FAVORABLE TAX REGIME FOR NEW RESIDENTS IN ITALY

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The tax incentive for new residents is intended for individuals who move their residence for tax purposes to Italy and consists in the possibility of paying a substitute tax on income generated abroad.

It is possible to opt for this benefit, which has a maximum duration of 15 years, regardless of nationality. In fact, access is allowed both to foreign citizens and to Italians, provided they have been fiscally resident abroad for at least 9 of the 10 tax periods preceding the one in which the choice becomes effective.

Individuals already resident in Italy can also benefit from it. In this case, also the tax period in which the residence for tax purposes in Italy has been obtained must be considered in the assessment of the time requirement.

Italian citizens canceled from registers of the resident population and who moved to States or territories having a preferential tax regime can also benefit from the incentive. However, they must be able to overcome the presumption of residence in Italy. In other words, the Italian citizens who move to Italy from a State with preferential tax regime "tax haven" can benefit from the incentive provided that s/he proves that s/he has not actually been resident in Italy for at least 9 of the 10 previous tax periods.

 

THE EXTENSION TO FAMILY MEMBERS

Individuals benefiting from the favorable tax incentive may request its extension to one or more of the following family members:

• spouse or member of a civil partnership

• children, even adoptive ones, and, in their absence, the direct relative in the

descending line

• parents and, in their absence, the direct relative in the ascending line

• adopters

• sons–in-law and daughters-in-law

• father-in-law and the mother-in-law

• brothers and sisters.

In order for the tax incentive to be extended to family members, they also need to move their residence to Italy. Also family members must have been residing abroad for at least 9 of the 10 tax periods prior to the one.

 

Income concerned

Only income generated abroad is subject to the substitute tax. Income generated in Italy is taxed according to the ordinary rules.

The following items of income fall within the scope of the regime:

• income from self-employment generated from activities carried out abroad 

• income from business activities carried out abroad through a permanent stablishment

• income from employment carried out abroad

• income from a property that the new resident owns abroad.

They also include:

• interest from bank accounts paid by non-residents

• capital gains generated by the new resident following the sale of unqualified shareholdings in foreign companies.

 

INCOME EXCLUDED

Capital gains resulting from the sale of qualified participations (held in companies and non-resident entities) made during the first 5 tax periods of application of the tax incentive cannot be subject to the substitute tax.

This is to avoid that the individual who holds a qualified shareholding in a foreign company able to generate a considerable capital gain, decides to move his/her residence to Italy for the sole purpose of benefiting from the tax incentive.

Therefore, in the event of sale of the investment before the end of the five-year period, the capital gain is subject to the ordinary tax provided for by Italian law.

It is possible to exclude the income generated in one or more foreign countries or territories from the application of the substitute tax. In practice, the taxpayer can choose to tax the income generated in certain jurisdictions (cherry picking) by using the ordinary taxation scheme. However, this choice must cover all income generated in the country or territory subject to exclusion.

 

Additional certainty (Tax Ruling)

Those interested in benefiting from the tax incentive can contact the Italian Revenue Agency for an opinion on the existence of the conditions necessary to benefit from it.

The request can be submitted even when the person concerned has not yet moved his/her residence to Italy.

However, it is not possible to file the request after having benefitted from the incentive.

 

PROCEDURE

The request must be submitted to Divisione Contribuenti dell’Agenzia delle Entrate, via Cristoforo Colombo, no. 426 c/d - 00145 Rome.

The submission can be made as follows:

• hand delivery

• shipping by registered mail with acknowledgment of receipt

• certified e-mail (Pec). In this case, the request must be sent to the This email address is being protected from spambots. You need JavaScript enabled to view it. mailbox. For non-resident individuals with no

domicile in the territory of the Italian State, the request for tax ruling can be sent to the ordinary e-mail address This email address is being protected from spambots. You need JavaScript enabled to view it..

The application must be signed and, if submitted via Pec, it must be signed with a digital signature.

 

CONTENT OF THE REQUEST

Among the elements that the taxpayer must indicate in the request for tax ruling are:

• personal data and, if already available, the tax identification number as well as, if already resident, the address of residence in Italy

• identification data of any possible legal representative, including the tax identification number

• detailed and specific description of the specific case

• indication of the status of non-resident in Italy for at least 9 tax periods during the 10 preceding years

• indication of the State or States in which the last residence for tax purposes was registered before the option became effective

• indication of States or foreign territories for which the person intends to exercise the right not to apply the substitute tax

• indication of the elements necessary for the verification of the conditions to benefit from the tax incentive (checklist).

 

The checklist, whose model is available (with the related instructions) on the website of the Revenue Agency, must be accompanied by supporting documentation. The missed or incomplete compilation of the checklist or the missing or incomplete enclosure of the supporting documents makes the tax ruling inadmissible.

When access to the tax regime is also requested for family members, for each of these, the same information must be reported in the request for tax ruling.

 

OUTCOMES OF THE TAX RULING

The Revenue Agency shall respond to the request within 120 days of receipt (without prejudice to the possibility of requesting additional documents), notifying its opinion on the occurrence or non-occurrence of the conditions to benefit from the regime.

The reply to the tax ruling is not binding for the person who submitted it (and cannot be appealed), while it is binding for the Revenue Agency, limited to the specific case and to the person who submitted the request.

 

How to opt in

The option of the substitute tax regime on income generated abroad shall be chosen in the tax return relating to the tax period in which the taxpayer has moved his/her tax residence to Italy or in the tax return for the following tax period.

Therefore, to benefit from the incentive in 2017, the option must be made in the tax return to be submitted by October 31, 2018.

 

INFORMATION TO PROVIDE

If a request for tax ruling has been submitted (for the main taxpayer or for the family member), the tax return shall only include minimum information.

