Residence for tax purposes or tax domicile are very important for the formation of a company and many people make confusion between residence for tax purposes, registered residence, factual residence and tax domicile.
The Italian Civil Code explains what is residence for tax purposes and what is the tax domicile. We have already written HERE what is the tax domicile and that the residence for tax purposes can be different from the registered residence. The residence for tax purposes is the place where the taxpayer usually lives.
Business income tax in Italy. The difference between residence for tax purposes and factual residence
The residence for tax purposes usually corresponds to the personal and factual residence. However, if an Italian citizen proves to spend more than 183 days per year in a in a different country, he is no longer required to pay taxes in Italy.
It is not always easy to determine what the actual tax residence is. To avoid double taxation and conflicts of residence, international conventions drawn up on the OECD model have established that
a person is considered a tax resident in the Country in which he has a permanent home.
In Italy, income taxes for businesses are paid in the permanent residence. But there are cases in which a person has more than one permanent residence in more than one country. In these cases, the criterion for identifying the residence for tax purposes on which to apply income taxes wherever produced in the world by the principle of “world wide taxation“, is the factual residence. The factual residence is that in which the person
holds the most important personal and economic relationships.
That means that the permanent home where to establish the residence for tax purposes is not necessarily neither owned nor rented by people. The permanent home where to establish the residence for tax purposes is that where
people have full availability, for unlimited periods of time, even if they do not have neither ownership nor possession at law.
The interpretation is confirmed by sentence of the Court of Cassation, sentence no. 26638 of 10 November 2017, where the concept of “permanent home” expressed in many international Conventions, is not connected to the title of property, but to the possibility of having a home at will and for unlimited periods.
For instance, in order to identify the tax residence, it is not relevant to be a resident of a property located in a foreign country, but to spend more than 183 days freely at the home of a partner in Italy.
To determine your residence for tax purposes ask legal assistance to the Team of the Damiani & Damiani Law Firm.