Italy’s departing prime minister Matteo Renzi has smoothed the way for a new era of tax exemptions for super rich expats as he pushed his 2017 budget through parliament last week in one of his last acts before resigning.
Italy’s Finance Act 2017 introduces a special tax status for foreign residents under which offshore income and gains can, for an agreed fee, be exempt from Italian taxation unless remitted onshore.
As reported here last month, Italy has been looking to lure high net worths and ultra high net worths to the country in a bid to bring in more cash to the troubled country.
And according to a report on tax specialist website STEP, Luigi Belluzzo TEP of law firm Belluzzo & Partners, said that the provisions for the new Italian resident not domiciled (IRND) regime can be found ‘hidden’ in the new ‘art. 24bis’ section of the Consolidated Income Tax Act, which was introduced through the approval of the Finance Act 2017, one of departing PM’s last acts.
Annual charge
Individuals opting for what has been dubbed the ‘territorial taxation’ regime will still be subject to Italian tax on their Italian-source income and gains in the usual way. However, their foreign income and gains will be sheltered from Italian tax, provided the taxpayer pays an annual charge of EUR100,000 and discloses their tax residency location to the Italian authorities, Belluzzo states. This exemption can also be extended to family members at a cost of EUR25,000 per member.
The regime also extends to succession taxes with inheritance tax only be charged on assets located in Italy at the time of the individual’s death.
The system will be available to all individuals, regardless of nationality or domicile, who have been non-resident in Italy at any time during the nine years before settling in Italy – including returning Italian nationals. Each individual can continue to use it for up to 15 years, unless he or she fails to pay the full annual charge.
UK similarities
This set up is a similar system to the UK’s non-dom tax system, which also levies a ‘remittance basis charge’ on non-doms opting to keep their offshore assets out of the UK tax net. However, the UK’s tax benefits for non-doms are about to be significantly reduced from April 2017, with a new ‘deemed domicile’ rule that will force long-term residents to become UK-domiciled or risk being taxed further.
Giulia Cipollini TEP of law firm Withers, which lobbied the Rome government to introduce the new status said that the timing, which coincides with, as reported, the changes to the UK’s resident non-dom regime, suggests that Italy might be seeking to woo HNWIs looking for a new home following Brexit or for those that are deterred by the tightening of rules in the UK.
The UK has moved toward enforcing a stricter regime following the fall-out of the Panama Papers data leak form Panamanian law firm Mossack Fonseca, that exposed the lack of transparency in the offshore marketplace. As a result, Italy is perhaps hoping to benefit from the UK’s stance.
Foreign assets
Cipollini also points the annual tax charge exempts the taxpayer from the need to disclose foreign assets in their tax return under the usual ‘RW’ disclosure rules. However, international disclosure under the US Foreign Account Tax Compliance Act, or the OECD’s Common Reporting System, still applies. “Thus the existence and value of the individual’s foreign assets can still be reported to the Italian tax authorities,” he said.
“Certain aspects of the new regime are not yet clear, in particular whether non-domiciled individuals will be permitted to make use of double taxation treaties. The new rules add to the choice currently available to individuals without fixed domicile, such as the resident non-dom system in the UK, Ireland and Malta, the Swiss forfeit rules, and the Spanish Beckham Law,” added Cipollini.
