Italy Introduces Non-Domiciled Tax Regime

Italy has taken the plunge and set out to attract high net worth individuals to its shores. It may prove remarkably attractive. The Italian Tax Code was amended in the 2017 budget approved by Parliament in December 2016. The timing coming on the heels of the tightening up of the UK resident non-domiciled rules, as well as Brexit, suggests that Italy is looking to attract HNW’s out of the UK and elsewhere. This would appeal to those who prefer a European life, or who are put off by the very stringent rules now in force in the UK.

Map of Italy

Critical aspects of the new rules include:

Italian source income and capital gains to be taxed in the usual way;

Foreign source income and capital gains are sheltered by opting for a new flat rate of tax of €100 000 per annum. This may be extended to other family members at a cost of €25 000 per annum;

The source based rules are available for up to 15 years (interesting to compare to the UK system) unless the annual charge is not paid;

The system is available to anyone who has not been tax resident in Italy at any time during the 9 years preceding their relocation to Italy. Similarly, to Israel, the system is therefore available to returnees;

The rules determine that an Italian resident is one who is a citizen or has lived there for 183 days in a tax year;

The applicant for the status must file an application for the status at any time when the return is due for their first tax year of residence, but can also be filed by a non-Italian tax resident;

In addition to sheltering the income and gains from Italian Tax there is also an exemption from reporting foreign assets, although they might of course be caught up by FATCA or CRS;

Very importantly there is also an exemption from Inheritance Taxes with such tax due only on Italian assets at the time of death.

These rules are a welcome addition to the current options available to HNW individuals who can claim non-dom status such as Malta, UK, Ireland, Swiss “forfeit” rules and the Spanish Beckham law etc.