In the current context, where international mobility is growing, as are the tax burdens in some European jurisdictions, more and more high-net-worth individuals are considering a change of tax residence. But doing so without understanding the rules can lead to disputes and double taxation. We discussed this with Fabio Oneglia, co-managing partner of the Fivers Law and Tax Firm, who helps us navigate the vast sea of regulations and their new developments.
So, let’s start with a basic concept: what are the key criteria for determining an individual’s tax residence today?
The criteria for defining the tax residence of individuals have recently been subject to changes in Italy, thanks to a legislative intervention that revised the provisions contained in Article 2 of the TUIR. Starting in 2024, the relevant parameters will be more closely aligned with international standards: civil residence (or habitual abode), domicile, and physical presence in Italy for the majority of the tax period will be considered. Furthermore, unless proven otherwise, registration in the population registry determines tax residency.
In particular, the concept of domicile has evolved from a civil definition tied to the principal place of business and interests to a tax definition based on the place where personal and family relationships primarily develop.
What are the most common mistakes made in tax relocation?
First of all, it should be emphasized that determining tax residency requires a substantive assessment, not just a formal one. A transfer must be genuine and demonstrable with factual evidence, starting with personal and family relationships.
Italian law also provides that when the transfer occurs to countries included in the so-called “black list,” tax residency is presumed to still be in Italy, unless proven otherwise by the taxpayer.
Furthermore, when transferring residence abroad, it is appropriate to consider whether the destination country has signed double taxation treaties, particularly with Italy.
More and more countries are offering preferential tax regimes to attract capital and talent. Which models are currently the most competitive and sustainable in the long term?
The new residents regime introduced in Italy in 2017 is a stable and attractive measure. Starting in 2024, the annual flat tax has been raised from €100,000 to €200,000 for income earned abroad, while income from Italian sources will remain taxed according to the ordinary rules applicable to all other residents. The regime applies to those transferring their residence to Italy and having resided abroad for at least nine of the last 10 years. It can be extended to family members with a substitute tax of €25,000 each, and is valid for 15 years. The regime has had a positive impact on tax revenue, for both direct and indirect taxes, attracting new taxpayers. Overall, the Italian model is competitive compared to regimes in other countries, but a personalized assessment remains essential.
How does estate and succession planning change when relocating?
From an estate planning perspective, it’s important to emphasize that—regardless of any international dynamics—it’s advisable to plan the transfer of assets in advance. This is a personal and sensitive issue, to be addressed on a case-by-case basis, but it becomes even more relevant when assets and beneficiaries are spread across multiple countries.
In Italy, for example, the law establishes that, in the event of the death of a resident, inheritance tax applies to all assets and rights, wherever they are located. Conversely, if the deceased is a non-resident, the tax applies only to assets and rights located in Italy. These criteria can lead to double taxation, especially in the absence of planning.
It should also be noted that Italy has inheritance tax treaties with several countries, including the United States, France, and the United Kingdom.
What other measures currently make Italy attractive to non-residents?
The tax regime for new residents in Italy is clearly designed to attract high-net-worth individuals who, without this incentive, would likely not move to our country. Although it affects a limited group—a few thousand individuals—it has contributed to increased revenue, both directly through the substitute tax on foreign-source income and ordinary taxes on Italian-source income, and indirectly through consumption and investments generated by these individuals in Italy. The regime has proven sustainable over time and has strengthened Italy’s credibility as a country capable of fulfilling its tax commitments. In addition to the new resident regime, it is worth mentioning, in particular, the simplified visa procedures for strategic investors, the “brain drain” provisions, the regime for expatriates, the carried interest regulations, and the provisions on permanent establishments for investment vehicles. These are tools that, if well understood and utilized, can make Italy an attractive tax destination even in the long term.
