Exempt Income Of Embarked Seafarers

Italian law provides in certain cases for a special tax regime for persons tax resident in Italy who work abroad. One such case is the income tax regime for seafarers who are tax resident in Italy and embarked on vessels flying a foreign flag.

For these persons there is in fact a regime of exemption from taxation in Italy of the relevant income and, in particular, the income deriving from the activity performed on such vessels for a period of more than 183 days within a 12-month period is excluded from the taxable base. This provision of law, contained in Article 5 of Law No. 88/2001, meets the need to guarantee also to seafarers - excluded from the so-called conventional pay regime - a more favourable taxation on income deriving from work performed abroad.

The provision at issue herein has evidently taken on great relevance for industry operators, and its application has also been the result of important clarifications by the Italian Revenue Agency that have facilitated its application.

Mention is made in particular of Ruling No. 134 of 2020, in which the Revenue Agency deemed it appropriate to clarify certain aspects relevant to the application of the benefit.

First of all, as mentioned above, the provision applies subject to compliance with the time condition of ‘a period of more than 183 days within a twelve-month period’. On this point, the aforementioned ruling clarified that, since the rule refers to twelve months and not to the year or tax period, the condition is met even when the 183 days are counted at the turn of the year. Therefore, assuming that a person who is tax resident in Italy performs such work from 1 October to 30 April, the relevant income would not be exempt if the 183 days were necessarily included in a single tax period; in the same situation, however, the income may be considered exempt, in light of the clarification provided by the Revenue Agency, since the 183 days are to be computed over a 12-month period, even if straddling two tax periods.

Moreover, the above-mentioned ruling is of great relevance in that it unequivocally states that the favourable regime in question applies regardless of the place where the work is performed. In other words, it is irrelevant whether the vessel sails mainly in international or EU or Italian waters or whether it is stationed in an Italian rather than a foreign port.

In addition, on this point it is worth mentioning that tax courts have welcomed a - different but equally important - issue concerning the calculation of the 183 minimum embarkation days relevant to the application of the provision. In fact, consistent case law holds that in the said computation not only days of actual work are taken into account, but also holidays, public holidays, weekly rest days and other non-working days, regardless of where they are spent.

It is in any case evident that the seafarers interested by the application of this provision, even though they earn an exempt income that does not have to be reported in the Italian tax return, are in any case required to keep all the necessary documentation to prove, in case of possible tax audit, that the limit of 183 days provided for by the rule is regularly respected.