A new tax regime will allow qualifying workers (including sports stars and celebrities) relocating to Italy from 2020 to benefit from a substantially reduced taxation of selected incomes (from their professional activity and in some cases from sponsoring/endorsement activities) derived within the Italian territory
Italy has added to earlier incentives to attract skilled individuals to the country, issuing new rules aimed at attracting human capital to Italy (the "Decree").
The new Decree substantially improves and expands some existing tax incentives for the relocation of workers to Italy (as well as researchers). Notably, these new measures not only make the current rules more appealing (in terms of tax savings) but, most importantly, they open the door for a real boost to the relocation of sports stars to Italy (the "Regime").
Although the Regime applies to eligible individuals who become Italian tax residents as of 1 January 2020, interesting planning opportunities will also arise for those who relocate to Italy in the second half of 2019 (and may still keep their status as non-Italian tax residents until the end of 2019 and enjoy the relevant benefits in terms of taxation).
The Regime adds to a dramatically wide range of incentives already available to individuals relocating to Italy such as:
- the tax regime applicable to high-net-worth individuals (subject to a substitutive tax of 100,000€ on their non-Italian sourced incomes), available since 2017;
- the tax regime applicable to pensioners/retirees (subject to a substitutive tax of 7% on their non-Italian sourced incomes), available since 2019;
- a former edition of the tax incentives for relocation of workers and researchers (subject to a reduced taxable base for individual income tax), available since 2010;
- one of the world's lowest inheritance and gift tax systems.
The Regime applies to workers and professionals who, as of 2020:
- become an Italian tax resident (regardless of their foreign state of residence);
- commit to remain an Italian tax resident for the following two years;
- have not been an Italian tax resident in Italy for the past two years (the Regime also applies to Italian returnees); and
- work mainly within the Italian territory for either an Italian or a non-Italian enterprise, regardless of their role or qualification.
Individuals who meet these criteria are subject to Italian individual income tax on only 30% of their employment / self-employment / business income (individual income tax may be reduced to approximately 13%).
Said taxable income is further reduced to only 10% for those who transfer their residence to Italy's southern regions (individual income tax may be reduced to 4.3% approximately).
The Regime is applicable for 5 years and may be extended for another 5 years (10 years in total) subject to some additional conditions (e.g. a residential property is purchased or there is an underage child, amongst others).
Focus on sportspersons
The definition of eligible workers and professionals is broad enough to also cover professional and non-professional sportspersons, including but not limited to football/soccer clubs and individual athletes, coaches, technical area directors, sports directors and athletic trainers.
Indeed, this aspect may have a strong impact on the Italian sports industry, as the Regime could make Italian clubs more competitive at an international level in engaging sports stars. In fact, it is well known that clubs typically negotiate salaries of sports stars net of Italian income taxation.
The Regime draws an important line between "professional" sportspersons, as identified by a specific law (i.e. Article 2 of Law no. 91 of 23 March 1981 on the relationship between sportsmen and clubs) and "non-professional" sportspersons (i.e. those falling outside the aforementioned law). Specifically,
- "non-professional" sportspersons would be fully subject to the Regime as outlined above;
- "professional" sportspersons would enjoy the regime with some limitations since they would be subject to an individual income tax on 50% of their employment / self-employment income (individual income tax can be reduced to 22% approximately). Moreover, in such cases the law requires a contribution of 0.5% of the taxable base to support Italy's sports' youth sectors.
Therefore, when it comes to tax planning, a key factor is the proper identification of "professional" and "non-professional" sportsmen. For instance, in Italy, football/soccer players, basket players, cyclists and golfers (including coaches and technical staff) qualify as "professional" sportspersons, whereas all others (including tennis players, swimmers, skiers etc.) are deemed as "non-professional" sportspersons.
Focus on sportspersons' image rights
The Regime also opens the door to planning opportunities for the exploitation of image rights belonging to sportspersons (as well as stars and celebrities) relocating to Italy. Provided that the relevant image rights are exploited within the Italian territory, the income arising from such exploitation may, in some cases, fall within the scope of the Regime (and thus benefit from more favourable taxation).
In a nutshell, depending on the circumstances, the income deriving from sportspersons' endorsements and alike could be deemed either as "employment income" or "self-employment income" (covered by the Regime) or as "other income" (not covered by the Regime).
In order to maximise the tax benefits provided by the Regime, a number of key elements should be carefully assessed, such as:
- "professional" vs "non-professional" status of a sportsperson;
- areas/territories of exploitation of the sportsperson's image rights;
- contractual terms and conditions for both the sports performance and the exploitation of image rights (e.g. many sports clubs wish to get the hold of the image rights of their players/coaches, etc.).
Takeaways and Withers' support
Thanks to this enriched set of tax incentives (including the brand new Regime) that ease sports stars' relocation to Italy, the Italian sports industry has a clear opportunity to boost its competitiveness at an international level and attract sports stars.
Although the Regime is an alternative to the already-existing tax incentive system aimed at high-net-worth individuals relocating to Italy, sports stars now have another wealth planning reason to seriously consider Italy as their preferred destination. In fact:
- the Regime could allow substantial savings on their annual salary; while
- the new residents tax incentive could allow substantial savings on foreign sourced income (e.g. dividends, income from foreign endorsements, royalties, etc.).
In practical terms, while the new resident tax incentive targets elite sports stars with international connections and investments, the Regime constitutes a standard set of rules potentially applicable to all sportsmen moving to Italy.
Withers, with offices located in key jurisdictions worldwide, regularly advises clients on the above mentioned Regime and has a very active sports practice providing skilled and tailored advice. We can provide both individuals and corporate entities with a cross-border analysis of the relevant issues for the most effective application of the Regime, such as:
- reviewing foreign residency status and screening Italian ties and links (if any);
- assistance in the immigration procedures necessary for relocating to Italy (VISAs, etc.);
- assistance in drafting employment agreements in compliance with the aforesaid regulations.