) by attending the LL.M. (Master of Laws) in International Tax Law (after a University Master in International Tax Planning and a University Master in Tax Law in Italy), for several years he has been dealing with Tax Consulting and Tax Litigation in favour of Individuals and Companies.