How Italy’s favourable new tax regimes can benefit the sports industry

Published 15 July 2019 By: Elio Andrea Palmitessa

Italy Tax

In recent years, Italy has created a number of favorable taxation regimes to try to become one of the EU’s leading countries for foreign investment. Pursuant to a series of new amendments, the country’s package of special taxation schemes has now been widened in an attempt to attract:

  1. inbound workers, and

  2. new residents (principally high net-worth individuals (HNWIs)),

who are willing to relocate to Italy to either work or enjoy the quality of life.

There have been favorable changes to income and wealth taxes, as well as to gift and inheritance taxes. The sole requirements to access the regimes are:

  1. to become Italian tax resident, and

  2. not having been tax resident (in Italy) for a certain period of time prior to relocation.

The sports industry is well positioned to take advantage of the new regimes if participants are able to leverage their geographic flexibility. It could offer particular benefits to athletes, coaches, technical and sport managers, trainers, and others in the sector.

This article explains the new regimes for workers and HNWIs and offers insights on how they could potentially benefit the sports industry.

The special regime for “inbound workers

Under the new provisions,1 which entered into force on 1 May 2019, non-resident individuals acquiring tax residence in Italy (see below) are as from 1 January 2020 entitled to opt for the special scheme, pursuant to which Italian sourced income deriving from

  1. an employment relationship

  2. self-employment, or

  3. a business activity

is generally 70% exempt from taxation in Italy. The exemption is increased to 90% in cases where individuals are willing to transfer their tax residency to one of the following Italian regions: Abruzzo, Molise, Campania, Puglia, Basilicata, Calabria, Sardinia and Sicily. It is also increased to 90% if the individual/worker has 3 children under the age of 18 or dependents (even in pre-adoption foster care).

However, in case of income deriving from performances qualifying as “professional” sporting activities (as opposed to “non-professional” sporting activities) there is a specific framework under a separate law (Law No 91 - see explanation below), whereby Italian sourced income is only 50% exempt from taxation - not 70% as per the general rule above - and this is irrespective of the Italian Region where the sportsperson transfers his or her residency.

According to Italian Law, an individual (whether a national or not) is deemed to be resident for tax purposes in Italy if, for the greater part of the year, the individual is

  1. registered in the Civil Registry of the Resident Population; or

  2. resident in Italy (namely, the place where the person has his or her habitual abode); or

  3. domiciled in Italy (namely, the place where the personal and economic relations of the individual are closer, this being understood to be the “center of vital interests”).

Access to the regime is available under the following conditions:

  • the individual/worker must have been non-Italian tax resident for the last 2 tax periods preceding the first year of the option coming into effect;

  • the individual/worker should commit to remain Italian tax resident for at least 2 tax periods from the first year of the option coming into effect2;

  • the work activity (i.e. the relationship of employment, of self-employment or business activity) must be predominantly carried-out in Italy (for a period of at least 183 working days for each calendar year).

The eligibility for the regime is available to EU citizens and non-EU citizens of countries that have a double taxation convention3 or exchange of information agreement signed with Italy.

The benefit is generally available for 5 years (the year of relocation and the following four), with the possibility of renewal for a further 5 years if:

  • the individual/worker has at least one child under the age of 18 or dependents (even in pre-adoption foster care); and/or

  • the individual/worker buys a property in Italy after his/her relocation or during the last 12 months preceding the transfer (the purchase can be made even from the spouse, the cohabitant or from a son or daughter).

However, on renewal, different percentages of taxable income exemption apply (see table below).

In summary, an individual transferring his or her tax residency to Italy under the special regime for “inbound workers” would be liable to tax, taking into consideration the following limitations:

  • income sourced in Italy – including income from employment, income assimilated to employment, income from self-employment and business income all sourced inside Italy would be partially subject to Individual Income Tax (from 10% to 50% of income as described above);

  • income sourced outside Italy – including again income from employment, income assimilated to employment, income from self-employment and business income all sourced outside Italy would be ordinarily subject to Individual Income Tax, calculated by applying the progressive tax rates on the individual taxable income;

  • any other income – including income either deriving from domestic or foreign sources (i.e. income from land and buildings, income from investments or miscellaneous income), would be ordinarily subject to Individual Income Tax, calculated by applying the progressive tax rates on the individual taxable income.

