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Transfering your residency to Italy?

Italy has traditionally been a top tourist destination due to its culture, history, food and climate. As a result of the new Financial Law of 2017 (“legge di bilancio 2017”) for the purpose of attracting not only tourists but also high wealth individuals in this beautiful country, the government has introduced an optional preferential tax regime (“flat tax”) in favor of physical persons wishing to transfer their residency to our country.

Italian law considers residents those physical persons who for most of the tax year (at least 183 days a year and 184 days for leap years) are registered as residents or have their domicile in Italy.

In order to benefit from the new flat tax, the law requires that the physical person transfers their permanent residence to Italy and that the same person was not a fiscal resident in Italy for at least nine of the ten tax years prior to the beginning of the validity period of the option.

Individuals wishing to benefit from this opportunity should evaluate if the necessary conditions exist for the period in question. These conditions include that for at least 9 of the 10 tax years prior to the exercise of the option they were not fiscally resident in Italy and that there were no connecting elements to Italy that could lead to the presumption of a prior residency in our country. For example, having a spouse and/or children resident, domiciled or with a habitual home in Italy (for a period superior to 90 days for each tax year), having relatives other than spouse and/or children resident, domiciled or with habitual home in Italy (for a period of over 90 days for each tax year), hold corporate positions in companies resident in Italy.

The facilitation allows the possibility of applying a flat tax of €100,000 for each tax year to foreign earned taxable income (to be paid in a single solution by the deadline for final payment of taxes) with the exception of profits from qualified participations earned in the first five years of the option – these will be subject to ordinary taxation, i.e. IRPEF tax at marginal rates (also income produced in Italy will be subject to ordinary rates).

The following foreign income is subject to the application of the flat tax:

a) rental income from foreign real estate;
b) income from capital earned in the foreign country, by persons resident in the territory of the foreign country or from stable organizations in the territory of the same non-resident persons, with the exclusion of interest and other income deriving from bank deposits, current and postal accounts;
c) salary income earned in the territory of the foreign country, including income assimilated to salaries;
d) income from professional activities performed in the territory of the foreign country;
e) company income earned in the territory of the foreign country through a stable organization.

The option is exercised through the presentation of the tax return relative to the tax year in which the physical person has transferred his residency to Italy. Consequently, the foreign earned income will be exempt from IVIE/IVAFE tax and the obligations of fiscal monitoring provided for in the section RW of the annual tax return.

The option is considered tacitly renewed year by year except in the following cases:

1. voluntary revocation by the taxpayer;
2. cessation of the relative effects of the option (the option, in fact, has a maximum period of validity of 15 years from the first year of election);
3. expiration due to non or partial payment of the flat tax or the transfer of fiscal residency to another country.

The revocation of the option and its expiration precludes the exercise of a new option and excludes from its benefit family members included in the option, although they can exercise autonomously a new option with a duration equal to the residual tax years remaining from the first year of the option.

The legislator has, in fact, foreseen that if a family member of the taxpayer who has exercised the option (e.g. the spouse) should make the same choice (immediately or in the duration of the period) the foreign income earned by the family member will be subject to a flat tax of €25,000 assuming that this person has the requisites under the law. The extension of the option is valid when a specific indication is made in the tax return relative to the tax year in which the family member transfers their residency in Italy and hence, the tax return lodged the year after the tax year in question.

The legislator, however, has foreseen that if the taxpayer wants to be certain of qualifying for the favorable tax regime prior to the exercise of the option he can present a written ruling to the Tax Office prior to the deadline for the presentation of the tax return of the tax year in which he intends transferring residence to Italy. In this case, the option can be exercised after the favorable response from the Italian Tax Office.

Hence, in order to access the favorable tax regime for the tax year 2017 it will be opportune to present the written tax ruling prior to September 30, 2018. Considering that the response time allowed to the Tax Office is 120 days for this type of request, it would be preferable to present the written request prior to the 120 days that precede the September 30, 2018 (hence prior to June 2, 2018) in order to obtain a response in time to understand and include its contents in the tax return.

Lastly, it should be noted that all open inheritances and donations made in the tax years relative to the option are taxable only on goods and existing rights in the country at the moment of the inheritance or donation.

So, we wish you good luck and hope that this flat tax will allow you to transfer your residency to Italy and allow you to enjoy all the benefits and lifestyle of our beautiful country. If you need any help or have questions, please feel free to contact us at studiocelli@studiocelli.com .

Roberto Celli

Published May 18th, 2017 by Tax Services and Consultancy
Posted to Expat Blog

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