The Italian legislator, with Budget Law for fiscal year 2017, introduced a special tax regime tailored for individuals who transfer their tax residence to Italy. Such a regime - entered into force on the 1st of January 2017 - is indeed very attractive for high net worth individuals, irrespective of their working status.
The substitutive flat tax and its requirements
The special regime provides for an optional flat taxation on foreign-source incomes and gains, instead of the ordinary progressive tax rates, under the terms as set forth by the law.
The option for a substitute tax on foreign-source income and gains is available to individuals, both Italian or foreign nationals, who obtain the Italian tax residence, provided that:
- The individual shall have not been resident for tax purposes in Italy for at least 9 out of the past 10 years before the first year of benefit of the option.
- The eligible taxpayer shall opt for the regime through the annual tax return, in which it must be detailed that the individual may be qualified for the regime. The individual may also obtain a preliminary green-light from the tax authorities by a positive ruling (so-called interpello).
The benefits of the special tax regime
The main characteristics of the optional regime are as follows:
- All incomes and gains arising from a foreign-source are subject to a flat tax equal to 100,000,00 Euro per year so that such incomes and gains are not subject to any further additional income taxation, even if remitted to Italy.
- The regime provides with an exception for which foreign-source capital gains on substantial shareholdings disposed in the first 5 years of effect of the option are subject to income taxation under ordinary rules with the potential benefit of a foreign tax credit.
- The option may exclude specific income and gains sourced in one or more foreign States. As a consequence, these income and gains become subject to income tax under general rules.
- Foreign assets, including real estates, are excluded from fiscal reporting obligations and are exempted from wealth taxes in Italy.
- Foreign assets, including real estates, are furthermore excluded from inheritance and donation taxes in Italy.
Extension upon request to family members
The substitute tax regime could be extended to one or more family members against the payment of an annual substitute flat tax of 25,000,00 Euro for each family member benefitting from such a regime. Please note that the individuals to be considered as a family are listed in Section 433 of the Italian Civil Code and they shall satisfy the same conditions as the main taxpayer (i.e. transfer their residence to Italy after 9 out of 10 years as foreign-resident).
For instance, in case of a transfer to Italy of a family composed by two spouses and if both of them wish to benefit from the substitute tax regime, the overall substitute tax would be 125,000,00 Euro on annual basis.
Duration of the optional new tax regime
The option for the substitute tax regime is valid for 15 years and is revocable; if revoked, the concerned individual waives the right to opt for such a regime in the future.
Is it what Cristiano Ronaldo was looking for?
Many international football players (among those Cristiano Ronaldo) may benefit from this new regime. They come after a great number of business men who have chosen to join the Italian "bella vita" in their retirement days.
