What tax legislation should high net worth individuals relocating to Italy be aware of?

Italy has introduced an attractive tax regime for high net worth individuals moving to, and becoming tax resident in, Italy

An individual is deemed to be an Italian tax resident if they are either enrolled in the registry of the Italian resident population, or make Italy the centre of their economic, social and personal interests, or have an Italian habitual abode available to them for at least 183 days per year. Hence, subject to possible dual resident status analysis, individuals may opt to transfer their tax residence in Italy to benefit from this new regime.

The regime enables eligible taxpayers, who have not resided in Italy for at least nine out of the 10 years preceding the year of the transfer, to opt to be taxed in Italy on their selected foreign-sourced income by paying a flat annual charge of 100,000 Euros. The election has a validity for a period not exceeding 15 years and can be revoked at any time.

The eligible taxpayer may further choose to extend the application of the regime to one or more relatives, as defined by the Italian Civil Code, to the extent that such relatives also derive foreign source income and that they relocate their tax residence to Italy. In such a case, the yearly substitute tax will be increased by 25,000 Euros for each relative joining the regime. Thus, the increase does not apply if the relative is a minor without income.

It should be noted that the Italian Tax Authorities have recently issued updated guidelines designed to aid the application of this new regime which may influence its interpretation.

Italian-source income and non-selected foreign-source income are subject to ordinary Italian taxation. In fact, the taxpayer may elect not to apply the regime to income sourced in certain foreign countries. Such foreign-sourced income will, therefore, be subject to Italian statutory taxation, although it will benefit from the provisions of the treaties for the avoidance of double taxation where applicable.

The individual income tax rates for Italian income range from 23 per cent to 43 per cent, depending on the tax bracket, and we do have a law on inheritance tax that provides for a de-minimis exemption of 1 million Euros. Anything below 1 million Euros is exempted, while anything in excess may be subject to tax of 4 per cent – 8 per cent, depending on the status of the family member receiving the assets.