This article focuses on recent changes to Italy’s special tax regime for attracting workers, and considers if and how the revamped scheme will affect the country’s ranking in the EU tax competition race.

The last decade has witnessed the development ofa new kind of tax competition in the European Union, with governments seeking to attract human capital (and tax revenue) from other countries by offering special regimes targeted at a specific part of the taxpayer’s tax base associated with income earned while carrying out an economic activity in the host territory.

In a previous Tax Notes article, I provided insight into Italy’s special and multilayered measure known as the regime for inbound workers (regime dei lavoratori impatriati). The regime is aimed at attracting workers willing to transfer their residence to Italian territory. Since that article was published, however, the rules of the game have profoundly changed.

Beginning in 2024, new strict conditions are in place for individuals seeking to benefit from the regime. The conditions attempt to prevent individuals from using Italy as a temporary destination before moving to another European country that offers more favorable discounts (and lower effective tax rates) on income from work activities. However, if on the one hand the new rules curb the abuse of the special tax regime on the other hand they raise the question of whether the regime damages the competitiveness of Italian companies seeking to attract personnel from abroad.

This article focuses on the new rules applicable as of January 1, 2024. Bear in mind that persons who acquired tax residence in Italy by the end of the 2023 tax year continue to benefit from the previous tax regime.

The article was reprinted from Tax Notes International, March 18, 2024, p. 1627