The difference between income earned in “professional” and “non professional” sporting activities (the nature of income)

As stated above, there is a slightly different framework (Law No 914) for professional sportspersons (including athletes, coaches, managers, technical support). “Professional” under Law No 91 means sportspersons who are recognized as professional by their Federation. In Italy, this means only sportspersons connected to the:

  • Italian Football Association (FIGC),

  • Italian Basketball Association (FIP),

  • Italian Cycling Association (FCI), and

  • Italian Golf Association (FIG).

Law No 91 states that income earned by professional sportspersons falls under the following categories:

  • employment income;

  • income assimilated to employment income;

  • self-employment income.

Professional sportspersons are deemed to provide their activity within an employment relationship if the performance is carried-out on a continuing basis and takes place in exchange for a consideration pursuant to the terms of an employment contract.

Professional sporting performances are deemed to fall within an independent service relationship (i.e. self-employment) where the activity is carried out:

  • within a single, or several interconnected, sporting events over a short period of time; or

  • the sportsperson is not contractually bound with regard to the frequency of preparation or to the number of training sessions undertaken; or

  • the sporting service, while being continuous, does not exceed eight hours per week, five days a month or thirty days a year.

So for example a cyclist who contracts with a team only for participation in a big event such as the Tour de France or Vuelta. In these cases, remuneration received is treated – for tax purposes - as income assimilated to employment. In either case, the rate of income tax exemption for professional sporting activates will be 50% (see summary table below).

In contrast, any remuneration received by sportspersons playing within a national Federation that does not recognize their participants as professionals in Italy (i.e. any sport aside from the four listed above) is generally treated as income from self-employment or miscellaneous income under the main regime. So for example, income received by tennis players, swimmers, boxers, skiers, etc. will, if it qualifies, initially be exempt at the 70% (or 90%) rate (see table below).

The following table summarizes the differences:

Type

Taxable income exemption

Taxable income exemption on renewal

Professional sporting activity

(i.e. football, basketball, cycling, golf)

50%

50%

Non-professional Sporting activity (all other sports)

70% - if the sportsperson has his or her residency in an Italian Region not listed in the Decree

50%

90% - if the sportsperson has his or her residency in one of the following Italian Regions: Abruzzo, Molise, Campania, Puglia, Basilicata, Calabria, Sardinia and Sicily.

50%

90% - if the sportsperson has his or her residency in one of the following Italian Regions: Abruzzo, Molise, Campania, Puglia, Basilicata, Calabria, Sardinia and Sicily.

90% - if the has 3 children under the age of 18 or dependents (even in pre-adoption foster care).

The territoriality (source) of income received from the provision of sporting activities is determined according to the following criteria:

  • income from employment is deemed to be Italian sourced if the activity is carried-out in the territory;

  • income assimilated to employment, in case of remuneration received by sportspersons falling within the features of Law No. 91, is deemed to be Italian sourced if the payer is resident in Italy (irrespective of whether the activity is performed inside or outside the territory);

  • income assimilated to employment, in case of remuneration received by sportspersons falling outside the features of Law No. 91, is deemed to be Italian sourced if the activity is carried-out in the territory of Italy;

  • income from self-employment is deemed to be Italian sourced if the activity is carried-out in the territory of Italy.

How could sportspersons benefit from the special regime for “inbound workers”?

The regime is targeted at individuals who perform their sporting activities predominantly in Italy (i.e. for a period of at least 183 working days for each calendar year) and whose income (i.e. income from employment, income assimilated to employment and income from self-employment) derives its territoriality from sources located within Italy.

Sportspersons performing in the framework of an employment relationship (i.e. football players, basketball players or volleyball players) could benefit from the exemption granted by the special regime in relation to sporting activities carried-out in Italy. According to Italian law, employment income includes any remuneration directly or indirectly paid by the employer in the framework of the contractual relationship, either in relation to performances of sport or to activities “ancillary” to the performance. For example, in the case of an inbound sportsperson (e.g. a football player) who disposes or assigns his image rights to the club (i.e. employer), income received in connection with the exploitation of such rights is treated as income from employment, whether or not connected with the sport performances.

