The Italian tax legislation, analogous to other EU jurisdictions, has introduced favorable regulations to attract so-called “high net worth individuals”. In particular, Article 24 bis of the TUIR (Income Tax Consolidation Act) provides that, under certain conditions, individuals who transfer their residence from a foreign country can benefit from a preferential regime with the application of a flat tax of €100.000 on income generated abroad (with an additional €25.000 for the spouse), as well as enjoying tax exemption on inheritances and donations in relation to foreign assets.
This provision applies to individuals who can activate the benefit on an optional basis. However, there are subjective conditions related to the so-called flat tax for new residents.
- Transfer of fiscal residence from a foreign country to Italy, in accordance with Article.2 paragraph 2 of the TUIR
- The individual has not resided in Italy for at least nine tax periods, even if not continuous, prior to the start of the option’s validity.
Based on these conditions, the Italian Revenue Agency specifies that it is necessary and sufficient to meet the conditions provided by the regulation, regardless of the taxpayer’s nationality. It can, therefore, apply to both foreign and Italian citizens.
On the other hand, regarding the objective scope of application, Article 24 bis of the TUIR considers only income generated abroad, i.e., income of any nature that has no connecting criteria with Italy but, solely, with a foreign country.
Coming to the subject matter, we can identify two significant innovations; the first is the substitute for IRPEF (personal income tax) being calculated on a lump-sum basis, regardless of the income generated abroad. The second is related to the exemption from tax on inheritances and donations. However, it should be noted that, during the first five years of entry into Italy, any capital gains from the sale of “significant” holdings are subject to regular taxation. Notwithstanding, in our opinion the sale of shares in investment funds, even for substantial amounts, should not be included in the aforementioned anti-avoidance provision as they are financial instruments representing a mere economic interest and not administrative/managerial rights, thus being quite distinct from shares in ordinary companies.
Regarding the latter provision, the rule under comment states that for open successions and donations made during the taxable periods of validity of the option exercised by the originator (de cuius or donor), the tax is applied to the beneficiaries exclusively for assets and rights existing in the state at the time of the succession or gift. In other words, foreign assets remain excluded from inheritance and gift tax liability. It is, therefore, an exemption of an objective nature, as the rule affects only assets located abroad, derogating from the ordinary principle of territoriality, enshrined in Art. 2 of the TUS, according to which inheritance and gift tax applies to all assets and rights transferred, even those existing abroad, if the donor is resident in Italy.
As for the procedure to access the benefits of this “appealing” regime, it is required that the taxpayer exercises the option, which is finalized with the submission of the tax return referring either to the tax period in which the beneficiary transferred his or her residence to Italy, or to the subsequent tax period to the transfer of residence to the country. It is possible to submit a request for an interpellation, even in advance, to the Internal Revenue Service, to ensure certainty of the application for the tax relief in question. Equally interesting is the duration of the relief: 15 years, nonrenewable, from the time of exercise.
To conclude, we take a moment of reflection from a supranational perspective. In view of the approval of the EU Directive against the abuse of corporate vehicles, the so-called “Unshell directive,” several questions arise about the interaction between the Directive and the domestic law of the newly established. In particular, if a person owns a holding company abroad that qualifies as a shell company, and the latter in turn holds interests in companies located in other EU states, the problem of attracting such income to Italy could – in the near future – arise. Similarly with regard to this aspect, one could argue about the reorganization of family assets with the use of mutual funds instead of shell companies.
