Italy introduces non dom tax

Italy has introduced a new territorial system of taxation for ‘newly resident’ individuals, with the aim of attracting high net worth individuals (HNWIs), including sportspeople and celebrities, who could be interested in relocating

The new measure is contained in the Finance Bill for 2017, approved by the Italian Parliament on 7 December 2016. In its assessment of the move, law firm Withers said: ‘This timing, which coincides with the changes to the UK's “res-non-dom” regime, suggests that Italy might be seeking to woo HNWIs looking for a new home following Brexit or deterred by the tightening of rules in the UK.’

The new regime is available to anyone (regardless of their nationality or domicile) who has been non-tax resident in Italy at any time during the nine years preceding a relocation to Italy, including Italian returnees. The rules identify individuals as tax resident if they are a registered Italian citizen or reside in Italy for more than half the year (183 days).

The rules require that Italian-source income and gains are taxable in the usual way; but allow foreign income and gains to be sheltered from Italian tax, provided the taxpayer pays an annual charge of €100,000. Capital gains realized on the sale of qualified participations (i.e, participations exceeding 20% of the voting rights or 25% of the capital or profit rights) during the first five years will not be covered by the substitute tax.

The new regime may also be extended to family members, at a cost of €25,000 per member.

To apply for the regime taxpayers have to file a specific ruling to the Italian tax authorities, and it will be possible to choose the country or the countries where the foreign income has been produced subjected to the substitute tax regime.

The countries and the related income produced there not included in the ruling request will be subjected to the regular Italian tax rules, allowing the taxpayer to benefit from credit for taxes levied abroad (conversely this benefit is denied for the income subjected to the substitute tax regime).

Once the Italian tax authorities issue a favourable ruling all foreign incomes will be admitted to the substitute tax regime for a 15 years period.

In addition, those opting for the substitute tax regime will be exempted from gift and inheritance tax related to assets owned and held abroad, and will benefit from simplifications when asking for entry visas to Italy.

In its commentary on the regime, Withers points out that the exemption from succession taxes is ‘good news for potential candidates, as there are persistent rumours that Italy might overhaul its current gift and succession tax regime in the near future (currently, gift and succession taxes are levied at very low rates of 4%-8% with exemptions for certain business assets).’

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 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).

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