Italy: new tax rules for new residents
In a nutshell:
- The measures provide substitute tax of 100,000 euros per year for foreign-sourced income sources, regardless of whether they are transferred to Italy.
- For succession and donation rights, the new tax regime only takes into account the assets in Italy.
- The new rules will be applied for the fiscal year 2017. It’s impossible to combine these with other Italian tax benefits and are only eligible to those who comply with all the criteria.
The 2017 Budget Law introduces a set of rules aiming to attract foreign taxpayers to Italy.
New article 24 bis of the Italian Income Tax Code marks the beginning of a favourable tax regime for new residents in Italy (the “Non-Dom Regime”). It is inspired by the UK non-domiciled regime as well as by regimes in other EU Member States such as Portugal (Non-Habitual Residency status) and Malta.
Other measures include a proposed simplified procedure for granting an Italian visa to non-EU individuals who can make substantial investments in Italy (such as the Golden Visa programme in Portugal) and reduced rates of income tax for highly-skilled citizens moving back to Italy from abroad.
2. New tax regime
The new Italian system will reduce the impact of the Italian worldwide tax principle for income and inheritance by introducing substitutive lump-sum taxation for foreign-sourced income, whether remitted or not remitted to Italy.
The rules should be the same as those applicable to Italian residents, but the foreign-sourced income will be subject to a substitute tax of EUR 100,000 (with an additional EUR 25,000 for each family member to which the Non-Dom Regime may be extended, including the spouse) without any foreign tax credit applicable in Italy in relation to this foreign income.
This new regime also contains an anti-abuse clause for capital gains. Specifically, gains on the sale of qualified shareholdings are excluded from this substitutive flat taxation (and therefore subject to Italian tax) if they are realised in the first five years of the regime application.
As to the taxation of inheritance and gifts, this new regime taxes only assets and rights held in Italy (and not assets held abroad).
In addition, the new regime sets out an exemption from certain report obligations (“RW Form”) and wealth taxes (“IVIE and IVAFE”).
3. Eligibility criteria
New residents for tax purposes can opt for the Non-Dom Regime if they:
- become a resident for tax purposes in Italy;
- have not been a resident for tax purposes in Italy for at least 9 of the 10 tax periods preceding that in which the option is exercised, regardless of whether or not they are Italian citizens;
4. Option for the regime
The new rules are applicable for the first time on 2017 income. Accordingly, the option should be exercised with the Tax return submitted in 2018.
The option for the Non-Dom Regime is exercised filing a specific form which has been issued by the Italian Tax Authorities (“ Agenzia delle Entrate”) with the annual tax return for the tax period in which the eligible taxpayer becomes an Italian tax resident. Although the election for the new regime is simply made on a dedicated form of the income tax return, the taxpayers may through a specific ruling procedure (“Interpello “) obtain confirmation of their eligibility to this regime.
5. Duration and timeframe
This new regime will be available from the 2017 tax year and, once it has been granted, will be valid for 15 years.
Nevertheless, the taxpayer has the possibility to revoke the option at any time. In addition, if the substitute tax is not duly paid, the regime will be repealed starting from the relevant tax period (i.e. the previous application of the Non-Dom Regime will not be affected).
Revocation and disqualification make it impossible to exercise the option once again.
6. Other considerations
The choice of the Italian Non-Dom Regime cannot be combined with any other favourable regimes (such as the one for the repatriation of scientists and researchers).