How to identify the tax residence of natural persons?

published on 12 December 2023 | reading time approx. 3 minutes

The Council of Ministers has definitively approved the draft Decree regarding international taxation and, in particular, provisions about the tax residence of natural persons.

In Italy, the article 2 of TUIR states the rules to identify the tax residence of natural persons. In particular, this article provides that, for income tax purposes, persons are considered resident in Italy if for most of the tax period are registered in the resident population registry or have in the State territory their domicile or residence pursuant to the Civil Code.

Therefore, for the identification of tax residence, the legislator establishes one criterion of a formal nature (i.e. registration in the resident population registry in Italy) and two criteria of a substantial nature (domicile and residence pursuant to Article 43 of the Civil Code). In any case, till today, the criterion of registration in the resident population registry represents an absolute assumption of residence in Italy.

At international level, paragraph 2 of Article 4 of the OECD Model identifies several criteria to be applied to define the tax residence of a natural person:

first of all, a natural person shall be deemed to be a resident of the State in which has a permanent home;
if taxpayer has a permanent home available to him in both States, he shall be deemed to be a resident only of the State with which his personal and economic relations are closer (center of vital interests);
if the State in which he has his center of vital interests cannot be determined, or if he has not a permanent home available to him in either State, taxpayer shall be deemed to be a resident only of the State in which he usually stays;
if natural person usually stays in both States or in neither of them, he shall be deemed to be a resident only of the State of which he is a national;
if he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

In order to align domestic law with international law, the legislator intends to amend the current wording of Article 2, paragraph 2 of the TUIR. In particular, the new wording of the article should provide that: "For the purposes of income tax, persons who for most of the tax period, including fractions of a day, have their domicile or residence in the territory of the State or who are present therein are deemed to be resident. For the purposes of applying this provision, domicile shall mean the place where the person's personal and family relationships are primarily developed. Unless proven otherwise, persons registered for the greater part of the tax period in the registers of the resident population are also deemed to be resident."

In the light of above, the criterion of registration in the resident population registry will be a relative legal assumption that, as such, will admit relevant contrary evidence.

Moreover, as a result of the amendments, the domicile of a natural person will be identified as the place where, for most of the tax period, the taxpayer's personal and family relationships are primarily developed, in addition to the physical presence in the State territory and taking into account fractions of a day.

Finally, the proposed changes about identifying tax residence contained in the draft Decree are as follows:

registration in the resident population registry will constitute a relative and no longer an absolute legal assumption;
the civil law criteria for identifying residence pursuant to Article 43 of the Civil Code will remain valid;
a new definition of domicile will have to be considered;
fractions of a day shall also be considered for the purposes of calculating the duration of permanence in Italy.