Italy is considering a proposal to introduce a territorial system of taxation to attract high net worth individuals, including successful individuals in the sports, arts, and fashion and design sectors, who could be interested in moving to Italy to take part in these thriving sectors. The new measure is contained in the Finance Bill for 2017, currently under discussion in the Italian Parliament and expected to be approved by early/mid-December. This timing, which coincides with the changes to the UK's 'res-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 draft rules contain recommendations to simplify Italy's immigration law in connection with the new tax system.

Withers lobbied the authorities to introduce a system along these lines, and the proposed new rules include the following:

  • Italian-source income and gains would be taxable in the usual way; but
  • foreign income and gains would be sheltered from Italian tax, provided the taxpayer pays an annual charge of €100,000. This may be extended to family members, at a cost of €25,000 per member. This is reminiscent of the remittance basis charge in the UK.
  • the individual must disclose their tax residency location to the Italian authorities.

This territorial system of taxation would be available for up to 15 years (which is another swipe at the UK remittance basis system), unless the individual fails to pay the full annual charge.

As currently designed, the new system would be available to all persons (regardless of their nationality or domicile) who have been non-tax resident in Italy at any time during the nine years preceding their relocation to Italy. Thus, the new system would also be available to Italian returnees. The rules identify individuals as tax resident if they are a registered Italian citizen or reside in Italy for more than half the year (183 days). The regime requires that all applicants for non-domiciled status request a preliminary ruling from the tax authorities, with the request filed along with their annual income tax return for their first tax year as an Italian tax resident. The tax authorities will have 120 days to approve or deny the request and, if the tax authorities do not reply within this period, the request would be deemed to have been approved.

In addition to shielding foreign income and gains from Italian tax, the annual charge would exempt the taxpayer from a duty to disclose foreign assets in their tax return under the ordinary disclosure rules (a.k.a. 'RW' rules). Of course, CRS/FATCA would still apply, meaning that the existence and value of foreign assets may still be reported to the Italian tax authorities.

It is currently unclear whether the draft provision intends that a non-domiciled individual would be able to make use of the treaties for the avoidance of double taxation. This topic is still under discussion amongst tax specialists and, at this stage, due to the peculiarities of the new regime that make it different from the UK model, there may be grounds to argue that an Italian 'non-dom' could be entitled to benefit from tax treaties. This aspect will have to be carefully assessed from both an Italian and source State perspective.

Interestingly, the new territorial regime would also extend to succession taxes, with inheritance tax only due on assets located in Italy at the time of demise of the individual. This is good news for potential candidates, as there are persistent rumours that Italy might overhaul its current gift and succession tax regime in the near future (currently, gift and succession taxes are levied at very low rates of 4%-8% with exemptions for certain business assets).

It remains to be seen whether the proposed rules will make it to the statute book (possible challenges may include claims of discrimination and even state aid). Indeed, if introduced, the new rules would add to the choice currently available to individuals without fixed domicile (such as, e.g. the 'res-non-dom' system in the UK/Ireland/Malta, the Swiss 'forfait' rules, the Spanish Beckham Law, etc.).

With offices in multiple jurisdictions, Withers is ideally placed to advise international clients on the best system in light of their personal needs and family circumstances. As a leading trust law firm, Withers is particularly suited to advise mobile clients on their relocation needs in the presence of complex family holding structures (such as trusts and foundations).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.