If, on the other hand, the exploitation is made by the professional sportsperson himself (by way of an image management company, which could eventually contract with the club in respect of the use of those rights, separately from the employment contract), income received may fall within the category of miscellaneous income, which is explicitly excluded from the scope of the special regime for “inbound workers”. In this situation, therefore, income would be ordinarily subject to Individual Income Tax.

The same principle applies to other types of casual earnings (i.e. income from sponsoring, advertising, marketing or endorsement income).

Sportspersons performing in the framework of a self-employment relationship (i.e. tennis players, swimmers or golfers) could benefit from the special regime in connection with both income from performances carried-out in Italy and income deriving from the exploitation of image rights, as well as from any other casual earnings or income from activities which are considered as ancillary to the performance5.

In conclusion, in cases where the income received by the sportspersons performing in the framework of a self-employment relationship is treated, for tax purposes, as income assimilated to employment (in consideration of the feature of Law No. 91), the remuneration could benefit from the exemption in so far as the payer is located in Italy.

The following chart summarizes the scheme

The special regime for “new residents” (aimed at HNWIs)

On 1 January 2017 Italy introduced a special regime for “new residents” targeted principally at attracting high net-worth individuals willing to transfer their tax residency to Italy.

Access to this regime allows non-Italian resident individuals to split taxation of their worldwide income by paying a flat substitute tax of €100,000 per year on their overall foreign sourced income while applying ordinary Individual Income Tax to the portion of Italian sourced income. Moreover, the Regime provides for exemption from net wealth taxes as well as from inheritance and gift taxes on assets and immovable properties located abroad.

Election to the regime is available for a maximum of 15 years to those individuals who have been non-Italian tax residents for at least 9 out of 10 years preceding the first year of the option coming into effect. The regime can however be revoked at any time by the taxpayer or forfeited under specific circumstances.

Furthermore, the regime can be extended to the taxpayer’s family members provided that the minimum requirements set out by the regime are fulfilled. In such cases, the family member would be subject to a reduced substitute tax of €25,000 per year.

Additionally, foreign sourced income, irrespective of its country of origin and regardless of the tax treatment at source, is deemed to be covered by the substitute tax, provided that no tax credit is granted in Italy on taxes paid abroad. Nonetheless, taxpayers can exclude specific countries from the Regime through the “cherry-picking” mechanism: in this case, any foreign income sourced in those selected countries will be subject to ordinary Italian taxation (as well as to wealth taxes, inheritance and gift taxes for assets located abroad) and, as a result, a foreign tax credit would be granted to avoid forms of double taxation.

Taxpayers can also submit an advanced tax ruling to the Italian Revenue Agency with the aim of verifying the existence of the requirements necessary in order to apply for the Regime. Such ruling is not mandatory and, in any event, non-binding for the taxpayer.

How could sportspersons benefit from the special regime for “new residents”?

Within the general framework of this regime, new residents would be taxed by virtue of a substitute tax of €100,000 year on the overall foreign sourced income, irrespective of the amount received. Additionally, individuals could benefit from a number of favorable provisions - in terms of wealth taxes, gift and inheritance taxes (i.e. exemption from taxation and exclusion from tax monitoring duties) – in relation to assets, investments and properties located abroad.

This regime is particularly targeted at international sportspersons with a high degree of sporting mobility (i.e. racing drivers, tennis players, swimmers or golfers) or to sportspersons who derive a consistent amount of their income from sources located outside Italy, such as income from the exploitation of image rights or, more generally, from various forms of endorsement.

As far as remuneration deriving from sport performances are concerned, sportspersons (i.e. a football or basketball player) who have entered into sports performance contracts with Italian employers (i.e. a football club of “Serie A”), remuneration would be generally treated as Italian-sourced income and taxed under ordinary Italian tax rates. However, there could be enough room to split the portion of salary relating to games played in Italy and games played outside Italy (i.e. Champions league matches). In this situation, it would be possible to proceed with an apportionment of the income received in order to subject to substitute taxation the part of the salary relating to games played abroad (through the method known as “games played formula”), taking into consideration an “event-based” approach and seeking to split the relevant income based on the number of public performances in each State outside Italy.

A relevant stream of income for international sportspersons may also derive from the exploitation of their image rights. The taxation of any such earnings would depend on whether the resident sportsperson performs in the framework of a contract of employment or as a self-employed individual. In the latter case, income deriving from the exploitation generally qualifies as miscellaneous income and the individual would be able to enjoy the substitute tax regime where image rights are economically exploited outside Italy.

