Res non-dom tax regime-Italy

Res non-dom tax regime in Italy

The Italian legislator implemented a tax regime for resident but not domiciled individuals in Italy.

The regime is intended for:

• HNWIs;
• company directors;
• persons with large investments abroad;
• persons receiving dividends or realizing large capital gains abroad.

The regime mirrors other similar regimes that have been previously implemented throughout the world (e.g. the UK, maltese and Irish res non-dom regime) and the rationale behind it is to entice high net worth individuals to move their tax residence to Italy with the possibility of paying a flat tax on the income sourced abroad.

Main Features
Eligible Taxpayers	Individuals who had their tax residence abroad for at least 9 out of the prior 10 fiscal years and some of their family members
Benefits	no taxation in Italy with respect to foreign sourced income;
	no reporting duties with respect to assets held abroad (RW Form);
	no wealth taxes on some assets held abroad;
	Italian inheritance and gift taxes apply only with respect to assets held in Italy;
	no CFC with respect to foreign entity falling within the scope of the regime.
Duration	15 years
Flat Tax	100,000 EUR per year; 25,000 EUR for some relatives

Eligible persons for the tax incentive

The regime applies to individuals regardless of their nationality:

• it is necessary for the interested individual to transfer his tax residence from a foreign country to Italy;
• the interested taxpayer must demonstrate that, for at least 9 of the last 10 tax periods, he/she has been resident outside of Italy;
• the regime may also apply to Italian citizens, should they too have proof that for at least 9 of the last 10 tax periods they have been resident elsewhere and, upon application, are transferring their residence back to Italy;
• the benefits of this regime may also be extended to family members (spouse, offspring, parents, in-laws, siblings) of the applicant. The same rules on the transfer of residence to Italy that apply to the applicant, also apply in this scenario.

Flat tax

The regime allows for an annual flat tax to be applied on foreign earned income. Individuals benefiting from the incentive are subject to a substitute flat tax of 100,000 EUR for each fiscal year in which the regime applies.

The payment of such flat tax covers all the foreign income derived by the relevant taxpayer and thus the latter does not have to pay any further tax in Italy on its foreign income.

Where the scheme is extended to the family members, there is the obligation to pay a substitute tax of 25,000 EUR for each and every member who wants to benefit from such regime.

How does the regime work?

The payment of the flat tax covers all the income derived in a tax year that are considered to be sourced abroad.

The regime covers, among the others, income from:

• self-employment generated from activities carried out abroad;
• income from business activities carried out abroad through a permanent establishment,
• income from employment activities carried out abroad,
• income from a property that the new resident owns abroad,
• interest from bank accounts paid by non-residents,
• capital gains generated by the new resident following the sale of portfolio shareholdings in foreign companies.

An important exception is related to the sale of non-portfolio participations related to entities resident outside the Italian territory. Any capital gain related to such participation, even though considered to be sourced abroad, is not covered by the substitute flat tax if the relevant sale occurs within the first five years in which the relevant taxpayer has moved to Italy.

All of the income produced in Italy by the taxpayer is not covered by the flat tax and is taxed at marginal rates.

The regime also grants some other specific benefits, such as:

• it exonerates the taxpayer from reporting the assets held abroad and to pay some specific Italian estate taxes on foreign properties and financial assets;
• the Italian CFC regime does not apply with respect to the entities held abroad which fall under the scope of the regime;
• the Italian inheritance and gifts tax is due only with respect to assets located in Italy.

Ruling request

Ahead of benefiting from the beneficial tax regime, the interested taxpayer can apply for a tax ruling from the Italian Tax Authorities. This way the taxpayer can have certainty on the presence of the conditions that are required in order to benefit from the regime.

The ruling request, which shall be replied to within 120 days, can even be filed ahead of the taxpayer moving his tax residence to Italy. However, it is not possible to submit a request for a tax ruling once the taxpayer has already benefited from the regime.

In the absence of a request for information, the taxpayer must provide proof of all the elements necessary to allow the Financial Administration to verify the law requirements directly in his/her tax return.

Should during the assessment the Tax Authorities consider that the requirements to apply for the regime are not met, then the option exercised by the taxpayer shall be considered invalid, with the consequences of tax recovery and penalties.

Duration

The flat tax on foreign income shall commence in the first or second tax period that the taxpayer has moved his tax residence to Italy and shall cease to apply after 15 years.

There is no possibility to renew the regime.