You are unlikely to move to Italy purely for tax advantages.
It’s more likely you will have thought deeply about your personal and work future plans, and experienced many emotions about the difficult choices facing your life after brexit. These decisions are of course not to be taken lightly, and are likely to have been considered by many affected Europeans and British citizens over 3 and a half years since the June 2016 referendum.
However there are certain programs or tax concessions launched by the Italian authorities, designed to appeal to those not resident in Italy today.
What are the tax advantages or current benefits available for those moving to (or returning to) Italy?
There are essentially 3 categories of attractive tax regimes which can benefit new residents (and returning Italians) to Italy :
1. The inbound workers special tax concessions.
In 2019 the Italian government introduced significant tax cuts to encourage working people including entrepreneurs, professors and researchers, to come to Italy from 2020.
What are the benefits?
The main benefit for new people coming to Italy and returning Italians is to exempt totally from tax 70% of Italian employment income for 5 years (employees or individual self-employed) ; and this is increased further for professors and researchers to a 90% exemption from income tax for 6 years.
This tax exemption can even be increased for all workers to 90% if the worker chooses to reside in one of the southern Italian regions (i.e. Abruzzo, Molise, Campania, Puglia, Basilicata, Calabria, Sardinia or Sicily). In this situation the individual income tax rate can be reduced to approximately 4% overall.
Let’s create a case study example. Marco has been anxious about whether to stay in the UK or return to Italy, after 3 years living in the UK.
Let’s assume Marco was a senior company manager who knows he could earn £80,000 in a manager role in London. Marco is now considering moving back to Italy, however he knows the best salary he can find available in his chosen career in Italy is €65,000.
Using UK tax calculations, Marco would earn after tax £54,939 or net monthly pay of £4,578 per month if he stays in the UK.
In Italy, with the benefit of the new tax incentives, 70% of his annual income will not be taxed so that Marco’s after tax income in Italy rises to €58,543 or net monthly pay of € 4,878.
The tax saving would be higher if Marco was a professor or researcher, or resided in one of Italy’s southern regions.
Special alternative provisions apply for sportspeople.
Those who transfer their residence to Italy in 2020 and have not been tax resident in Italy for the 2 years prior to moving, and who will remain Italian-tax resident for at least 2 years.
Extension beyond 5 years
The tax exemption on income can be extended for a further 5 years for certain people; where the returning worker has a child, or where they purchase Italian property during the 12 months before or after moving to Italy. If that same worker is a professor or researcher with a child under 18 or who buys a property, they can extend the tax savings for another 8 years; or 11 years if they have 2 children under 18 or 13 years where they have 3 children or more under 18 years of age.
2. The retired migrant 7% tax on foreign income regime.
Also in 2019 the authorities implemented tax benefits for new retirees moving to Southern Italy.
What are the benefits?
Retirement-age people moving to Italy from countries with whom Italy has a co-operation agreement, are subject to only 7% tax on any kind of foreign income. There is also no wealth taxes or disclosure to apply on assets or investments held outside Italy, and applies for 9 years following the year residency in Italy begins.
Those applicants entitled to a pension who move to one of Italy’s municipalities of the south with a population of less than 20,000 inhabitants (for example some municipalities within Sicily, Calabria, Campania, Puglia, Sardegna, Abruzzo, etc).
The applicant must not have been resident for tax in Italy for the previous 5 tax years
It’s advisable to enter an assessment phase before moving to Italy (advice is recommended).
3. The New Tax resident Flat tax regime
Individuals transferring their tax residence to Italy can opt-in to this new resident regime and be subject to one lump sum flat tax amount each year, for 15 years, on all foreign income and assets.
This regime was announced in March 2017 however practically introduced for residents in December 2017.
What are the benefits?
A new tax resident in Italy can elect to obtain a 15-year exemption from taxes on all foreign incomes and assets, subject to the annual payment of a fixed amount of €100,000 substitutive tax.
No progressive rate income taxes or wealth taxes are payable on foreign income and assets if this regime is adopted.
An additional flat tax of €25,000 applies to each family member that also transfers tax residence to Italy. Ordinary gift or inheritance taxes only apply to Italian-based assets.
Foreigners or Italian citizens who have been tax resident abroad for at least 9 years of the last 10 years before moving to Italy. The transfer of tax residency to Italy must be effective.
To become a new tax resident, you will need to request approval from the Italian tax authority and we recommend gaining advice about how to request a preliminary approval. (You must specifically mention all jurisdictions where you’ve previously been tax-resident.)
It’s important to consult with your financial and wealth management partners to take a broader view, before you consider relocating to Italy.
There are more concessions not detailed here including for sportspersons such that Italy could become a destination for certain athletes or celebrities and private individuals aiming to mitigate their tax burden.
However, any such opportunities should be carefully considered in the context of a preliminary tax and wealth analysis, duly performed with the support of trusted professionals. There are many aspects to consider and many details within the tax legislation to appreciate, to ensure that you are correctly aligned to make the most of the concessions.
You may need to review the visa and immigration procedures, your current tax-residency status and exit plans, as well as potential assistance in drafting Italian employment and commercial agreements.
For more information please contact Daniel Shillito.