In 2017, Italy introduced a special tax regime intended to attract Italian and foreign nationals who have been resident outside of Italy for at least nine of the previous ten years, to transfer their tax residence to Italy and pay a fixed amount of €100,000 in lieu of the Italian regular income tax on their foreign source income. Taxpayers qualifying for the special regime are taxed on their Italian source income at usual graduated rates. The fixed amount tax paid under the new regime also substitutes all national and local wealth taxes and Italy’s estate and gift taxes on foreign assets. In addition, taxpayers who elect for the special tax regime are exempt from the duty to report their foreign financial accounts and investments on their Italian income tax return as required under Italy’s international tax reporting rules.

On March 8, 2017, the Italian Tax Administration issued the Regulation n. 47060 setting forth technical provisions for the application of the special tax regime.

On May 23, 2017, the Italian Revenue Agency issued Circular n. 17/E providing administrative guidance in the interpretation and application of the special tax regime.

The special tax regime is not limited to Italian nationals, does not limit a taxpayer’s ability to work, invest or do business in Italy, and does not provide for any mandatory remittance of the foreign income that is subject to the lump-sum tax.

Since the world-famous soccer player Cristiano Ronaldo decided to leave Real Madrid in Spain and join the Italian top team Juventus in Italy (a decision some speculate was predicated also on his ability to benefit from the attractive new Italian special tax regime), Italian’s lump-sum tax for new-resident high net worth individuals has attracted more attention. Less than two years after it was enacted, it is probably still too early to fully assess its impact and the tax agency’s approach in administering it. However, now that it is settled as a permanent feature of the Italian tax system, a further review appears to be worthy.

Class of Taxpayers for Whom It is Designed.

The special tax regime is not limited to a particular class of taxpayers. It extends to both Italian national and foreign nationals, it does not put any limit on the activities a taxpayer can be engaged in while resident in Italy, and does not require that the income subject to the lump-sum tax be remitted back to Italy. A taxpayer who elects for the special tax regime is free to work, invest or operate a business in Italy and earn Italian wages, investment or business income, in respect of which he or she is going to be taxed under the regular income tax.

As a practical matter, since the lump-sum tax applies in lieu of the regular income tax on taxpayer’s foreign source income, the special tax regime is designed in particular for foreign individuals with significant investments, activities or business interests outside of Italy, who earn large amounts of foreign source income subject to zero o low income taxes in the country from which it is derived.

Fiscal Residency Requirements

The special tax regime is offered to Italian or foreign national individuals who have not been Italian tax resident individuals for at least nine of the previous ten years, and are Italian tax residents in the tax year for which they make the election.

Tax residence is determined under Italian tax law, pursuant to one of three alternative criteria that must be met for more than 183 days during a given tax year: registration on the register of Italian resident population, place of habitual abode (intended as a regular place of living where taxpayer intends to stay indefinitely, rather than temporarily or for some specific and limited-time purpose), and domicile (intended as the main place of an individual’s personal, professional and economic interests). Once one of those criteria is met, tax residence retroacts to the first day of the tax year during which any of those criteria is met.

The registration test is completely within the taxpayer’s control and easy to apply. Instead, the residence and domicile tests depend on the facts and circumstances of each particular case, and are more controversial and open to interpretations. In some recent rulings, the Italian Supreme Court took the position that, for the purpose of the domicile test, under certain circumstances the presence of significant economic interests in Italy may prevail over the location of all personal and family ties in a foreign country, while, traditionally, personal ties were given more weight than economic interests.

It is reasonable to argue that Italian nationals who were resident of Italy at one point in time and transferred their residency to a foreign country will receive special scrutiny, and the disclosure of information about their non-Italian tax residence and possible continuing contacts with Italy in the past may expose them to potential audit over their past non-Italian resident tax years (in addition to making them ineligible for the tax regime). Those who transferred their residence to tax havens will have to overcome the presumption that their tax residency is in Italy unless they demonstrate that they actually moved and lived there.

