With some years now on record after the enactment of Italy’s tax rules on special tax regime for high net worth individuals, we attach and article (Italy’s Special Tax Regime for High Net Worth Individuals, Three Years In) recently published on the topic.
The distinctive features of the Italian special tax regime are the following:
– a low fixed amount tax in lieu of the Italian regular income tax (100,000 euro, with an increase of 20,000 euro for each family member who decides to join the main applicant);
– complete exemption from regular income tax for all foreign-source income (as defined under Italian internal tax law sourcing rules);
– complete exemption from Italian estate and gift tax on foreign-located assets;
– complete exemption from Italian asset value-based taxes on foreign real estate assets (so called IVIE) and financial investments (so called IVAFE);
– complete exemption from International tax reporting of foreign investments and financial accounts on sector RW of Italian income tax return;
– ability to use the network of Italian tax treaties to eliminate or reduce foreign taxes on foreign source income subject to the special tax regime in Italy;
– ability to entirely opt out of the regime at any time, by simply transferring the tax residency outside of Italy;
– ability to selectively opt out of the regime for income derived from specific foreign-countries, in order to be able to claim a foreign tax credit in Italy for foreign taxes charged on that income under a tax treaty between Italy and selected foreign countries.
Italy does not require that foreign-source income falling within the scope of the special tax regime be kept offshore and not be repatriated in order to benefit of the forfait tax.
Also, a taxpayer does not lose the benefits of the Italian forfeit tax if he or she is employed or engaged in a trade or business in Italy (but Italian source employment or business income is subject to Italian regular income tax).
To be eligible for the regime, a taxpayer must not have been a resident of Italy for Italian income tax purposes for more than one year in the last ten years prior to the special tax regime election.
Taxpayers who intend to benefit from the special tax regime can apply for an advance tax ruling, both on the tax residency issue and on any issue concerning the proper characterization and sourcing of their expected items of income falling within the scope of the forfait tax.
The ruling is binding upon the Italian tax administration and stands until any material fact submitted in the ruling application changes.
Alternatively, they can elect for the special tax regime with the filing of their first Italian income tax return after establishing their tax residency in Italy.
A taxpayer who is an Italian tax resident and is subject to the special tax regime in Italy should still be able to claim the benefits of Italian tax treaties with any foreign treaty country.