The 2017 Italian Finance Bill has introduced an attractive tax regime for persons wishing to become tax residents in Italy. It is aimed at high net worth individuals and their relatives. The new law introduces a remittance-style tax regime and provides that the non-domiciled applicant for Italian residency status may opt for a new flat rate annual tax of €100,000 (€25,000 for each of the taxpayer’s accompanying relatives) that will shield all worldwide income and gains from further taxation in Italy. The new system is available to all persons, regardless of their nationality or domicile, who have been non-tax resident in Italy during nine of the ten years preceding their relocation to Italy. The successful applicants will also be entitled to a Schengen visa for themselves and their resident family members. The regime is a viable alternative to the similar schemes proposed by the UK, Portugal, Cyprus Malta and Switzerland.
The Budget also provides two other forms of tax incentives aimed at persons with specific qualifications who intend to move to Italy to perform a qualifying activity. These regimes provide for:
(i) a three-year tax exemption on 90% of remuneration for professors and researchers; or
(ii) a five-year tax exemption on 50% of remuneration for managers and professionals.
New Italian Resident - eligible individuals
Individuals regardless of nationality or domicile that have not been resident in Italy for tax purposes (according to art. 2 of the Italian Consolidated Law on Income Tax – TUIR) in at least 9 of the preceding 10 years are eligible for the flat tax scheme.
Unlike the tax breaks available to employees and professionals, the Flat Tax scheme does not foresee particular skills or conditions in relation to the period of stay in Italy.
Flat tax regime and exclusions
The Flat Tax regime provides for a lump-sum tax of €100,000 per year that substitutes all taxes on foreign assets and income produced abroad. As a general rule, Italian tax residents are subject to taxation on worldwide income as well as a wealth tax on foreign assets. This status will grant an exemption from:
- taxation on income and gains produced abroad by new non-domiciled residents;
- reporting requirements with respect to the wealth tax
- inheritance and gift tax on foreign assets (but not on Italian sourced income or assets or capital gains from “qualifying holdings” realized in the first five fiscal years).
The exclusion of capital gains arising from the disposal of qualifying holdings realized in the first five-year period after election is aimed at restricting abuse of the status. The dividends from qualifying holdings will, however, fall within the scope of the flat tax regime. Income from foreign sources may be remitted to Italy without any additional taxation.
Any Italian sourced income will continue to be taxed on a normal progressive basis.
Individuals opting for the regime may extend the Flat tax regime to cover some, or all, family members: in this case, a lump-sum tax of €25,000 is due for each additional person. The definition of family members is particularly broad and is not limited to a spouse or children.
Additionally, those intending to opt for this regime should pay attention to relevant international double tax treaties and their provisions on residence, partly because the Italian Revenue Agency may exchange information with countries where the new residents were formerly registered.
To apply for the Flat Tax regime the non-resident will need to obtain a specific ruling from the Italian tax authorities for himself and family members (who will be subject to an additional substitute tax of €25,000 per person). A check-list has been formulated listing the information to be filed with the application. The individual can select the foreign jurisdictions to include in the substitute tax regime (this is the so-called “cherry picking” principle). The Flat tax is in fact an “umbrella tax” that substitutes the normal taxation that would have been applicable on the assets or income produced in the countries included in the ruling request.
The income produced in countries that are not included in the ruling application will be subject to ordinary Italian tax rules. This will allow the taxpayer to benefit from a tax credit on taxes levied abroad (conversely this benefit is denied for the income included in the Flat tax regime). The ruling application need not include any specific description of the estate of the individual, unless it is relevant for assessing whether he or she was resident in Italy in a given period.
Income is deemed to have originated abroad when (i) the asset generating the income is situated abroad, or (ii) the business generating the income was conducted abroad, or when (iii) the individual remitting the income is resident abroad for fiscal purposes.
Once a favourable ruling has been issued all related foreign income will be covered by the Flat Tax regime for a 15 year period. The option is revocable by the taxpayer at any time. The regime will also cease to apply if the €100,000 flat tax is not paid in any one year.
Flat tax: the new status allows the newly resident taxpayers to opt for the payment of an annual substitutive tax of €100,000, which is an “umbrella tax”, in lieu of:
- Income tax on non-Italian sources of income (under Italian laws income includes capital gains)
- The 0.2 percent tax on the value of foreign financial assets
- The 0.76 percent tax on the value of foreign real estate
- Inheritance duties: The Flat tax regime allows a full exemption from succession duties (inheritance and donation taxes) on all assets located abroad for the 15-year period.
As a general rule, inheritance duties apply at a rate ranging from 4 to 8 percent on assets, wherever they are located, received by Italian tax residents as a donation or upon succession.
Reporting requirements exemption: Selection of the Flat tax status exempts the individual from all further reporting requirements concerning assets held abroad. Taxpayers who choose this substitute tax regime are guaranteed full confidentiality vis-à-vis the Italian tax authorities in relation to their non-Italian wealth. To a certain extent, information may automatically flow to the Italian tax authorities pursuant to the Common Reporting Standard (CRS), but taxpayers may keep financial assets in jurisdictions that have not adopted the standard (such as the US).
Fast-track visa procedure
A separate provision provides a series of investment incentives related to entry and residence visas for foreign non-residents proposing to invest in Italy.
The current regulatory framework on immigration inflow has been modified, and Article 26bis of the Consolidated Law on Immigration now includes a special “investor visa” status that lasts two years for incoming immigrants who need to stay in Italy longer than three months (renewable, under certain circumstances, for a further three years).
To obtain an "investor visa" - the non-resident investor will have to demonstrate a commitment to invest in Italy either by investing:
- €2 million in government bonds, to be kept for at least two years;
- €1 million in participation to the share capital of a company resident and operating in Italy
- €500,000 in the share capital of a company that is an innovative start-up registered in a special section of the business register
- €1 million in philanthropic donations in the fields of culture, education, immigration management, scientific research or cultural heritage restoration
A set of procedures has been put in place to verify compliance with these requirements and the source of funds. More detailed guidance is expected to be issued soon.
Italy now has one of the most comprehensive and attractive foreign investment and HNWI residency scheme currently available in Europe. It provides the opportunity for individuals and their families to become resident in one of the most beautiful countries in the world where property prices are still very competitive by paying a flat-rate tax on all worldwide income.
For further information please contact;
Nick Ferrand - firstname.lastname@example.org
Avv. Fred Cucchi - email@example.com
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