The Italian Connection: The Silver Bullet For International Estate Planning?
The Italian government’s strong desire to attract HNWIs and successful business executives, sportspeople, artists and fashion designers resulted in the introduction of the “Italian non-dom” tax rules. They allow for efficient international estate planning. The idea to attract HNWI’s that left Italy more than 10 years ago, probably also played an important role.
Who is eligible to use the Italian non-dom regime?
The regime is reserved for individuals who:
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- become Italian tax-resident pursuant to the domestic rules (i.e. they have been in Italy for more than 183 days in a calendar year, and meet at least one of the following conditions: (i) domicile; (ii) residence (both defined in the Italian civil code); or (iii) enrolment with the registry of Italian population; and
- have been non-Italian resident for income tax purposes for 10 years preceding their relocation to Italy.
Personal income tax
For income tax purposes, resident non-doms will be taxed as follows:
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- Any income sourced from foreign jurisdictions (as determined in a preliminary tax ruling), falls outside the scope of Italian income tax provided that an annual substitutive tax of €100,000 is paid in one lump sum. The scheme can be extended to family members (including adopted children), provided that an additional €25,000 substitutive tax is paid annually per family member.
- Any Italian-sourced income will still be identified and taxed pursuant to the ordinary rules (and therefore would be part of the determination of the overall income taxed at the ordinary proportional and progressive rates ranging from 23% to 43%, plus local surcharges).
Although the regime incentivises non-doms to keep their assets abroad, it should be noted that foreign income can be remitted to Italy without triggering any taxation. This is a very clear and very advantageous part of the ruling.
Inheritance tax
For the succession of real estate situated outside of Italy, the Italian law applicable to new tax residents provides that donations and successions are excluded from taxation for all properties situated abroad. However, it is also necessary to examine the tax situation according to the countries where the properties are located and or where the beneficiaries / heirs are resident. Inheritance tax of Italian assets is Italy.
Disclosure of foreign assets/investments
Non-doms are exempt from disclosing their assets held outside of Italy as the ordinary reporting provisions do not apply. More specifically, the new regulations clarify that candidates are not required to disclose their foreign investments/assets to the Italian tax authorities. However one should bear in mind that with the entry into force of the CRS (i.e. automatic exchange of information), member countries of the OECD agreement and in which the Client has his bank accounts will submit to Italy his financial data annually.
How to apply
There are two ways to get registered as a participant:
The applicant also has the possibility to run a preliminary check with the tax administration by filing a ruling before becoming an Italian resident. This allows the applicant to safely test out his/her application without experiencing unexpected obstacles.
If the option of the preliminary was not chosen, the applicants’ elections to the scheme are formalised through the first annual income tax return they file as res non-dom. This means that all the details (relating to the subjective conditions and links with Italy) should be included in this annual tax return.
Duration of the non-dom regime
Non-dom status renews automatically year by year, until the final 15-year term expires.
It is understood that non-doms can legitimately decide to give up their status at any time before the final term expires, either by opting out in their Italian tax return or by moving their residence abroad and duly notifying the Italian tax authorities. The final implementation measure also confirms that there is no exit taxation for res non-dom leavers.
Discreet Advisory can assist with your international estate planning. if part of that plan or if the conclusion is that you want to relocate we are able to help you out with that matter, whether that is moving to Italy, Monaco or other places.
The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal or fiscal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Discreet Advisory accepts no responsibility for loss which may arise from accessing or reliance on information contained in this blog.
©Discreet Advisory 2018