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Italian law for wealthy foreigners
Article 24 bis (Option for substitute tax on income earned abroad by natural persons who transfer their tax residence to Italy) of Italian Law 232/2016, which entered into effect on 1 January 2017, is an extremely interesting law for wealthy foreigners who are interested in moving to Italy.
The law provides that foreigners who decide to transfer their residence to Italy may choose to pay a fixed tax of EUR 100,000 per year irrespective of their income level.
1. Natural persons who transfer their residence to Italy may opt for application of the substitute tax to income earned abroad, provided that:
a) they have not been fiscally resident in Italy, for at least nine tax periods out of the ten preceding the beginning of the period of validity of the option;
b) the substitute tax does not apply to the capital gains from the sale of qualifying holdings, financial instruments, contracts etc.
The option referred to in paragraph 1 is revocable and ceases to be effective fifteen years after the first tax period of validity of the option.
2. If the option is exercised, income earned abroad is subject to substitute tax in lieu of personal income tax calculated on a flat-rate basis, irrespective of the amount of income earned, in the amount of EUR 100,000 for each tax period in which the option is valid.
This amount is reduced to EUR 25,000 for each tax period for each of the family members referred to in paragraph 6. The tax is paid in a single instalment by the deadline for the final payment of personal income tax. For matters concerning assessment, collection, disputes and sanctions, the regulations set forth for personal income tax apply, insofar as compatible. The tax cannot be deducted from any other tax or contribution.
3. The option must be exercised after having obtained a positive reply to a specific request for ruling submitted to the Italian Revenue Agency, within the deadline for filing the income tax return for the tax period in which residence is transferred to Italy and is effective from that tax period. Natural persons who submit a request must state in the option the jurisdiction or jurisdictions in which they had their last tax residence before the year in which the option becomes valid. The Italian Revenue Agency sends this information, using the appropriate administrative cooperation tools, to the tax authorities of the jurisdictions specified as the place of the last tax residence before the year in which the option becomes valid.
4. The effects of the option shall however terminate in the case of failed or partial payment, in full or in part, of the substitute tax in the amount and within the time limits established by applicable legal provisions, without prejudice to the effects produced in the previous tax periods. Revocation or forfeiture of the regime rule out the possible of exercising the option again.
5. The application procedures for exercising, amending or revoking the option and for paying the substitute tax are identified by order of the director of the Italian Revenue Agency, to be adopted within ninety days of the date the law enters into force.
The natural persons referred to in paragraph 1 may exercise, for themselves or for one or more of the family members referred to in paragraph 6, the right not to apply the substitute tax to income earned in one or more foreign states or territories, by providing specific instructions when exercising the option or by later amending the option. In this case only, the ordinary regime is applied to income earned in said foreign states or territories and the tax credit for income earned abroad may be claimed.
6. At the request of the person exercising the option, the option may be extended throughout the period of the option to one or more of the family members referred to in Article 433 of the Italian Civil Code, provided they satisfy the conditions set forth for the applicant subject. In this case, the person exercising the option indicates the jurisdiction or the jurisdictions in which the family members to whom the regime is extended had their last residence before the year in which the option becomes valid. Extension of the option may be revoked in relation to one or more of the family members referred to above. Revocation of the option or forfeiture of the regime by the person exercising the option also extends to their family members. Forfeiture of the regime by one or more of the family members due to failed or partial payment of the substitute tax for which they are liable does not cause forfeiture of the regime by the natural persons referred to in paragraph 1".
7. Persons who exercise the option referred to in Article 24-bis of the consolidated law on income tax, are not obliged to fill in the RW section of the tax return and are exempt from tax on financial assets – IVAFE – and tax on immoveable property – IVIE .
