Italy, long a favoured holiday and retirement destination of wealthy Britons and Americans, is considering a package of changes to its tax regime aimed at making it a more attractive destination for high-net-worth individuals to live.
Among the changes is a proposal to create a specific regime for HNWIs interested in making their home in Italy, which experts are comparing to the UK’s resident-non-domiciled category.
Also proposed is a scheme which would introduce a special visa regime for non-resident individuals which would enable them to enter and reside in Italy for upwards of five years, in exchange for proving the intention of either making investments in Italy, or making a philanthropic donation of at least €1m which met certain conditions in terms of the recipient organisation.
Recommendations aimed at simplifying Italy’s immigration laws, in connection with the new tax regime, are also included in the proposed changes, which are contained in the country’s 2017 draft budget, now before the country’s Parliament. Once finalised it goes on to the European Commission for review.
Time of challenges
Italy’s plan to woo wealthy foreigners to its shores comes as the country has been struggling with a host of challenges, which include the Eurozone’s second-highest national debt (after Greece) – around 132% of GDP in 2015 – chronic unemployment, and most recently, a series of major earthquakes.
The country’s population of around 62 million is also due to go to the polls on 4 December, to vote on a constitutional changes aimed at slimming down the country’s legislature, speeding up the legislative process and reducing its notorious bureaucracy. The prime minister, Matteo Renzi, has said he will resign if the proposed constitutional changes are rejected.
Still, as a draft note by Withers, the London-based, international HNWI-focused law firm notes, with the UK’s resident non-dom regime about to undergo some significant changes, and the UK’s withdrawal from the EU also pending, this is evidently being seen by Italy as an opportune time to set out its stall.
According to Withers, under the proposed new rules, Italian-source income and gains for Italy resident HNWIs would be taxable in the usual way; but foreign income and gains would be sheltered from Italian tax, provided the taxpayer paid an annual charge of €100,000.
This could be extended to include other family members, at a cost of €25,000 for each one. (This is similar to the remittance basis charge in the UK.)
Other aspects of the proposed regime, according to Withers:
* The individual would also be required to disclose their tax residency location to the Italian authorities.
* The system would be available for up to 15 years, unless the individual failed to pay the full annual charge.
* As currently proposed , the new system would be available to anyone (regardless of their nationality or domicile) who has not been tax resident in Italy at any time during the nine years preceding their relocation to Italy. Thus, the new system would also be available to Italian returnees.
* The rules describe individuals as tax resident if they are a registered Italian citizen or reside in Italy for more than half the year (183 days), or if their centre of vital and economic interests is situated in Italy.
In addition to shielding foreign income and gains from Italian tax, the annual charge would exempt the taxpayer from a duty to disclose foreign assets in their tax return under the ordinary disclosure rules (“aka ‘RW’ rules” according to Withers).
The OECD’s Common Reporting Standard and US Foreign Account Tax Compliance Act would still apply, meaning that the existence and value of foreign assets would still need to be reported to the Italian tax authorities, as these laws both require.