Italy's parliament grants go-ahead for 'non-dom' tax status
24 January 2017
Tax status for foreign residents
It has been announced that Italy’s Finance Act 2017 introduces a special tax status for foreign residents under which offshore income and gains can, for a price, be exempt from Italian taxation unless remitted onshore.
Luigi Belluzzo TEP of law firm Belluzzo & Partners explains that the provisions for the Italian resident not domiciled (IRND) regime can be found in the new art. 24bis of the Consolidated Income Tax Act, which comes into force through the approval of the Finance Act 2017.
Individuals opting for this 'territorial taxation' regime will still be subject to Italian tax on their Italian-source income and gains in the usual way. However, their foreign income and gains will be sheltered from Italian tax, provided the taxpayer pays an annual charge of EUR100,000 and discloses their tax residency location to the Italian authorities. This exemption can be extended to family members at a cost of EUR25,000 per member.
The regime also extends to succession taxes. Inheritance tax will only be charged on assets located in Italy at the time of the individual's death.
The system will be available to all individuals, regardless of nationality or domicile, who have been non-resident in Italy at any time during the nine years before settling in Italy – including returning Italian nationals. Each individual can continue to use it for up to 15 years, unless he or she fails to pay the full annual charge.
The UK model
This is a similar system to the UK's non-dom tax system, which also levies a 'remittance basis charge' on non-doms opting to keep their offshore assets out of the UK tax net. However, the UK's tax benefits for non-doms are about to be significantly curtailed from April 2017, with a new 'deemed domicile' rule that will force long-term residents to become UK-domiciled.
Italy’s appeal to high-net-worth individuals
Italy's new territorial system could attract high-net-worth individuals (HNWIs), including successful individuals in the sports, arts, and fashion and design sectors, commented Giulia Cipollini TEP of law firm Withers, which lobbied the Rome government to introduce the new status.
“The timing, which coincides with the changes to the UK's resident non-dom regime, suggests that Italy might be seeking to woo HNWIs looking for a new home following Brexit or deterred by the tightening of rules in the UK.”
The annual tax charge also exempts the taxpayer from the need to disclose foreign assets in their tax return under the usual 'RW' disclosure rules. However, international disclosure under the US Foreign Account Tax Compliance Act, or the OECD’s Common Reporting System, still applies. Thus the existence and value of the individual's foreign assets can still be reported to the Italian tax authorities.
Certain aspects of the new regime are not yet clear, in particular whether non-domiciled individuals will be permitted to make use of double taxation treaties.
“The new rules add to the choice currently available to individuals without fixed domicile, such as the resident non-dom system in the UK, Ireland and Malta, the Swiss forfeit rules, and the Spanish Beckham Law”, said Cipollini.