The new Article 24 bis of TUIR introduced a FLAT TAX for “newly resident” individuals in Italy

The new Article 24 bis of TUIR (consolidated law on income tax) introduced a favorable tax regime for “newly resident” individuals in Italy.

It’s a flat tax for wealthy foreigners in a bid to compete with similar incentives offered in Britain, Spain, Portugal and Malta which have successfully attracted rich people working in sports, arts, fashion or other high income sectors and possibly aims to attract the London-based wealthy who are put off by Brexit.

The new flat rate tax of €100,000 a year will apply to all worldwide income for foreigners who declare Italy to be their residency for tax purposes.

Those who would want to take advantage of the tax rate would have to have resided abroad for nine of the last ten years, and have sufficient income to make the 100,000 euro price tag an attractive deal.

To apply for the regime taxpayers have to file a specific ruling to the Italian tax authorities, which can include family members (who will be subjected to an additional substitute tax of  €25,000 per person), and it will be possible to choose the country or the countries where the foreign income has been produced subjected to the substitute tax regime (“cherry picking” principle).

A person is considered an Italian resident for tax purposes if they are in the country for more than 183 days, or six months.

Those intending to opt for this regime should pay attention to domestic and overarching conventional norms on residence, partly because the Italian Revenue Agency can exchange information with countries where the neo-Italians were formerly resident.

The countries and the related income produced there not included in the ruling request will be subjected to the regular Italian tax rules, allowing the taxpayer to benefit from credit for taxes levied abroad (conversely this benefit is denied for the income subjected to the substitute tax regime).

Once the Italian tax authorities issue a favourable ruling (after having prepared not easy measures of preventive assessment and information exchange), all foreign incomes will be admitted to the substitute tax regime for a 15 years period.

Income is considered of foreign origin, with a “mirror reading” of Article 23 TUIR (consolidated law on income tax) and with the exception of what is possibly provided for by international tax treaties, when:

  • the asset generating the income is situated abroad
  • the business generating the income was conducted abroad or
  • the individual remitting the income is resident abroad for fiscal purposes.

Those subjected to the new regime will benefit also from the exemption, as long as their option will last, from filling the RW section of the Italian tax return concerning assets held abroad, as well as the exemption from paying IVIE (tax on the value of real estate located abroad) and IVAFE (tax on the value of financial activities located abroad).

Finally, those opting for the substitute tax regime will be exempted from donations and inheritance tax related to assets owned abroad, and will benefit from simplifications when asking entry visas in Italy.