Italy offers non-domicile regime with tax breaks to High Net Worth Individuals

Italy is the latest country to roll out the welcome mat for the international elite — just as Britain is intent on pulling it away. This month Italy ushered in a new tax regime that will apply to the super-rich of all nationalities who have lived outside the country for at least nine years.

The tax breaks, intended to boost investment and consumption, can be used for up to 15 years. Their appeal is also enhanced by having relatively few reporting requirements concerning overseas income. To participate, candidates will be expected to buy a property and live in Italy for half the year.

The new tax regime 

The Non-Dom Regime aims to reduce the effect of the Italian worldwide tax principle for eligible new Italian tax residents by introducing a substitute flat tax on their foreign-sourced income for individual income tax purposes. Eligible taxpayers can choose the country or countries where the foreign income has been realised subject to the Non-Dom Regime. Any income generated in the countries excluded from the Non-Dom Regime will be subjected to ordinary income tax and benefit from tax relief on taxes paid abroad (under ordinary limitations) and from relevant tax treaty protection (if any).

In addition, the new regime sets out an exemption from certain report obligations and wealth taxes. Eligible taxpayers who opt for the Non-Dom Regime apply a substitute tax on foreign-sourced income amounting to a yearly lump sum payment of €100,000 (with an additional €25,000 for each family member to which the Non-Dom Regime may be extended).

A tax credit is not available for taxes paid abroad on foreign-sourced income that is included in the Non-Dom Regime. Notably, capital gain from the disposal of qualifying shareholding is excluded from the Non-Dom Regime and ordinary taxation therefore applies, if the capital gain is realised in the first 5 years following the exercise of the option. Finally, the regime provides for an exemption from donations and inheritance tax related to assets held outside of Italy Eligibility criteria

New tax residents can exercise the option for the Non-Dom Regime if they

• transfer their tax residence to Italy and maintain this status for at least 15 years
• have not been resident for tax purposes in Italy for at least 9 out of the 10 tax periods preceding that in which the option is exercised
• obtain the approval of the Italian tax authorities following an advanced ruling procedure. Advance tax ruling and option for the regime

The option for the Non-Dom Regime is exercised within the term for the submission of the annual tax return for the tax period in which the eligible taxpayer becomes an Italian tax resident, subject to the previous approval by the Italian tax authorities. To obtain this approval, the taxpayers have to apply for a tax ruling with the Italian tax authorities and show that the eligibility criteria are satisfied. The application can also include approval requests of the Non-Dom Regime for family members who meet the eligible criteria.

Duration and timeframe

The Non-Dom Regime applies for a 15-year period after the option has been exercised. However, the taxpayer can revoke the option at any time. In case the tax flat amount is not duly paid, the regime is repealed starting from the relevant tax period (i.e. the previous application of Non-Dom Regime is not effected). Revocation and disqualification preclude the exercise of a new option. The Non-Dom Regime applies from the 2017 tax period (the relevant tax return will be submitted in 2018).

Italy’s decision to create new tax perks at the same time as the UK was withdrawing them “suggests that Italy might be seeking to woo high net worth individuals looking for a new home following Brexit or deterred by the tightening of rules in the UK”.

To find out more about the Italian non-domicile regime and for a complimentary consultation, please contact our Citizenship senior advisor, Daria Ostapengo (Ms) at dostapengo@oneworldweb.net .