EuropePolicy Updates

Following Portugal, Italian Govt. Also Aims to Weaken Special Tax Regime


Just weeks following Portugal’s surprise announcement that it planned to end the highly successful Non-Habitual Resident (NHR) tax regime, the Italian government is submitting a proposal that would make its own Lavoratori Impatriati (sometimes referred to as Rientro dei Cervelli) regime considerably less attractive.

What is the Lavoratori Impatriati regime?

Today, the Lavoratori Impatriati (LI) scheme allows foreigners and Italians alike to pay tax only on 30% (or 10% if residing in the South) of their incomes, provided they have resided outside of Italy for two full years. The special rates apply for five years, but those who have children can extend this for another five.

To qualify for the Lavoratori Impatriati scheme, applicants must

  • Not have been tax resident in Italy in the preceding 2 tax years;
  • Commit to reside in Italy for at least 2 years and be a tax resident for 2 tax years – or risk losing the relief and paying extra dues plus penalties;
  • Perform work prevalently in Italy – typically meaning more time spent working in Italy than anywhere else but, strictly speaking, at least 85% of work performed in Italy; 
  • Have a university degree/highly specialized qualification (not applicable to Italian citizens)
  • Move to Italy in direct connection with the beginning of a new professional activity, such as a job offer, the beginning of self-employment activity, or the opening of a new company.

While Portugal’s NHR regime has been most popular among foreigners, it’s been the many returning Italians themselves who have been the most eager subscribers to the LI scheme, which in many cases has allowed them to live in Italy while paying an effective tax rate in the single digits.

For someone residing in Northern Italy and making a €100,000 gross income, for example, the personal income tax due would amount to €7,210, i.e., the same as someone earning a gross salary of €30,000 would pay at the normal Italian income tax rates. For someone living in Southern Italy, the income tax due on a gross income of €100,000 would amount to €2,300, i.e., the same as someone earning a gross income of €10,000 would pay under normal circumstances.

What are the proposed changes to the Lavoratori Impatriati regime?

In connection with the tabling of the state budget bill for 2024, the government proposes the following changes to the regime:

  1. To reduce the exempted income from 70% and 90% to 50% across the board;
  2. To eliminate the possibility of extensions after the initial five years, even for those with children;
  3. Introduce an income limit of EUR 600,000, after which normal rates would apply;
  4. Increase the number of years a regime participant must have resided abroad from 2 years to 3.

La Stampa, one of Itlay's biggest dailies, reports that members of Controesodo (Counter-Exodus), a group that represents returning Italian workers, issued a statement in which it reacted with dismay to the proposal:

"We consider it a huge own-goal for the country, an initiative that ruins years of very hard work by our group. […] Instead of making targeted corrections or strengthening aspects linked to the Government's agenda such as the birth rate, a substantial repeal was proposed. This is difficult to understand as it involves a measure at no cost to the State. It seems paradoxical, but the Government intends to repeal a measure that was starting to produce important results, as demonstrated by the MEF [Ministry of Economy and Finance] data itself."

The group says the innovative law, first introduced in 2015 and later enhanced in 2019, was providing tangible results at zero cost to the state because "as certified in all the technical reports on the subject, [the law] attracts new taxpayers to Italy, not to mention the positive effects in terms of demographics."

Ministerial data, says the group, shows a 40% increase in returned Italian workers - precisely the demographic segment the law had aimed to reattract - between 2020 and 2021.

Moreover, the group points out, "there has been a considerable increase in the number of people moving from abroad to the South."

"All this is swept away by the draft text of the current legislative decree," says Contraesodo, "with a heavy blow to legal certainty, also making an 'ongoing' change for those who returned in the second part of 2023. All this will be remembered negatively by those private individuals or businesses, Italians or foreigners, who are considering settling in Italy in the future."

The legislative proposal is now with the competent parliamentary commissions for discussion.

So far, there is no indication that Italy plans to change its two other special tax schemes, the EUR 100,000 lump-sum and the 7% flat tax on pensions regimes.

Earlier this week, Portugal's government indicated its willingness to instate a transition period for the end of the NHR regime for third-country nationals whose immigration applications remain pending with the SEF, whose work is extremely delayed.

See also:

11 Special Regimes for

Low-Tax Living in High-Tax Europe

How you or your client can legally pay a single-digit tax rate and live in eight otherwise high-tax Western European countries.


The report is for those attracted to Western Europe for its lifestyle proposition but deterred from residing there full-time by high levels of taxation.

The report will show how you (or your client), by participating in special tax regimes that Western European governments have expressly designed to soften the fiscal blow for foreigners, can have your cake and eat it too.

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