Italy’s Special Tax Regime to attract HNWI

8 March 2017

Starting from January 1st, 2017, eligible non-Italian residents will benefit from a favorable new regime for individual income tax purposes.

This measure adds to the choice available in other EU and non-EU jurisdictions to individuals without a fixed domicile (e.g. the ‘res-non-dom’ system in the UK/Ireland/Malta, the Swiss ‘forfeit’ rules, the Spanish Beckham Law, non-habitual tax residents regime in Portugal etc.).

In a nutshell, the new regime allows certain resident taxpayers to opt for the payment of a yearly substitutive tax of € 100,000 in lieu of:

  • income tax on non-Italian source items of income (under Italian laws income includes capital gains[1]);
  • the 0.2% tax on the value of foreign financial assets;
  • the 0.76% tax on the value of foreign real estate;
  • exemption from inheritance tax on foreign assets.

Since Italian taxation on financial income is normally levied at a 26% rate, a € 100,000 substitutive tax corresponds to the ordinary taxation on approximately € 385,000 of financial income.

Any Italian source income would be subject to standard income taxation.

The election for the substitutive tax regime exempts from all such reporting requirements.  As a matter of fact, taxpayers electing for the substitutive tax regime would be guaranteed full confidentiality toward the Italian tax authorities in relation to their non-Italian wealth.

The taxpayers entitled to opt for the special tax regime are individuals who transfer their residence to Italy pursuant to Italian law and who were not resident in Italy for tax purposes for at least nine years during the ten years preceding the election. Thus, the new system is also available to Italian returnees.

The special tax regime can be extended to relatives by paying an additional EUR 25,000 substitutive tax.

The regime requires that all applicants for non-domiciled status request a preliminary ruling from the tax authorities, with the request filed at any time within the term for filing their annual income tax return for their first tax year as an Italian tax resident.  The request can also be filed as a non-Italian tax resident.  The tax authorities will have 120 days to approve or deny the request and, if the tax authorities do not reply within this period, the request is deemed to have been approved.

The substitutive tax regime applies on an optional basis for a maximum period of 15 years. It is revocable at any time by the taxpayer.

For more information, please contact:

Marzio Morgante
Dottore Commercialista, LL.M.
Managing Partner

Rooms 501-2, Wilson House,
19-27 Wyndham Street,
Central, Hong Kong

Tel: (852) 3102 1995
Fax: (852) 3102 0991

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[1] The substitutive tax regime does not cover capital gains on qualified shareholdings realized by the taxpayer in the first five-year period. Qualified shareholdings are those representing more than 20% of the voting rights or 25% of the capital of the relevant company. The thresholds are reduced to 2% and 5% per cent for listed companies.

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