TAXATION New Italian tax incentives
Italy has recently introduced several new initiatives aimed at making the country an attractive proposition for companies and high net worth individuals.
Step Up legislation
Legislation due to take effect in 2019, will fully implement EC Directive n 2016/1164, by revision of article 166 bis of the Presidential Decree n. 917/1986.
This legislation, known as ‘step up’, refers to the revision of certain entry taxes currently applicable to the assets of companies or individuals entering the Italian tax jurisdiction. Its major purpose is to limit Italian taxation to the capital gains generated while a company has its fiscal residence in Italian territory.
Following the adoption of this legislation, the right to apply ‘Step Up’ will be expressly granted, not only for formal transfer of residence, but also for transfer of assets and liabilities, including intangibles.
This is provided that, as a consequence of the transfer, the state of origin is no longer entitled to tax the transferred assets and liabilities, nor the incomes they give rise to. This will apply even in the case that such a transfer is the result of extraordinary operations, such as a foreign entity being merged through incorporation into an Italian company, or a foreign entity turning a foreign permanent establishment into an Italian resident entity. The Step Up legislation shall be immediately enforceable for the transfer of assets from ‘cooperative’ countries. Transfers from black-listed jurisdictions shall be subject to a previous agreement with the Italian Revenue Agency.
The new rules will result in very important benefits for companies that transfer their business to Italy. They will be able to take advantage of higher tax-deductible amortisations on the assets admitted to the Step Up programme, and benefit from a real ‘tax jump’ when the capital gains on those assets are no longer subject to an exit tax in their state of origin.
Flat tax
In addition, in 2017, a flat substitutive tax on foreign income was introduced, which limits the effects of the Italian worldwide taxation principle. This tax regime has already been chosen by several individuals, including famous sportsmen.
The new regime provides for a payment of a flat tax on foreign income, equal to EUR100,000 per year, in lieu of the ordinary income and equity tax required by Italian law, without prejudice to the regular tax for the Italian sourced income.
Therefore, it allows new residents exemption from reporting requirements on foreign income and from disclosure of foreign investments, and from succession duties on all assets held abroad. The preferential tax regime does not allow the taxpayer to benefit from a foreign tax credit, or to benefit from double tax treaties, however, in order to avoid any disadvantage, the taxpayer can cherry pick certain foreign countries to leave out of the scheme.
Such a regime is exclusively meant for individuals, previously not resident in Italy, who transfer their tax residence to Italy. The scheme may last for up to a maximum of 15 years and can be extended to family members, by paying a substitute tax of EUR25,000.
The flat tax scheme must be valued carefully on a case-bycase basis, with regard to confidentiality issues.
New residents from outside the EU may go through a simplified procedure to get the necessary visas, meeting certain requirements. These simplified procedures are much faster than the ordinary ones, closing within 30 days of application.
Data from the first quarterly report of 2018 issued by the Italian Ministry of Economic Development, shows the program has been quite successful. 341 applications have been submitted since 2014, with an approval rate of 54.8 per cent.