If no ruling request has been submitted, it is still possible to opt in directly via the tax return, but in this case it is mandatory to indicate the elements necessary for the verification of the requirements:

• the status of non-residents in Italy for at least 9 tax periods during the 10 years preceding the effectiveness of the option

• the jurisdiction(s) where the taxpayer has had the last tax residence

• any foreign States or territories for which the person intends to exercise the right not to apply the substitute tax

• the required items in the checklist included in the tax return.

If the Tax Administration, during control, ascertains the absence of the conditions for the tax incentive, the option exercised by the taxpayer will be considered invalid, with consequences in terms of tax recovery and penalties.

 

WARNING

The option can be successfully made in the tax return even when, despite having submitted a specific request for a ruling, the response from the Revenue Agency has not been received.

In absence of termination of the effects or of revocation of the option or of forfeiture, the option is deemed tacitly renewed from year to year.

 

THE EXTENSION TO FAMILY MEMBERS

The choice to extend the option for the new scheme to family members must be made by the principal taxpayer in the tax return relating to the tax period in which the family member has moved his/her residence for tax purposes to Italy or in the tax return for the following tax period.

The principal taxpayer must indicate in his/her tax return the following items relating to the family member(s) to whom s/he is extending the option:

• personal data, tax identification number and address of residence in Italy

• the status of non-resident in Italy for a period of at least 9 tax periods during the 10 years preceding the option

• the jurisdiction(s) where the taxpayer has had the last tax residence prior to the option

• any foreign States or territories for which the person intends to exercise the right not to apply the substitute tax.

The family member, in turn, must show his/her will to make use of the extension of the option in his/her tax return, indicating:

• the identification data of the principal taxpayer

• all the information necessary for the verification of the conditions for the extension of the benefit.

The validity of the option used for family members starts from the tax year in relation to which the extension is requested and terminates, subject to revocation or forfeiture, at the end of 15 years from the first validity period of the option used by the principal taxpayer.

 

Payment of the substitutive tax

Individuals benefitting from the incentive are equal to €100,000 for each tax year in which the option is valid, regardless of the type and amount of the income generated abroad.

If the scheme is extended to the family members, the payment of the substitute tax on the foreign income generated by each member amounts to €25,000.

The payment of the tax must be made through the F24 form in a single payment within the deadline for the payment of the income tax. The parties concerned, both as principal taxpayers and as family members, must pay the tax by themselves.

With the payment of the tax, the tax obligation due in Italy on foreign source income is deemed fulfilled.

Additional effects of the option

With the option, further benefits are granted to both the principal taxpayer and to the family members to whom the scheme is extended.

 

REPORTING REQUIREMENTS

Exemption regarding foreign assets and investments (in essence, the obligation to report, in the annual tax return, investments and financial assets abroad able to generate taxable income in Italy).

Another benefit is the exemption from the payment of the tax on the value of properties held abroad (Ivie). The Ivie is a tax due on the value of real estate located abroad and held as property or other real right by individuals residing in the territory of the Italian State, regardless of their use.

 

IVAFE

Individuals benefitting from the incentive are also exempted from the payment of the tax on the value of financial assets, current accounts and savings accounts (Ivafe).

Ivafe is a tax payable by Italian residents on financial assets held abroad as property or other real right.

 

WARNING

The exemption from the reporting requirements and from the payment of Ivie and Ivafe is only valid for the jurisdictions included in the option. Therefore, in relation to the income or financial assets held in those States that are excluded from the regime, the requirements regarding monitoring, Ivie and Ivafe and the payment of the taxes ordinarily due have to be fulfilled.

 

INHERITANCE AND GIFT TAXES

Those who have exercised the option are granted exemption from inheritance and gift taxes for assets and rights held abroad.

In the case of transfer by inheritance or gift during the period of the substitute tax regime, the inheritance and gift tax will have to be paid only for assets and rights held  in Italy. The exemption also applies to the family members who have joined the scheme.

 

Duration of the regime

The regime ceases after 15 years from the first tax period in which the option becomes effective, without the possibility to request a renewal.

Once the regime has ceased, foreign income becomes part of the total income of the resident taxpayer and is subject to ordinary income tax (Irpef). Moreover, for family members, the effectiveness of any extension of the option is no longer valid, regardless of the period for which they have benefited from the regime.

 

REVOCATION

The option for the substitute tax can in any case be revoked before its expiration by both the principal taxpayer and the family member to whom it has been extended.

The revocation must be made in the same way as for the option and will be effective starting from the tax period referred in the tax declaration.

 

WARNING

In the event of revocation by the principal taxpayer, the family members to whom the option was extended will also be affected, regardless of whether they exercised their right of revocation independently. Conversely, the revocation made by family members will only affect them.

The option is revoked if, after the first period of validity of the regime, the taxpayer who had exercised the option expressly indicates in the tax return that s/he no longer wishes to benefit from the incentive.

If the person is not required to submit a tax return for the tax period s/he must send a specific notice to the Italian Revenue Agency by the deadline for submitting the tax return and in the manner provided for submitting the ruling request.

The communication of the revocation can be hand-delivered, sent by registered mail with acknowledgment of receipt, or sent electronically by certified e-mail (Pec).

The revocation can be exercised even if the taxpayer has already paid the substitute tax for the same tax period. In this case, the tax already paid and not due can be refunded.

The principal taxpayer who has extended to one or more family members the option to join the regime may decide to revoke this extension, while still using it for himself/herself.

It is understood that the revocation may concern one, only some, or all the family members who benefit from the regime and may affect each of them in different tax periods.

The family member is required to report in his/her tax return the revocation made for him/her by the principal taxpayer. The family member may still opt for the application of the substitute tax as main taxpayer.

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