Foreign nationals who purchased resale estate in Italy and, upon the suggestion from local notaries and accountants (without considering its international tax ramifications), registered themselves as Italian resident individuals at their Italian home’s address in order to benefit from an abatement of the transfer taxes at the time of the purchase, triggered Italian tax residency under the registration test and may be ineligible for the special tax regime. Those foreign nationals are often able to tie break themselves to their home country, where they actually lived and kept all their interests, under their home country’s tax treaty with Italy, and avoid any tax liability in Italy (on non-Italian income) for the years in which they have inadvertently been Italian tax residents under the registration test. However, a tax treaty’s tie breaker rules cannot be used to overcome Italian tax residency, as determined under Italian internal law, and claim the special tax regime.

Foreign nationals who never registered as resident in Italy but regularly visited the country, own homes, run businesses or hold other investments in Italy, will have to provide information about their presence and activities in Italy to allow the Italian revenue agency to assess whether they have ever been Italian tax resident under the residence or domicile test.

Election Requirement

The special tax regime is elective. Eligible taxpayers must file an election with their income tax return for the first year in which they are Italian tax residents, or the immediately following tax year.

Taxpayers can, but are no longer required to, apply for an advance ruling on their eligibility for the special regime. If they file for an advance ruling, taxpayers must provide specific information on the relevant facts and circumstances that concern their possible tax residence in Italy in the prior ten-year period. The tax agency has 120 days to respond to the ruling request and failing to respond is equivalent to a positive answer. If the agency asks for additional information, a new 120-day period starts running from the date of the request. SAs a result, taxpayers must carefully prepare their ruling applications to avoid delay.

The Italian tax administration issued a checklist of twenty items that must be properly disclosed and documented, either in the advance ruling application, or by way of an attachment to the tax return electing for the special regime. Taxpayers must use the check list when they review their facts and circumstances and assess their eligibility with their tax advisors, before making the election.

Nothing is said in the law or the administrative guidance issued by the tax administration about a possible situation in which a tax return electing for the special tax regime does not provide, in its attachment, a complete and sufficient set of information in response to all of the items on the check list. To avoid the risk that the election is treated as ineffective, taxpayers should work carefully in preparing a complete response to the agency’s questionnaire.

The election is valid for and automatically expires after 15 years.

Special Election for Family Members

The election for the special tax regime can be extended to a taxpayer’s family members. Whenever a family member becomes an Italian tax resident, within the 15-year period of the initial election, the taxpayer who filed the initial election, and his or her family member that then qualifies, can file the election for the special tax regime. Following the election, the family member is subject to a lump-sum tax of 25,000 euros on his or her foreign source income and enjoys all other benefits of the special tax regime. The family member’s election remains in place, for the remaining part of the 15-year period, even when the principal taxpayer’s initial election is revoked or earlier terminated.

Termination of the Election

Taxpayer is free to terminate the election any time. The election automatically terminates when the taxpayer moves her tax residence outside of Italy or fails to pay the lump-sum tax. Finally, the election expires after fifteen years.

Scope of the Special Tax Regime

The scope of the special tax regime extends to foreign source income and foreign assets and has three important effects: exclusion of foreign source income from the scope of the regular income tax, exclusion of foreign assets from the scope of the Italian estate tax and exemption from the duty to report foreign assets and financial accounts on the Italian income tax return.

No Regular Income Tax On Foreign Source Income

The 100,000 euros fixed-amount tax applies in lieu of the regular income tax on foreign source income. The source of income is determined under the provisions of article 23 of the Italian Unified Tax Act.

Italian tax law source rules differ from US source rules in many important respects and offer great tax planning opportunities to maximize the benefits of the special tax regime.

The first and most prominent example is that of royalties. The source of royalty income is determined by reference to the residence of the payer (licensee), rather than the place of use of the license. As a consequence, royalties paid to a sports athlete for the right to use his or her image in sports products advertising campaigns, or by an artist for the rights to publish or sell his or her music, books, etc. by a foreign sponsor, production or publishing company, are entirely foreign source income, regardless of the place of use of the license and the fact that the use of the image or the sales may be carried entirely or partly out in Italy. Cristiano Ronaldo will be able to license his image rights to a foreign company and receive foreign source tax free royalties for the use of his image in advertising campaigns run entirely in Italy. Conversely, he will be better advised not to license his image rights to an Italian company as a remuneration for foreign run advertising campaigns, which would generate Italian source royalties fully taxed under the Italian regular income tax.

