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Italy Introduces Non-Dom Tax Incentive

The Italian authorities have introduced a EUR100,000 (USD106,251) per year substitute tax on foreign income and gains for previous non-doms who declare Italy as their primary tax residence. This has been done with a view to attract wealthy individuals to relocate to the country, and high net worth Italian expats, including sportspeople and celebrities, to return there. As suggested by observers, Italy is probably trying to capture wealthy UK expats post-Brexit. According to the Italian Revenue Agency, the new tax regime applies to ‘newly resident’ individuals in Italy, who (regardless of their nationality or domicile) have been non-tax residents in Italy for at least 9 years out of the 10 years preceding their transfer to Italy.

High-net-worth individuals transferring their tax residence to Italy may apply a substitute tax to their foreign income and gains, amounting to EUR100,000 for each fiscal year, in lieu of the Italian Income Tax. To apply for the regime taxpayers have to file a specific ruling to the Italian tax authorities. They will also be able to choose the country or the countries where the foreign income has been generated subject to the substitute tax regime. If the Italian tax authorities issue a favourable ruling, all foreign income will be eligible to the substitute tax regime for a period of 15 years.

This regime may be extended to family members through the payment of a substitute tax amounting to EUR25,000 per member on their foreign income and gains. Italian-sourced income and gains for individuals opting into the scheme will remain taxable in the normal, progressive way, although there are also benefits for applicants in terms of gift and succession taxes and tax reporting.

In addition, those opting for the substitute tax regime will be exempted from gift and inheritance tax related to assets owned and held abroad, and will benefit from simplifications when asking for entry visas to Italy.

The regime should be opted for by the deadline for the submission of the tax return related to the fiscal year from which the qualifying individuals intend to adhere to the special regime (e.g. by September 30, 2018 for fiscal year 2017). However, since the election is subject to an advance approval by the Italian tax authorities, individuals who are interested in adhering to the regime must file a request for an advance ruling at least four months before the deadline to opt for the regime (while the tax authorities have 120 days to respond to a request).