What is the best option available for an inbound sportsperson?

To identify the best option available, an analysis of the nature and source of the income is required. The regime for “inbound workers” is targeted at sportspersons who raise the majority of their income from sources located in Italy (i.e. in relation to sporting activities carried-out in Italy), while the regime for “new residents” is aimed at attracting high-net worth sportspersons deriving income from sources located abroad (such as income from image rights or endorsement income). Additionally, the former requires that income derive from relationships of either employment or self-employment, while the latter seems suitable for sportspersons deriving income from activities “ancillary” to the performance (as well as from various forms of endorsement) or, more generally, from assets, investments or immovable property abroad (i.e. passive income).

Summary table

The following table illustrates and compares the main characteristics of the special tax regimes. Incentives cannot be combined with one another for the same tax period.

Type

Special regime for “inbound workers

Special regime for “new residents

Objective requirement

Acquiring tax residency in Italy

Commitment to remain Italian tax resident for at least 2 tax periods after the option comes into effect

Acquiring tax residency in Italy

Subjective requirement

Not having been Italian tax resident for the last 2 tax years prior to the year the option comes into effect

Not having been Italian tax resident for 9 out of 10 years preceding the year the option comes into effect

Eligible income

Income deriving from Italian sources

Income deriving from foreign sources

Qualifying income

  • Income from employment

  • Income assimilated to employment

  • Income from self-employment

  • Business income

Any

Income excluded

  • Income from land and buildings

  • Income from investments

  • Miscellaneous income

None

Anti-avoidance provision

None

Cannot be subject to substitute taxation, foreign sourced capital gains resulting from the sale of shares representing more than 2% of the voting rights of a company listed on a stock exchange (or 20% of the voting rights of other companies) or representing more than 5% of the share capital of a company with shares listed on a stock exchange (or 25% of the share capital of other companies) made during the first 5 tax periods of application of the tax incentive.

Benefit

Exemption from 50% to 90% of the qualifying income

Taxation of qualifying income through a substitute taxation of € 100,000, irrespective of the amount and the country of origin

Duration

Max 10 years (5+5)

Max 15 years

Extension to family members

No

Yes, namely:

  • spouse or member of a civil partnership

  • children, even adoptive ones, and, in their absence, the direct relative(s) in the

descending line

  • parents and, in their absence, the direct relative(s) in the ascending line

  • adopters

  • sons–in-law and daughters-in-law

  • fathers-in-law and mothers-in-law

  • brothers and sisters

Taxation of the qualifying income through a substitute taxation of €25,000, irrespective of the amount and the country of origin

Tax reliefs

Tax credit for taxes paid abroad

No. Unless the individual opts-out of a specific jurisdiction through the “cherry picking” mechanism

Tax monitoring duties

Yes, for any asset, investment or real estate held abroad

No, excluded for any asset, investment or real estate held abroad in jurisdictions opted-in

Wealth taxes

Yes, for any asset, investment or properties held abroad

No, excluded for any asset, investment or real estate held abroad in jurisdictions opted-in

Gift taxes

Yes, for any asset, investment or properties held abroad

No, excluded for any asset, investment or real estate held abroad in jurisdictions opted-in

Inheritance taxes

Yes, for any asset, investment or properties held abroad

No, excluded for any asset, investment or real estate held abroad in jurisdictions opted-in

Revocation or forfeiture of the option

The regime is no longer applicable as soon as the individual ceases to earn qualifying income.

At any time

 

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Author

Elio Andrea Palmitessa

Elio Andrea Palmitessa

Elio is a chartered accountant in Italy, specialised in EU and International Tax Law. He holds an LL.M. degree (with honours) in International Tax Law at Vienna University of Economics and Business (Institute for Austrian and International Tax Law). He also received the TEP designation (Trust and Estate Practitioner), the top tier of STEP qualification.

He is a member of several Boards of Statutory Auditors, a member of the International Fiscal Association (IFA) and the International Bar Association (IBA).

He has published extensively in international tax journals as well as lectured in courses and conferences in Italy.

The author can be contacted at: elio.palmitessa@gmail.com

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