Italy joins the non-doms

Italian Finance Act 2017 introduces ‘fixed charge regime’ for High Net Worth Individuals

No taxation on worldwide income

The Italian Finance Act 2017 proposes a new tax regime for new Italian residents to be subject to Italian taxes only on their Italian sourced income. Italy thus follows in an ever increasing list of destinations attempting to lure HNWI with source-based taxation, such as the non-domiciled regimes in the UK and Cyprus, the lump-sum taxation in Switzerland, or the NHR in Portugal.

Cost and limitations

Under the new Italian regime, foreign income will be fully exempt, regardless of remittance, upon paying a fixed annual charge of 100.000 EUR (increased by 25.000 EUR per family member opting for the regime) as of 2017. Foreign assets will also be exempt from Italian inheritance and gift tax.

The regime is applicable for individuals who have not been Italian residents for 9 out of the past 10 years. Subject to a prior ruling, they can migrate to Italy and benefit from the regime for a period of up to 15 years. The regime is however subject to certain limitations. Capital gains on substantial shareholdings realised in the first 5 tax years are taxed under ordinary rules, and the Italian government retains the right to exclude income and gains sourced in certain foreign States.

Exchange of information

The annual tax charge also exempts the taxpayer from the need to disclose foreign assets in their tax return under the usual 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.

Moreover, it has been noted that the Italian administration will exchange information on the individuals applying this regime to foreign tax authorities, which means an increased chance of controls against sham migrations (e.g. factually stay in Belgium, but attempt to escape Belgian taxation by registering as an Italian resident under the new regime).

Application of double tax conventions

It also remains unclear whether non-domiciled individuals will be permitted to make use of double taxation treaties. The Belgian administration has in the past stated that Swiss residents applying the lump-sum taxation cannot benefit from the Belgian-Swiss treaty. However, in absence of such statement, treaty provisions could apply nonetheless.

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