Italy recently introduced a flat tax for wealthy foreigners in order to attract foreign investors and foreign capitals. The new flat rate tax of 100,000 euro ($105,000) a year will apply to all worldwide income for foreigners who declare Italy to be their residency for tax purposes.
An additional 25,000 euros per person would also be added to the tax rate of those who set up Italian residency for close family members.
According to Italian tax authorities, the flat tax would be renewable every year for a maximum of 15 years.
Going into details, the Law 11 December 2016, no. 232 (“2017 Budget Law“) introduced some important changes about non-resident income taxation in order to attract foreign investors and foreign capitals.
The most important of them is surely the introduction of a special fiscal regime in the Income Tax Code, under article 24-bis. This optional regime is aimed at non-residents, mainly defined “high net worth individuals”, with the intention to facilitate their transfer of residency in Italy. This new fiscal regime provides a series of fiscal benefits, introducing a lump-sum (or “substitute”) tax to pay (in place of the ordinary amount to pay, in accordance with the general rules) related to the possession of foreign income.
Furthermore, the same article 24-bis provides also benefits about the processing requests for visa and residence permit applicable to who wants transfer own fiscal residency in Italy in accordance with this new regime.
The recipients of this new tax provision are individuals, who transfers their own fiscal residency in Italy, regardless of their nationality (Italian or Foreign).
To be taxed under this new special regime, the individual must not have been resident in Italy at least for nine of ten years before the start of period in which he applies for the fiscal advantage. For tax purposes a person is considered an Italian resident for tax purposes if he is in the country for more than 183 days, or six months, in a year.
In addition to the residence requirement set out above, the individual must apply for a specific ruling by which he asks if he is entitled to get this beneficial regime. If the person has a positive response from the tax revenue office, he may exercise the option of the special regime.
The law allows the taxpayer to choose if:
1) to exercise the option or not;
2) to exercise just on some incomes of one or more State or foreign territories (for the other incomes, it will be applied the ordinary regime of taxation). This latter choice must be indicated at the moment of the declaration to opt for the new regime.
This new regulation allow individuals to opt for this tax regime, starting from the current tax period at 1st of January 2017: so, it will concern the individual income tax returns about 2017 incomes, and not for 2016. The option must be exercised no later than the expiry of the presentation of the tax return related to the tax year in which the residency has been transferred in Italy (currently, the expiry would be no later than 30 of September of the year next to that in which the residency has been transferred). From that year, the option becomes effective.
In the option, it is necessary also indicate the jurisdiction or jurisdictions of the last fiscal residency before the exercise of validity of the option.
The Agenzia delle Entrate (the fiscal administration) transmits these informations to the fiscal authorities of jurisdictions, indicated as place of last fiscal residency, before the tax period for which the option is effective.
As anticipated above, the option can be revoked, but its natural duration is fifteen years from the first period of validity.
The effects of the option cease in every case, if the taxpayer omits to pay, entirely or in part, the lump-sum tax in compliance with the current law, without prejudice to the effects produced in the previous tax periods. In case of revoke or the natural decay, the taxpayer will not be entitled to request again the exercise of the option.
The same Law provides that the special regime can be extended, during all the period of validity, to one or more family component, that must respect the admission requirements described above about the residency. The extension can be revoked related to one or more family components.
In derogation from the principle of taxation of all incomes earned anywhere (so-called “world wide taxation principle”) the new article 24bis, introduced by the 2017 Budget Law, provides:
– application and payment of a lump-sum tax (in place of the ordinary amount to pay, in accordance with the general rules);
– exemption from the tax monitoring obligations;
– exemption from the payment of the tax on the real estate value located abroad;
– exemption from the payment of the tax on the financial activities located abroad;
– exemption from the payment of tax on inheritance and donation taxes, for the properties and rights on them existing abroad at the moment of succession or donation.
The special fiscal regime provides the application of a substitute tax. This tax affects the income produced abroad, identified, in absence of a convention against the double fiscal impositions:
1. Income from land;
2. Investment income;
3. Income from employment;
4. Self-employment income;
5. Business Income;
6. Other kind of income.
From the above list, the capital gains through the sale of qualified participations realized in the first five tax periods for which the option is effective, are excluded by this new regime. For those incomes it is applicable the ordinary fiscal regime.
The substitutive tax is calculated, regardless of the amount of income received, at a lump sum of € 100.000 per each tax period during which is valid the option.
In the case of the extension for the family component, the substitutive tax is equal to € 25.000 per each tax period, during which is valid the extension, and per person.
The substitutive tax must be paid in one solution no later than the expiry provided for the payment of the balance of the income taxes, which is on June of the following year.
If the person choose to use the fiscal benefit related for just some determinate foreign incomes, which are communicated at the moment of the request of exercise, for the others it will be
applied the ordinary fiscal regime.
In conclusion, it is important to assess if the substitute tax is higher than the taxes, which would be paid under the application of the ordinary fiscal regime, or would be minor: answered this
question, the taxpayer will be able to understand if this new fiscal taxation is convenient (as in this latter case) or not.
After these considerations, it is necessary to control if this particular taxation discussed above is applicable or not, considering eventual consequences, to the specific case.
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