Italy: the special tax regime for new Italian residents

Italy has instituted a special tax regime with the primary objective of enticing "High Net Worth Individuals" to make Italy their fiscal residence, known as the "Special Tax Regime." This regime is noteworthy for several reasons:

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Worldwide Income Exemption: Generally, Italian tax residents are subject to tax on their global income. However, the Special Tax Regime offers a full exemption from foreign-sourced income (income generated outside of Italy) in exchange for an annual lump sum payment of €100,000.

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Additional Exemptions: In addition to the exemption of taxation on non-Italian incomes (replaced by the lump sum payment), the Special Tax Regime also includes exemptions for:

·       Wealth tax on financial assets and real estate held outside Italy.

·       Inheritance and gift tax for assets located outside Italy.

·       The obligation to report foreign assets (so-called RW Form).

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Double Tax Treaty Consideration: Individuals who opt for the Special Tax Regime are generally considered residents in Italy for the purposes of double tax treties, unless the specific treaty states otherwise.

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Eligibility: The Special Tax Regime applies to individuals who haven't been tax residents in Italy for 9 out of the last 10 years before relocating their tax residence to Italy.

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Duration of the Regime: The Special Tax Regime has a duration of 15 years, but the individual can choose to discontinue its application at any time, without the possibility of reapplication.

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Application Process: New Italian residents interested in this regime may submit an advanced tax ruling to the Italian tax authorities to seek approval for the Special Tax Regime. Notably, this ruling can be filed prior to the individual's relocation to Italy, and it doesn't trigger any immediate tax liabilities.

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Exclusions from the Regime: The Italian ordinary tax regime still applies to: (i) Italian-sourced income; (ii) Income sourced in countries chosen through the "cherry-picking" option; (iii) Capital gains arising from the sale of foreign"qualified" shareholdings during the first 5 years of Italian residency, subject to specific requirements.

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Family Members: Family members have the option to apply for the Special Tax Regime as well, with a reduced lump sum payment of €25,000. They enjoy the same requirements and exemptions as the primary taxpayer.

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This content has been created in collaboration with Move To Dolce Vita, our Italian tax and legal firm.