Italian "res non dom" regime. The new tax regime for high-net-worth individuals (HNWI).
At a glance
With the aim of attracting new capitals and investments, Italy has introduced a special tax regime (Regime) for high-net-worth individuals (HNWI), so-called “Resident non-domiciled” (see the new Article 24-bis of the Italian Income Tax Code (ITC)).
It is an optional regime for individuals living abroad who:
§ have been non-tax resident for 9 out of the 10 previous years before the first year the option takes effect;
§ became Italian tax resident according to the Italian Tax Law.
The Regime allows new tax resident individuals to pay a lump-sum substitute tax of EUR 100,000.00 per year on all their foreign-sourced income and it can be extended to one or more family member.
The Regime can be applied for a maximum of 15 consecutive fiscal years and may be waived at any time without paying any exit tax.
The Italian Regime has a number of features that makes it more attractive than other similar regimes in other States.
Opting for the Regime is easy and meets very few conditions.
1. Who can access the regime?
The Regime is open to any individual, including Italian citizens:
§ who has been non-tax resident in Italy for 9 out of the 10 previous years before the first year the option takes effect; and
§ who becomes Italian tax resident according to the Italian Tax Law.
Under Article 2, par. 2, ITC, an individual is qualified as tax resident for Italian tax purposes if, for most of the tax year (i.e. more than 183 days a year):
§ is enrolled in the Italian Resident Population Register (called Anagrafe); or
§ has the “residence” in Italy (habitual abode), or
§ has the “domicile” in Italy (principal centre of business, economic and social interests, e.g. the family).
The conditions above are alternative, so it is sufficient to be registered in the Records of the Italian Resident Population to be qualified as tax resident for Italian tax purposes.
2. What are the benefits?
1. Lump-sum substitute tax of EUR 100,000.00, on all non-Italian-sourced income. The Regime applies to all types of foreign income, such as:
§ Rental income;
§ Capital and financial income (e.g.: dividends, interests, royalties and capital gains);
§ Employment income;
§ Self-employment income.
§ The tax Regime applies irrespective of the foreign source country of the income and regardless of its taxation in the source country. Therefore, capital gains related to and dividends coming from a “tax haven” are also to be included among the foreign income to which the substitute tax applies.
§ Individuals who opt for the Regime are not subject to the Italian CFC rules.
§ The special status of “Res non-Dom” taxpayer is irrelevant for the purposes of attracting Italian tax residency of a foreign entity, according to Article 73 of the ITC.
Ordinary taxes will be applied only on:
§ capital gains from “qualifying holdings” in foreign companies, realized in the first five fiscal years;
§ Italian-sourced income.
2. No inheritance Tax and No Gift Tax for assets held outside of Italy. Such exemption applies also to any act of liberality, including a contribution of assets in a trust. It is worth mentioning that Inheritance Tax and Gift Tax Rates range from 4% to 8% on Italian assets, that is very low compared to other countries. The Regime is therefore very attractive also for estate planning.
3. No wealth tax on real estate (IVIE) nor on financial assets (IVAFE) held abroad. The exemption regards only the assets held in the country covered by the Regime.
4. No disclosure of assets held outside of Italy. It is not required to disclose any foreign investment nor asset to the Italian tax authorities.
§ The “Res non dom” taxpayer can also choose for which countries to opt-out from the Regime (Cherry Picking). Income produced in those countries will be subject to ordinary taxation and foreign tax credit can be claimed.
§ The “Res non dom” taxpayer qualifies as Italian tax resident for the Double Tax Treaty purposes, unless a treaty provides otherwise.
§ It is possible to remit foreign income in an Italian bank account without any taxation. In fact, unlike the UK regime, it is irrelevant as to whether or not the Italian “Res non dom” taxpayer remits his income to Italy; the special regime at hand would in any case apply and no taxation occurs.
3. What about family members?
The “Res non dom” taxpayer may extend the Regime to any family member who meets the conditions above.
In this case, any family member under the regime shall sign an advanced ruling request together with the main applicant and shall include a set of information relating to the subjective conditions and links with Italy in order to establish the right to benefit from the tax Regime.
Family members who can access the Regime are listed under Article 433 of the Italian Civil Code:
§ sons and daughters, including adopted sons/daughters, and, in their absence, their immediate descendants;
§ parents and, in their absence, their immediate ascendants; adoptive parents;
§ sons and daughters-in-law;
§ father-in-law and mother-in-law;
§ brothers and sisters (either blood brothers and sisters or unilateral brothers and sisters).
For each family member included in the Regime the amount of the substitute tax is increased of EUR 25,000.00 per year. For instance, non-Italian resident husband and wife moving their tax residence to Italy would be required to pay an overall substitute tax of EUR 125,000.00 per year (on average, EUR 62,500.00 per year each one of them).
4. How to apply
Individuals may opt for the Regime:
§ Throughout their Italian tax return related to the first fiscal year in which they became tax resident for Italian tax purposes (or, under special circumstances, in the following year); or
§ filing an advance tax ruling request in order to obtain a confirmation by the Italian tax authorities that each specific case fulfills the conditions required. Very briefly, the main pieces of information that should be provided in the advance tax ruling are:
- general details of the individual, including citizenship and last Country of tax residence;
- personal, economic and cultural/social links with Italy, covering at least two of the previous 10 years before the application is filed; and
- the same details for each family member to be included.
The advance tax ruling allows the applicant to safely test out his/her application without experiencing unexpected denial (the tax authorities have 120 days to approve or deny the request). Conversely, for plain vanilla cases (where the applicant has never had ties with Italy) the advance ruling could be avoided.
5. How long does the regime last?
The Regime rolls over year by year, until the 15-year term expires.
The “Res non dom” taxpayers can revoke the Regime at any time by opting out in their Italian tax return. In the event of no obligation to file a tax return, the taxpayer can opt out by notifying the Italian tax authorities accordingly.
There is no exit-tax for early withdrawal.