A new favourable taxation option is now available for new residents to Italy, designed to encourage and increase investment.
These rules provide for a new fixed-amount substitute tax which new residents with high foreign incomes have the option to pay annually, and which becomes the maximum and only amount of tax they will pay on their foreign incomes for 15 years.
Originating on March 8, 2017 when the Italian Tax Authorities introduced Protocol No. 47060within the Budget Law of 2017, the new laws were practically introduced for new residents from December 2017.
Benefits and implications of the new Italian Tax Resident regime
Usually Italian tax residents are subject to taxation upon all of their worldwide income. However under the new article 24-bis of the Italian Tax Consolidated Act, a new tax resident can elect to be taxed under the new regime, as follows;
All foreign-source income not earned in Italy, as well as capital gains on investment and other asset sales, are subject to one annual lump sum tax of €100,000 (for a maximum of 15 years).
If this option is taken, there is no requirement to report assets held abroad and there are no Italian wealth taxes due on those assets (ordinarily there is the IVAFE tax of 0.2% on financial assets and the IVIE tax of 0.76% on immovable property abroad). Such income and gains are not subject to any additional income taxes, even if the assets are transferred or remitted to Italy (no remittance principle).
There is one exception: Capital gains earned from company shares that are sold during the first 5 years of the regime where the taxpayer owns more than 5% of a company or holds more than 2% of voting rights, as defined by the Italian rules, are subject to Italian income tax under current general rules, with the benefits of a foreign tax credit for any taxes already paid abroad on the sale.
It’s important to note that local, Italian-source income and gains are still subject to normal taxes in Italy.
Eligibility of family members of the first applicant
The Italian regime can be extended to one or more qualifying family members. Each family member would pay an annual lump sum substitute tax of €25,000 and benefit from the new tax regime. This extension to family members is entirely optional.
Income (and assets) included in the new regime
Income is deemed to be foreign-sourced and is consequently covered by the lump sum tax when:
- the asset from which the income is derived is located abroad, or;
- the activity through which the income is produced is performed abroad, or;
- the paying entity is resident abroad.
These issues could become quite technical when applied to each new resident situation, and so it’s definitely worth obtaining professional advice to accurately assess or plan the foreign asset structure, in advance of applying for this new tax resident regime. The foreign asset structure is not required to be disclosed to the Italian Authorities.
Eligibility and conditions
According to the law any new Italian resident individual can opt for the new tax regime if the following 2 conditions are met:
- The new resident has not been tax resident in Italy for 9 out of 10 years before moving to Italy. Note this means the regime is an option for returning Italian citizens as well.
- There is a transfer of the tax residence to Italy. This would generally be satisfied by registering as an Italian resident at the local Civil Registry in Italy. However Italian tax residency is also deemed to apply where a new Italian resident has a local Italian address where they normally live, for more than 183 days in the calendar year; or when a new resident has established his/her ‘centre of economic or social interest’ in Italy for more than 183 days in the calendar year, as defined by the Italian Civil Code.
Note that a new resident may elect not to apply the new regime with regard to income from certain countries (“Cherry picking”); in such a case, that particular income is subject to the ordinary taxation rules including the benefit of deducting tax credits for any foreign taxes paid.
This new resident tax regime is valid and automatically renewed every year for a maximum of 15 tax years, on the condition that the annual fixed tax amount is duly paid.
It is possible to withdraw from the regime but only once. It is not possible to make an annual election to opt-in or opt-out of the regime. (This makes the regime different for example to the UK resident non-domicile regime that permits annual elections)
Special rules for non EU passport holders
If you are an immigrant without an EU passport, it has been traditionally difficult to obtain a residence permit or passport in Italy.
However Italy can now grant a Schengen Permit to Italy on the basis of a new Investor Visa Programme, applicable to non-EU citizens upon entry, and for staying beyond more than three months.
The new provisions (effectively in place since December 2017) provide a two-year special residency visa.
For such an investor visa the new resident applicant is required to do one of the following:
- invest at least €2 million in Italian government bonds; or
- invest at least €1 million in Italian listed companies or invest at least €250,000 in the share capital of an innovative start-up company; or
- donate €1mill to philanthropic projects (culture, education, migration management, scientific research and recovery of artistic assets).
The Investor Visa is revocable if the investment and/or donation has not been made within 3 months from the date of entry in Italy, or if the investment is subsequently disposed of during the period the granted visa is valid.
Application process – New Tax Resident regime
The new laws require that the option to adopt the new tax regime has to be made in the annual tax return of the year of transfer of tax residence to Italy, or the following year.
Although using the new regime is an option by law, it is strongly recommended that the taxpayer prepares and files a specific ruling before the Italian Tax Administration, according to Protocol N. 47060, with the aim to obtain a clear approval to enter the Italian New Tax Resident Regime.
Together with the ruling request, the taxpayer must submit a specific Check List – following guidelines issued by the Italian Tax Authority – and, when relevant, supporting documentation. Should the taxpayer decide to enter the new regime without the ruling procedure it is compulsory to prepare all relevant documentation and prove eligibility at the same time the tax return is lodged.
New residents may give power of attorney to a trusted professional in order to be duly represented in the whole process before the authorities.
The approval process can take up to 6 months, but usually is much shorter if the new resident is well prepared, reducing the approval time to a couple of months from formal filing. Obtaining professional advice and assistance when submitting such a ruling request is highly recommended.
Global mobility and investor visa schemes
There is no doubt that global mobility has increased significantly.
The evidence suggests that more and more people value the ability to move freely and flexibly amongst various countries, for many and varied reasons including a way to deal with increased political uncertainty for themselves, their families and their businesses. Consequently there is continued demand for new residency and citizenship-by-investment programmes.
At the same time many countries are changing their residency and tax-related policies to attract both talent and inward investment, designed to help build a sustainable future for their country and their own people.
We constantly work with Italian lawyer-partners and commercialiste to ensure your needs are met, in concert with all your financial needs.
Please contact the author for more information about how the Italian New Tax Residency regime may apply to your circumstances, and how we can help.
Legal references in Italy
Provision from the Director of the Italian Tax Authority, Protocol No. 47060 of March 8, 2017.
Art. 1 (152 – 159) of Law No. 232 of December 11, 2016 (the Budget Law for 2017).
Art. 24-bis of Presidential Decree No. 917 of December 22, 1986 (Italian Tax Consolidated Act).
Other: Italian Investor Visa Policy guidance, approved on 16 November 2017.
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