The source of capital gains is the place in which the property is located, rather the residence of the seller. For gains from the sale of stock or ownership interest in non-corporate entities, the gain is sourced with reference to the place of incorporation or organization of the entity. As a result, gain from the sale of stock of a U.S. corporation would be non-US source income, not taxable in the U.S., and foreign source income falling within the scope of the fixed amount tax in Italy.

Dividends and interest are sourced by reference to the residence of the payer. However, dividends and interest earned through mutual funds, which are not treated as fiscally transparent entitles, are separately characterized as income form mutual funds and sourced by the place of organization of the fund. As a result, even investments in Italian stock and bonds can generate nontaxable foreign source financial income if held and managed in a foreign organized mutual fund.

Similarly, income earned through trusts and similar arrangements, is classified as income from trust and sourced by the place of administration of the trust (rather than with reference to the source of the underlying items of income), which, in turn, is presumed to be the place in which the trustee is domiciled (unless taxpayer proves that the actual administration of the trust is carried out in a different place). A revocable trust is disregarded and the settlor is treated as the owner of the assets the income of the trust, which, in turn, is sourced with reference to the source of the underlying items of income deriving from the trust assets. Non-revocable trusts are generally treated as opaque, unless the settlor retains certain control powers over the trust that result in the trust being treated as fiscally transparent. As a result, a taxpayer has the opportunity to lump his (Italian or foreign) investments into a foreign administered trust, and earn entirely foreign source income not taxable under the regular income tax.

Income from services is sourced with reference to the place of performance. As a result, a soccer player playing games inside and outside the country, must allocate part of his salary to Italian games and treat it as Italian source income taxed under the regular income tax, and part of his salary to foreign played games and treat it as foreign source income nontaxable under the regular income tax. Italian law does not set forth any clear rule setting for the methods for the allocation of the income. In case of wages paid for general services, the allocation is made on the basis of the time spent in Italy compared to time spent abroad while performing those services. However, for remuneration paid for work on specific projects or tasks, the allocation should be made with reference to the place where the project or task is carried out.

In a case like the one of Cristiano Ronaldo, there may be a fair argument to sustain that a substantial part of his salary should be allocated to games plaid in the International competitions such as the European Champions League (considering that Juventus has acquired him just for that purpose, having barely missed to win it in the last three seasons, when it reached the finals and lost to superior teams such as Barcelona and Real Madrid), most of which are plaid outside of Italy, and allocate a big chunk of his salary to those games plaid outside of Italy, treating it as foreign source not taxable under the regular income tax. A rock musician receiving compensation for recording a record or performing at concerts outside of Italy would clearly earn foreign source services income not taxable under the regular income tax.

No Estate and Gift Taxes On Foreign Assets

Italy operates an estate tax, which is charged on Italian-situs properties of non resident individuals, or worldwide properties of resident individuals, transferred at death. For individuals who are resident in Italy at the time of death, the Italian estate tax applies on their worldwide estate.

Similarly, the Italian gift tax applies to any transfer for no consideration of any Italian-situs property, when the transferor is a non resident individual, or any property wherever located in the world, when the transferor is a resident individual.

Fiscal residency, for Italian estate and gift tax purposes, is determined pursuant to the same rules that apply to determine Italian fiscal residency for income tax purposes (to which we referred earlier in this article).

The special tax regime exempt foreign assets from the application of Italian estate and gift taxes.

No International Tax Reporting of Foreign Assets

Under Italian tax law, a resident taxpayer is required to report, on section RW of his or her Italian income tax return, all of his or her financial as well as non-financial assets (such as homes, luxury boats, jewelry, artwork, and the like), regardless of whether they generate income (as in the case of rental real estate), or not (as in the case of primary residence, vacation homes, etc.).

The international tax reporting of foreign assets is often very expensive and time consuming.

The election for the special tax regime exempts the taxpayer from the duty to report his or her foreign assets under Italy’s international tax reporting rules.

No Asset-Value Taxes On Foreign Assets

Italy applies a tax on the fair market value of foreign real estate, at the rate of 0.76%, and a tax on the fair market value of foreign financial assets, at the rate of 0.2%.

Both taxes do not apply in case of an election for the special tax regime.

