Comparing Italy's HNWI Special Tax Regime and the UK's Non-Dom Regime

This article, brought to you by Travels & Savings - The Tax Firm for Global Citizens, in collaboration with Move To Dolce Vita, compares the Italian HNWI Special Tax Regime with the UK's non-dom regime, highlighting the key differences and benefits of each.

Understanding the UK's Non-Dom Regime

The UK's non-dom regime has historically allowed individuals who are UK residents but not domiciled in the UK to enjoy favorable tax treatment on their foreign income and gains. Key features include:

• Remittance Basis: Non-doms can choose to be taxed on the remittance basis, meaning they only pay UK tax on foreign income and gains if these are brought into the UK.
• Annual Charge: Long-term non-doms may be subject to an annual charge to continue using the remittance basis, which ranges from £30,000 to £60,000 depending on the length of residence in the UK.
• Inheritance Tax (IHT): After 15 years of residence, non-doms are deemed domiciled in the UK for IHT purposes, making their worldwide assets subject to UK IHT.

Understanding Italy's HNWI Special Tax Regime

Italy’s HNWI Special Tax Regime aims to attract wealthy individuals by offering a flat-rate tax on foreign income. Key features include:

• Annual Lump Sum Tax: Eligible individuals pay a fixed annual tax of €100,000 on their foreign-sourced income, regardless of the amount earned.
• Exemption from CFC Rules: Controlled Foreign Company (CFC) rules do not apply under this regime, allowing income from foreign companies to remain exempt from Italian taxation.
• Universal Exemption of Foreign Income: The regime covers all foreign income, including income from tax havens, without additional tax liability in Italy.
• Additional Exemptions: No wealth tax on foreign assets, no inheritance and gift tax on foreign assets, and no requirement to report foreign assets.

Key Differences Between the Two Regimes

1. Taxation Basis
   • UK Non-Dom Regime: Offers a remittance basis of taxation, taxing foreign income only when it is brought into the UK.
   • Italy HNWI Regime: Provides a full exemption from taxation on foreign income for an annual lump sum payment, regardless of remittance.
2. Annual Charges
   • UK Non-Dom Regime: Imposes an annual charge for long-term residents wishing to use the remittance basis, ranging from £30,000 to £60,000.
   • Italy HNWI Regime: Requires a flat annual tax of €100,000 on foreign income, with no escalation based on the length of residence.
3. Inheritance and Wealth Taxes
   • UK Non-Dom Regime: Subjects worldwide assets to UK IHT after 15 years of residence.
   • Italy HNWI Regime: Exempts foreign assets from wealth tax and inheritance/gift tax, even after 15 years of residence.
4. Family Member Benefits
   • UK Non-Dom Regime: Family members do not receive specific benefits under the non-dom rules.
   • Italy HNWI Regime: Family members can apply for the regime at a reduced annual lump sum of €25,000, enjoying the same exemptions.
5. Controlled Foreign Company (CFC) Rules
   • UK Non-Dom Regime: CFC rules may apply, attributing the income of foreign companies controlled by UK residents to the UK.
   • Italy HNWI Regime: CFC rules do not apply, allowing foreign company income to remain untaxed in Italy.

Strategic Advantages of Each Regime

• UK Non-Dom Regime: Best suited for individuals who have significant foreign income but do not need to bring it into the UK. It provides flexibility with the remittance basis but comes with increasing annual charges and eventual exposure to IHT.
• Italy HNWI Regime: Ideal for individuals seeking a comprehensive tax exemption on foreign income with a predictable, fixed annual tax. It offers broader exemptions, including from CFC rules and wealth/inheritance taxes on foreign assets, making it highly attractive for those with substantial global wealth.

Conclusion

The abolition of the UK's non-dom regime has led many wealthy individuals to consider Italy's HNWI Special Tax Regime as a viable alternative. With its flat-rate tax, broad exemptions, and favorable treatment of foreign income, Italy's regime provides a compelling option for high-net-worth individuals seeking tax efficiency and strategic financial planning.

At Travels & Savings, in collaboration with Move To Dolce Vita (MTDV), we specialize in helping individuals navigate the complexities of international tax regimes and optimize their financial strategies. Contact us today to learn more about how Italy's HNWI Special Tax Regime can benefit you and facilitate your relocation to Italy.

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