Flat tax for new residents in Italy

In its 2017 Budget, the Italian Revenue Agency introduced a benefit designed to attract and incentivise the transfer of residency of high net worth individuals to Italy.

The Italian Revenue Agency by Provision of 8 March 2017, has given instructions related to the benefit set out in Law no. 232/2016 reserved for foreigners intending to transfer their residency to Italy, and benefit from a substitute tax on the income generated abroad.

This option has been introduced in 2017 Budget law and allows for the payment of a flat tax of €100,000 for each tax year in relation to which it is used. It has been introduced in order to attract and incentivise the transfer of residency to Italy of high net worth individuals. The above mentioned provision also approved a checklist to be attached to the tax clearance application, which enables the tax authority to evaluate admissibility to the aid scheme.

Process

Taxpayers fulfilling the requirements should adhere to the new regime from the time of filing the income tax return relative to the tax year in which the residency has been transferred to Italy, or the immediately following year. Taxpayers may submit a specific preliminary tax clearance application to the Central Tax Assessment of the Revenue Agency. This application can be hand delivered, sent by registered mail with acknowledgement of receipt, or by certified electronic mail.

Taxpayers should indicate in the application:

  • personal information and tax code (if any), in addition to the address of residency (if already resident in Italy)
  • verification of non-resident status in Italy for a period of at least nine tax years preceding the option’s effective date
  • jurisdiction of the taxpayer’s residency prior to the exercise of the benefit
  • foreign states or regions in relation to which the taxpayer wishes to exercise the right not to benefit from the substitute tax.

Taxpayers must also set out the existence of the necessary elements for admission to the regime, filling out a checklist attached to the Provision and possibly submitting the related supporting documentation.

Family members

The flat tax regime may also be extended to family members who fulfil the requirements, by indicating in the tax return relative to the tax year in which the family member transfers the tax residency in Italy, or to the following year. In this case, the substitute tax is equal to €25,000 per family member to whom the effects of the option are extended.

The option will be exercised within the term that the tax return is filed, even if a reply from the Revenue Agency to the tax clearance application has not yet been received.

The application can be submitted even if the term to place the tax residency in Italy has not yet expired. The option will be deemed tacitly renewed each year but the effects will cease 15 years after the first valid tax year. Payment of the substitute tax in the amount of €100,000 will be made in one single instalment for each valid tax year of the benefit, within the payment date of the last instalment of income tax.

Specifications

Individuals wishing to transfer their tax residency in Italy, adhering to the option set out in Article 24-bis Income Tax Consolidation Act, will pay a tax of €100,000 exclusively on the income generated abroad. Ordinary tax rates applicable in Italy will apply to the income generated by the new residents.

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