Special Tax Regime and Tax Treaties

One issue that emerged in the context of the enactment of the special tax regime concerns whether a taxpayer who elects for the special tax regime is eligible for the benefits of a tax treaty between Italy and the foreign country of source of the income.

The Italian tax administration in its Circular N. 17/E took the position that a taxpayer should be eligible to treaty benefits, considering that he or she is tax on his or her worldwide income, by reason of being a resident of Italy for income tax purpose, albeit through the regular income tax, as far as his or her Italian source income, and a fixed amount tax that applies in lieu of the regular income tax, as far as his or her foreign source income. As a result, the Italian tax administration announced that it will issue certificates of tax residency to Italian taxpayers who elect for the Italian tax regime.

It must be noted that a taxpayer can always decide to exclude certain countries from the application of the special tax regime. In that event, he or she would qualify for a foreign tax credit in Italy for the amount of any income tax charged on income from sources in that country, and would definitely be able to claim the benefits of the treaty between Italy and that country to limit any source country tax on that income.

Constitutional Issues

The special tax regime poses some constitutional issues. Clearly, it is a departure from the general principle according to which each taxpayer should contribute to the country’s public budget in proportion to his or her paying capacity, set forth at article 53 of the Constitution. A measure of taxpayer’s paying capacity is taxable income, and the Constitutional provision of article 53 has historically been carried out through a progressive income tax.

However, it is not clear how a constitutional challenge might be brought to the Italian Constitutional Court. To bring a claim to the Constitutional Court, a taxpayer must have standing, and standing exists when a taxpayer is subject to a provision of law that subjects him or her to a less favorable tax treatment than that which applies to another category of similarly situated taxpayers. In the case of the special tax regime, a taxpayer who is subject to the regular income tax might challenge the general provisions of the regular income tax, under which he is taxed less favorably (on his foreign source income) that a similarly situated taxpayer subject to the fixed amount tax. That would assume (and require the taxpayer to demonstrate) that he or she possess an amount of foreign source income that, under the special tax regime, would entail a tax that would be lower that the regular income tax on that income. For such challenge to be upheld the Court should rule the constitutional invalidity of the regular income tax, across the board, which seems a very remote and unrealistic proposition. Moreover, a taxpayer who elects for the special tax regime is not in the same position as a taxpayer who is not eligible for the special tax regime (the former being a nonresident, not subject to tax on non-Italian source income, who voluntarily transfers his or her tax residency in Italy in exchange for being taxed under the special tax regime on his or her foreign source income), and the special regime is temporary and expires automatically after 15 years.

Other Issues

One interesting issue concerns the way in which Italy will administer the exchange of information systems it operates with foreign countries which may ask for tax information concerning individuals who have moved their residency to Italy to benefit from the Italian special tax regime. By providing taxpayers who elect for the special tax regime with a full exemption from reporting their foreign assets, Italy would not possess information, out of a taxpayer’s return, to share with a foreign tax jurisdiction. In addition, a taxpayer is not requested to separately state, on his or her Italian tax return, his or her foreign source income, which is not taxable with the regular income tax.


The Italian forfeit tax regime for nonresident high net worth individuals (who become Italian tax residents) has some very interesting features, which make it very attractive, compared to similar regimes applied in other countries, both presently and in the past.

The election for the special tax regime requires specific planning, both to determine the taxpayer’s eligibility for the regime, before it is filed, and to determine the best way to structure the taxpayer’s affairs (with specific regard to the sources of his or her income) to maximize the benefits of the regime, once the filing has been made. Every time a taxpayer moves his or her residence to Italy under the Italian registration test, while keeping significant contacts and interests in other foreign countries, the tax planning will always require an investigation into those countries’ tax laws, to determine whether the taxpayer might still have his or her residency in any of those countries, pursuant to the residence or domicile test that may apply in those countries, and to determine the taxation of local source income in combination with the Italian lump sum tax.

While some more time will need to pass before any case law or administrative tax ruling is available as to the interpretation and application of the special tax regime, the Italian tax agency so far has adopted a pro taxpayer approach, aimed at encouraging the use of the regime, which is seen as a way to attract wealth individuals to Italy ultimately resulting in a contribution to the local economy.