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100,000 Flat Tax In Italy

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Nicolò Bolla

Nicolò Bolla

Italy Accounting Expert

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100,000 Flat Tax In Italy

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100,000 FLAT TAX IN ITALY 12/29/20191 Comment Italy introduced a new flat tax regime in order to attract High Net Worth Individuals (HNWI). The regime consists of a flat tax charge of € 100,000 per tax year in respect of every foreign sourced income.

But is it really just for the super rich? Read the article and find it out yourself.

Why moving to Italy?

There are thousands of reasons why someone should move to Italy: its history, its culture, its lifestyle, immaculate and priceless landscapes and the list can go on for hours and hours.

Anyway, there is a major reason why Italy is not a major relocation destination especially for the rich, the Italian tax system.

The Italian income tax system is based on progressive brackets ranging from 23% up to 43%, on top of regional and municipal taxes the overall tax burden can exceed 45%. If you also account that Italian tax residents must disclose their foreign assets and pay wealth tax on their foreign financial activities and foreign real estate, you can easily understand why many wealthy individuals refrain from moving their residency to Italy. Adding up an old fashioned bureaucracy, where hardly no one speaks English, and a very aggressive tax office, and the pie is cooked!

Other European countries have already introduced favourable tax regimes to bolster their attractiveness to foreign human and financial capital; most notably, the UK, Malta, Spain and Portugal. Since 2017 Italy has decided to join the team with a very competitive offer to new residents.

Let me explain you how Italy can be your next destination.

How does this regime work?

The 100,000 flat tax regime is an elective regime for new residents of Italy, and the flat € 100,000 charge substitutes any income tax payable on foreign income and assets. You will not then pay any:

  • ​ Income tax
  • Regional surcharge
  • Municipal surcharge
  • Capital gains and dividend tax
  • IVAFE - Wealth tax on foreign financial assets
  • IVIE - Wealth tax on foreign real estate

You need to pay the flat charge once per year on/before June 30th of the following year. Let's say that you opted for the flat tax regime during the 2019 financial year, you must:

  • Pay the 100,000 charge on/before June 30th 2020
  • File your tax return on/before November 30th 2020 ​

The election lasts up to 15 years and the taxpayer can exit at any time without incurring in any clawback from the tax office.

The € 100,000 charge does not include any income made in Italy. In this case there are other favourable tax regime for new residents in Italy.

Unlike the UK Remittance Basis Income, you can repatriate all your income to Italy as you have already paid tax on; in fact, your monies are not required to stay abroad during this time.

You can then move your money to Italy without incurring in any tax charge.

Who can qualify?

In order to qualify you must not have been a tax resident of Italy for 9 of the past 10 years and make an election to treat your foreign income under the flat tax.

There is no nationality requirement to benefit of the 100,000 flat tax and all you have to do is becoming a tax resident of Italy, file your taxes regularly and pay the flat tax in one lump sum every year.

In 2017 new residents were required to submit a probatory ruling to the tax office in order to opt for the regime; this requirement has been withdrawn the year after. Despite not being mandatory, we strongly encourage to submit the probatory ruling prior electing for this regime because it greatly reduces any possible challenge the tax office might claim later on as they already provided a green light to your election.

Finally, the flat tax fits well the investor VISA program to Italy.

Can I extend it to my family members?

Family members can also opt for this regime as long as they meet the residency criteria. The only difference is that any family member will pay only € 25,000 per year instead of € 100,000.

Is there any other tax covered?

The Italian tax flat tax also covers any inheritance and donation tax payable in Italy. During the 15 years election period, the taxpayer can donate assets to individuals and trust without incurring in any tax charge in Italy. Imagine that you lost your UK domiciled status and you wish to transfer your assets to your sons or to a trust; you can use this regime to avoid any further tax charge in the UK and in Italy. Other countries do not levy any inheritance or donation tax if the done is non resident, therefore this regime can be an irreplaceable estate planning tool.

When is it actually convenient?

Let's do some math.

In order to have a tax charge of € 100,000 your annual taxable income must be around € 250,000 from any sources (employment, dividends, capital gains, rentals etc.). If you also own foreign assets you must account the 0.76% of any asset value per year; which makes it more convenient. A € 1,000,000 investment portfolio generates an annual wealth tax liability of € 7,600!

Evaluating the convenience of this regime is a matter of a combination of income tax, inheritance tax, and wealth tax. You would be surprised how this regime fitted individuals whose wealth is not unbelievably high.

Is the flat tax always the best option?

 

It depends! ​The law allows the taxpayer to cherry pick the income sources you would claim your € 100,000 tax; it comes natural that some foreign sources can be excluded and be subject to the Italian taxation.

Why would you do so?

Sometimes, some sources of income are not taxable in Italy based on the double tax treaty between Italy and the foreign jurisdiction.If they are taxable but you can claim sufficient tax credits to minimize the tax burden to 0 it makes sense to exclude the election as you avoid to waste any tax credit available. ​There can be other reasons to exclude the flat tax election.

Nonetheless, these calculation require good planning and an ad hoc strategy to make it effective, avoiding any claim from the tax office.

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