How the so-called “Resident non-domiciled” regime in Italy works

The Italian Tax Authorities recently issued a regulation dealing with the practical aspects concerning the so-called Italian “resident non-domiciled” regime.

The 2017 Budget Bill provided for a new tax regime somewhat inspired by the UK “resident non-domiciled regime”, although under Italian law there is no equivalent concept of domicile. The purpose of the Bill is actually to attract new investors, in particular High Net Worth Individuals.

Taxpayers eligible for such option must not have been tax resident in Italy for nine of the ten previous tax years.

The New Tax Regime is optional and provides for a yearly Substitutive Tax on income from foreign source payable by individuals who have transferred their fiscal residence in Italy. The amount of the Substitutive Tax is Euro 100,000 and cannot be offset with income taxes suffered abroad on the same foreign sourced income.

An exception, mainly driven by anti-avoidance purposes, concerns the sale of qualified participations (i.e. a participation in the capital of a listed company higher than 2% or higher than 20% in case of non-listed company) occurring within the period of five years starting from the year in which the taxpayer qualifies as Italian tax resident. In addition, the taxpayers may opt not to apply the Substitutive Tax with respect to the foreign income sourced in regards of some designated jurisdictions. In such case, the ordinary Italian income tax liability arising on that income may be offset by the relevant foreign tax credit.

Unlike the UK regime, it is irrelevant as to whether or not the (new) Italian taxpayer remits their income in Italy or not. The special regime would apply in any case.

The option is revocable anytime and may not last for more than 15 years.

In case of election, the Italian gift and estate tax does not apply with respect to the assets held abroad. Moreover, those who elected for this regime are not subject to the reporting obligation on foreign assets and income.

Upon transfer of the tax residence in Italy and election for the special regime, the new taxpayer must inform the Italian Tax Authorities about his/her previous State of residence, in order to allow the Italian Tax Authorities to inform such State that the taxpayer has transferred his/her tax residence in Italy.

The New Tax Regime matches with some changes to Italian immigration laws, aimed at to make possible for non EU natural persons to avoid the ordinary applicable restrictions for the acquisition of Italian residency.

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