To live “la dolce vita” in Italy is no longer a sweet fantasy. As part of the 2017 Budget Law, the Italian government has introduced a favourable tax regime for non-domiciled residents with the aim of attracting capital investments to Italy.
Since Italy is a member state to the European Union, it is fairly straightforward for European citizens to immigrate to Italy. Upon arrival in the country, one is required to register with the local authorities by providing, amongst other things, evidence of sufficient recurring income and health insurance.
At present, Italy does not have any special immigration scheme in favour of the non EU-nationals. As a result, a non-EU national who desires to immigrate to Italy is required to go through the typical immigration channels by obtaining a visa for employment or economic activities. Nevertheless, with the introduction of the substitute tax regime for non-domiciled residents, it is expected that a special type of ‘investor visa’ for non EU-nationals will be introduced in the course of 2017-2018.
The new substitute tax regime introduces a flat substitute tax on all foreign source income for income tax purposes. Eligible taxpayers can choose the country or countries where the foreign income is realised subject to the substitute tax regime (the so-called “cherry picking” principle).
Any income generated in the countries excluded from the Non-Dom Regime will be subject to ordinary income tax, subject to the applicable tax relief on taxes paid abroad and from the relevant tax treaty protection.
Income generated from included countries is exempt from Italian taxation, as well as assets in those countries benefiting from an exemption for reporting obligations and wealth taxes. Eligible taxpayers who opt for the Non-Dom Regime apply a substitute tax on foreign-sourced income amounting to an annual lump sum payment of €100,000 (with an additional €25,000 for each family member to which the Non-Dom Regime may be extended).
Notably, capital gains from the disposal of qualifying shareholdings are excluded from the Non-Dom Regime and ordinary taxation therefore applies, if the capital gain is realised in the first 5 years following the exercise of the option. Finally, the regime provides for an exemption from donations and inheritance tax related to assets held outside of Italy.
To qualify, one must (i) transfer his/her tax residency to Italy; (ii) not have been an Italian tax resident for 9 out of the 10 years preceding the application; and (iii) request approval from the Italian tax authorities through an advance ruling.
Italy applies the European Succession Regulations, which stipulate that the courts of the state where the deceased had his/her habitual residence at the time of death will be competent to rule on the succession. The applicable law determines how the estate shall be divided upon death, taking into account general rules on forced heirship etc. The Italian inheritance law acknowledges reserved shares for certain heirs. Depending on your preference, you may wish to apply the inheritance law of your state of nationality to govern the succession of your estate.
Italy does apply inheritance tax. Between spouses and in the direct line, a tax rate of 4% applies. However, each heir (spouses and children) benefits from a tax exemption on the initial EUR 1 million per person.