For a translation of this article into German please click here.
The 2017 Italian Budget Law introduced a 15 year preferential regime for wealthy individuals taking up residence in Italy (‘New Residents’), which came into force on 1st January 2017.
The new regime was inspired by the UK non-domiciled rules, and it is aimed at favouring investments, and the establishment in Italy of individuals and families with significant private wealth. In order to ensure that the new favourable tax treatment is available to the relevant individuals, new provisions are also being introduced relating to entering the country and to the acquisition of Italian residency.
The rules allow individuals who become Italian tax residents after being tax residents of one or more countries other than Italy for at least nine years of the 10 preceding the move to Italy to opt for a flat yearly tax charge of €100,000 on all income from foreign assets, regardless of the amount of income (or assets). Broadly, the new regime provides the following advantages:-
- The flat charge replaces the ordinary rules which would apply progressive taxation (at the rate of 43%) to all income of an Italian resident, arising worldwide (the so called world wide taxation principle)
- The New Resident can ‘cherry pick’ and exclude from the regime the income from assets located in one or more foreign countries – this requires careful planning to take advantage of the favourable tax treatment that may be available in the other country.
- The New Resident opting for the regime is exempt from reporting investments and assets held outside of Italy on the ‘RW’ pages of their annual tax return.
- The New resident is also exempt from the ‘IVIE’ (the tax on foreign immoveable assets) and the ‘IVAFE’ (tax on foreign financial activities).
- Foreign assets are exempt from death taxes, if the death occurs during the period when the option is exercised.
- Family members of the New Resident who also receive income from non-Italian sources can be included in the regime and pay an annual flat tax of €25,000.
The only exceptions to the regime are income and gains arising in Italy, and capital gains from the sale of a ‘qualified participation’ in a company, if occurring during the first five years of residence. A qualified participation is a shareholding entitling the holder to more than 20% of the voting rights in the shareholders’ meeting.
The option is available for up to 15 years and is exercised by filing an income tax return for the year when the individual becomes resident in Italy for tax purposes, or the following year. Alternatively, the individual may apply for a specific ruling by the tax authorities attesting that all the criteria for the application of the regime are met. The option is renewed automatically, but the individual can opt out at any time. The option will cease to apply after the 15th year of residence.
Combined with the new ‘Investment Visa’ and the reduced income tax rate applied to employment income produced in Italy by workers who move there (the ‘Inbound Employee regime) the ‘New Resident’ regime may represent an opportunity for Italy to become a much favoured destination for high net worth individuals, especially post Brexit.
For more information please contact Francesca Rossi on 0207 400 5037, or click here
to email Francesca.