Montepulciano, Tuscany

Transfer of Tax Residence to Italy: Italian Lump Sum Taxation or Flat Tax for Wealthy Individuals

Flat Tax in Italy for High-Net-Worth Individuals - HNWIs

("Imposta forfettaria")

Apply for the Italian lump-sum tax regime

Description of the Italian Lump-Sum Tax Regime

The Italian lump-sum taxation regime (also called "Italian substitute tax", "Italian flat tax", "imposta forfettaria", or simply special Italian tax break for wealthy foreigners) exempts individuals of all nationalities (including Italians) who have not resided in Italy for the last 9 of 10 years and who transfer their tax residence to Italy from reporting to Italian tax authorities, and paying tax on, income earned and generated abroad (including gift and inheritance tax, rental and interest income tax, and capital gains tax) against a yearly flat tax of €100,000 for a period of 15 years.

> Taxpayers have the opportunity to get advance certainty on the application of specific Italian tax provision via a binding tax ruling, in addition to opting out of the regime at any time.

What Are the Key Benefits of the Italian Lump-Sum Tax?

• The Italian flat tax regime is comparable to the UK resident non-domiciled tax residence status (here), but unlike in the UK, remittances to Italy are not taxed
• The Italian lump-sum taxation is much cheaper than, for example, the lump-sum taxation in Switzerland (here) - "Schweizer Pauschalbesteuerung", "forfait fiscal suisse", "imposizione forfettaria svizzera", which requires yearly remittances from CHF 150,000 to 400,000 depending on the Swiss canton
• The Italian flax tax gives 100% exemption from Italian gift and inheritance tax (for non-Italian assets) even if the previous owner was an Italian tax resident
• The lump-sum tax regime in Italy also gives 100% exemption from Italian tax on foreign (i) (self-)employment (ii) business (iii) rental (iv) interest and (v) capital gains income
• The Italian tax breaks for foreigners can be combined with Italian employment and other professional activities (which are, however, subject to normal tax)
  

What Are the Key Downsides of the Italian Flat Tax?

• Anti-abuse provision: Capital gains resulting from the sale of qualified participations during the first 5 years of residency are not exempted and subject to normal Italian tax (that is, the usual Italian capital gains tax of 26% applies). Qualified participations represent 20% of the voting rights or 25% of the share capital of foreign companies (for Italian listed companies the qualifying threshold is 2% of the voting rights and 5% of the share capital)
• The Italian substitute tax is not suitable for US citizens (who are taxed on worldwide income)
• The Italian flat tax is less attractive to persons earning Italian income which would be taxed at up to 43%

What Is Tax Residence in Italy?

An individual is deemed to be tax resident in Italy if (i) registered in the civil registry or (ii) domiciled in Italy over 183 days in a year.

> Taxpayers must move to Italy before 2 July (1 July in a leap year) if they wish to be considered residents for tax purposes for that year.

Who Can Apply for the Italian Lump Sum Tax Regime?

1. The applicant (and any family members) must have been resident outside Italy for at least 9 years preceding the day of application
2. Yearly payment of a €100,000 flat tax (main applicant)
3. Yearly payment of a €25,000 flat tax (family members)

What Are the Application Fees for the Italian Flat Tax Regime?

What Is the Procedure for Getting the Italian Lump-Sum Taxation?

1. The formal application for the special Italian flat or lump sum tax program takes place at the moment of the first submission of the applicant’s Italian tax declaration (i) for the fiscal year during which the residency change was operated or (ii) for the fiscal years following such change
2. Both residents and non-residents are entitled to submit a request for an advance tax ruling ("istanza perventiva di interpello") with the Italian Revenue Agency ("Agenzia delle Entrate")
3. The Italian lump-sum tax is payable in one instalment by 30 June of each year

> An Italian advance tax ruling clarifies how specific Italian state tax provisions will apply in a concrete case and is binding upon the Italian tax authorities.

Which documents are required to apply for the Italian lump-sum taxation and get a tax ruling?

The request for an Italian tax ruling must be signed by the taxpayer or his duly mandated representative and include the following:

• Mention of the type of ruling requested
• Case description mentioning the uncertain tax provision and the solution proposed by the taxpayer
• The applicant's name and Italian address (if available)
• Italian TIN number: codice fiscale (here) if attributed
• Country of last tax residence with indication of official Italian code for foreign states
• Checklist demonstrating the absence of tax residency in Italy in 9 out of 10 tax periods preceding the tax year for which the lump sum is requested ("prima dell’esercizio di validità dell’opzione")
• Indication of the countries not to be covered by the Italian substitute tax ("facoltà di non avvalersi dell’applicazione dell’imposta sostitutiva")
  

> The request must be submitted in person, via registered letter or via certified e-mail (PEC) addressed to the Regional Directorate of the taxpayer’s (expected) place of residence.

> The Italian Revenue Agency has 120 days to respond to the request for a tax ruling and another 60 days to ask additional questions.

> If the Italian Revenue Agency does not answer in these time limits the taxpayer’s interpretation is deemed accepted by tacit consent.

Download factsheet on the Italian lump-sum tax regime