Italy: The Newest Tax Haven? Here's What You Need to Know

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| Mon, 11/22/2021 - 10:45
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Imagine getting to save money on taxes and actually live somewhere you've always wanted to live. There are multiple reasons why Italy is beloved; between the diverse and lush landscape, charming medieval villages, and top-notch culinary reputation, it's no wonder that the Mediterranean lifestyle is highly sought after by so many. 

At the same time, it also happens to be a country that has long had a reputation as a ‘high tax’ jurisdiction with significant amounts of tax evasion by its citizens. But this is changing. Over the last few years, the Italian government has worked hard to attract wealthy foreigners by offering various significant tax incentives to move to the country. 

Sounds almost impossible, right? 

I understand because, like most people, I’ve been long burdened by cumbersome red-tape in the Italian tax system so the news that these incentives actually exist comes as a very welcome surprise. 

The range of incentives covers everyone from ultra-high net worth individuals and even pensioners and the self-employed/remote worker. It comes as a no-brainer that the overall goal of the Italian government is to attract as much wealth and talent to the country as possible, which it badly needs. 

As a result, if you are considering a move to Italy, with the right planning you can take advantage of this moment of time. As an even bigger bonus, this may even mean that you would pay less tax in Italy than in your home country! 

One thing that is really important to note is that these tax regimes do not help the immigration status of any individual. If you are not eligible to live in Italy already, you would still need to contact an immigration lawyer about how best to establish residency in Italy. 

In order to help break down the tax incentives now available, here is what you need to know. 

The Impatriati Regime. For Destination-Flexible Freelancers 

Let’s say that you are a flexible, remote worker who can live anywhere around the world, well some places will literally give you a great incentive to call their area of the world home. This regime would be for you! 

It applies to people moving their tax residency to Italy that have not been tax residents for the previous two years. In order to be eligible, they would need to commit to moving their tax residency to Italy for at least two years. 

Upon moving to Italy, an individual that participates in this regime will be taxed on only 30% of their employment or self-employment income. If the individual moves to a southern region of Italy, they will be taxed on only 10% of their employment or self-employment income. 

This regime is applicable for five years and can be extended for another five years if certain conditions are met, such as purchasing a property or having children.

This regime presents significant opportunities for self-employed workers who can work remotely and transfer their residency to Italy, or to business owners. 

Often, a 70% or 90% reduction in taxable income would mean that an individual would pay less tax living in Italy than in their home country. Keep in mind that while this reduction applies to income tax, it does not apply to social security contribution charges which can make up a large portion of a tax bill or the capital gains taxes.

The Flat Tax Regime – For the High-Net-Worth Individual 

Say that money isn’t really an object for you but lifestyle is. You don’t want to live somewhere with a ton of stress and competition and simply want to call Italy your new home, here’s what you should consider. 

Designed to attract High Net Worth Individuals, the Flat Tax Regime enables a person to pay €100,000 flat tax per annum on all foreign-sourced income. According to The Times UK, Italy has persuaded 784 “high-worth” individuals to put down roots there in its first two years of this new tax scheme. 

This applies to income taxes, inheritance and gift taxes, and capital gains taxes on any income generated abroad or gifts given or received. You must have not been a tax resident in Italy for nine out of the ten previous tax years. Extra family members can be included in the regime for an additional €25,000 per annum each. 

The regime lasts for 15 tax years and exempts the taxpayer from needing to pay any wealth taxes or make a declaration of their foreign assets. This flat tax does not cover Italian-sourced income, and this remains subject to Italian taxation at ordinary rates. This regime could be very attractive to individuals with significant investments, property portfolios, or substantial foreign income.

The 7% Flat Tax Regime – For Retirees

If you have recently retired and are thinking of your next move and ideally one that includes life in La Dolce Vita, this could be just the solution for you. 

Following other southern European countries, Italy has introduced tax incentives to encourage retirees to move to the country. 
This regime applies a 7% flat tax on all income for pensioners who transfer their residency to a commune with less than 20,000 inhabitants in southern Italy. In order to be eligible, the individual must not have been resident in Italy for the previous five tax years and be in receipt of a pension whether public or private. 

The regime lasts for 10 years in total (9 years following the initial year of declared tax residency). When an individual decides to go with this regime, they do not need to declare their foreign assets, are exempt from wealth tax, and the 7% rate also applies to any capital gains (instead of a 26% tax rate).

However, the flat tax does not apply to any Italian-sourced income such as renting out a property in Italy. Overall, this regime can save pensioners a significant amount of money in retirement. 

Just to clarify, each of these regimes has more detailed qualifying rules and in order to take advantage of them, you typically need the help of a qualified Italian accountant (commercialista).  For Americans wishing to take up these schemes, it is important to understand how this will interact with your American tax liabilities and whether it is a worthwhile venture. That’s why we recommend contacting a true expert who already has a lot of experience working with Americans or foreigners choosing to call Italy their home.

Framont & Partner's Management is an Italian and Maltese financial advisory and investment management firm. Their founders have over 30 years of financial services experience in Italy. Established in 2015, and with offices and professionals throughout Italy, they work with a diverse range of Italian and foreign clients. Their core competencies include financial planning for Italian tax efficiency and discretionary portfolio management.

La dolce vita is waiting.