Italy – new tax reliefs attract foreigners

New Italian tax law introduced in June 2019 invites workers, entrepreneurs, sports stars, retirees and researchers to move their residency to Italy. Italian government offers potential residents sun, fabulous food, beautiful views and more importantly – low taxes.

New tax reliefs

Italians focus on human capital. That is why the government decided to introduce a tax solution which aims to attract foreigners, such as:

• workers and entrepreneurs;

• professors and researchers;

• high-net-worth individuals and their families;

• retired individuals moving to the South of Italy;

• professional sportspersons.

70 percent exemption for workers and self-employed

Italy wants to draw attention of entrepreneurial, hardworking and talented people. From 2020 it offers a 70 percent exemption of their taxable basis on income to those foreigners who come to work to Italy. This means that they will have to pay only 30 percent of their taxable basis on income resulting from the activity performed in Italy.

The exemption can be even 90 percent of the taxable basis of income, if the foreigner decides to move his residency to one of the southern regions of Italy

• Abruzzo;

• Molise;

• Campania;

• Puglia;

• Basilicata;

• Calabria;

• Sardinia;

• Sicily.

The tax benefits will last for the first 5 years of the residency, however they may be extended by the Italian tax authorities to a period of 10 years upon a request of a tax payer. The exemption will affect workers, entrepreneurs, freelancers, self-employed and researchers. To benefit from this tax regime the following conditions must be met:

• move tax residency to Italy (as a general rule live in Italy for a minimum of 183 days a year or make Italy a habitual center of interests);

• be a resident outside of Italy during 2 previous year;

• commit to reside in Italy for at least 2 years;

• perform work mainly on the Italian territory.

Res non-dom regime

As for the high-net-worth individuals the Italian tax system welcomes them with open arms and offers a res non-dom regime. It allows the taxpayers to apply for the payment of a yearly flat tax of € 100.000.

A very attractive offer for those who have high earnings, for example from dividends from foreign companies, as the payments stays the same regardless of the size of income.

There is one condition – the taxpayer cannot be a resident for at least 9 out of 10 last years before the first year in which they change their residency. If this requirement is met  the taxpayer can gain a 15 year tax emption on the foreign earned income.

The Italian system also does not forget about the family members of the wealthy taxpayer. It offers them € 25.000 substantive tax on the income from abroad.

Cherry picking

In the res non-dom regime the taxpayers can opt which country or countries income to tax with the flat tax, this principle is known as the “cherry picking”. Income sourced in the “non-chosen countries” will be excluded from the res non-dom regime and will be subject to ordinary Italian taxation. However they will be able to benefit from possible tax reliefs on taxes paid abroad. Also double taxation agreements will apply.

Taxpayers who pick this regime have guaranteed confidentiality regarding their assets set abroad. Italian tax authorities will not investigate the origin and the amount of the assets. Furthermore, the taxpayers will be able to benefit from foreign companies without the risk of falling under the Italian CFC (Controlled Foreign Company) regulation.

Retired individuals

Italy has prepared a tax incentive also for those who are looking for a warm and comfortable place for a deserved retirement. According to the new regulation retirees, who will have income from abroad, will be granted a 7 percent flat tax rate.

To apply for this system, a retired individual must meet the following requirements:

• receive pension income and other remunerations outside of Italy;

• transfer tax residency to Italy;

• not be an Italian tax resident for 5 years before the transfer;

• transfer tax residency in one of southern regions: Abruzzo, Molise, Campania, Puglia, Basilicata, Calabria, Sardinia, Sicily and the location cannot be exceeding 20.000 inhabitants.

Additional requirement is the existence of international tax co-operation agreement between the country origin of the retiree and Italy.

Summary

The cradle of the Renaissance delights and invites. It seems that there is no need to encourage anyone to Italy. The transfer of tax residency should be planned wisely, though. It is advisable to prepare for the transition in a way that will eliminate the possibility to doubt the tax residency transfer by the Italian tax authorities. Furthermore, it is recommended to investigate the structure for legal and tax consequences of the transfer. It is also recommended to apply for a tax ruling in the matter of benefitting from the preferential tax system.

Katarzyna Wojsiat, lawyer, and Tomasz Krzywański, attorney-at-law, Private Client Practice, GWW