The 2017 Budget Law includes a provision for a beneficial tax regime (regime) for foreigners who relocate their tax residence to Italy, as well as returning Italian citizens.
Like similar regimes adopted by other countries (in particular, the United Kingdom, Spain and Portugal), the newly-established Italian regime is elective and limited in its duration.
Main Features and Scope of Application
Eligible taxpayers—that is, individuals who haven’t qualified as Italian tax residents for at least nine of the past 10 years—may opt for the application of a yearly €100,000 substitute tax on their foreign-sourced income.
Therefore, no Italian statutory progressive taxation on foreign-sourced income will be levied, to the extent that the yearly €100,000 substitute tax is paid and irrespective of the actual amount of such foreign income and of its remittance to Italy.
An additional and ancillary consequence of the new Italian regime consists of the exemption from gift and inheritance tax on the transfer by the applicant of assets and rights located outside of Italy.
Capital gains arising out of transfers of significant interests in foreign companies generated in the first 5 years are subject to Italian statutory taxation (which, however, grants a roughly 50 percent exemption).
Qualifying individuals can benefit from the regime for up to 15 years. The above features concerning the freedom to remit assets and funds to Italy and the length of the duration of the Italian regime make it more appealing than other regimes.
Election
The election for the regime must be exercised by the deadline for the submission of the tax return related to the fiscal year from which the qualifying individuals intend to adhere to the special regime (for example, by September 30, 2018 for fiscal year 2017).
However, since the election is subject to an advance approval by the Italian Tax Authorities, individuals who are interested in adhering to the regime must file a request with the Italian Tax Authorities for an advance ruling at least four months before the deadline to opt for the regime (the Tax Authorities have 120 days to respond to a request). The new legislation also provides for an expedited visa process for foreigners wishing to adhere to the regime.
Please also consider that it’s possible to exclude certain foreign-sourced income from the special regime. Such foreign-sourced income will therefore be subject to Italian statutory taxation (or to the taxation laws provided for under the relevant double tax treaties between Italy and other jurisdictions) and benefit from a tax credit.
Furthermore, an election for the special regime can be extended to one or more relatives of the qualifying individuals, to the extent that such relatives also relocate their tax residence to Italy. In such a case, the yearly substitute tax will be increased by €25,000 for each relative.
Finally, the election can be withdrawn at any time, save for any effects prior to the withdrawal.
Final considerations
The Italian regime represents a new option to be considered by high-net-worth individuals who are looking for a jurisdiction which combines a good lifestyle with tax optimization.
In addition, as briefly illustrated above, the Italian regime seems to offer better and more straightforward conditions than the regimes currently implemented by other jurisdictions.
In particular, the Italian tax regime may constitute a valuable option for those HNW individuals who will be affected by the restrictions recently introduced to the UK resident non-domiciled regime.
However, as we believe that an accurate evaluation of all of the relevant aspects of an individual's position and of collecting and filing the inherent documentation may require a substantial amount of time, it’s advisable that those individuals who are interested in adhering to this regime beginning in 2017 initiate their consultation with their tax and wealth advisors as soon as possible.
Indeed, the decision to adhere to the regime certainly requires advance and detailed tax and legal planning in order to evaluate carefully the eligibility requirements, to design and implement an advance asset restructuring, and to take into due account the outbound jurisdiction’s domestic tax law (for example, exit taxation, deemed domiciled status for some moving from the United Kingdom) and to test the interaction of the regime with tax treaty law, source countries’ tax law and relevant succession and family law.