Italian Non-Dom Tax Legislation: Recent Developments2 February 2019

The new tax regime

Art. No. 1, paragraph No. 273-274 of Law No. 145/2018 (i.e. the 2019 Italian Budget Law) introduced into D.P.R. 917/1986 (the Italian Income Tax Code or ”ITC”) Art. 24-ter, implementing a new optional tax regime1 applicable from 1 January 2019 for individuals:

• receiving foreign pensions; and
• moving their tax residence from a foreign country to a municipality with no more than 20,000 inhabitants located in Southern Italy2.

Under this new regime, all foreign income3 within the scope of the new regime will be taxed at a 7% flat rate in each fiscal year to which the election applies.

The 7% flat rate regime applies for up to six years from the first fiscal year for which the election is made (in the relevant annual tax return) and can be revoked at any time within those six years4.

The individual is allowed to exclude one or more foreign income-source countries from the scope of the optional tax regime on a “cherry-picking” basis. In such cases, the ordinary tax regime will apply to income from excluded countries5.

In principle, under the pensions article of OECD-style Double Taxation Treaties, pensions paid by foreign entities to individuals resident for tax purposes in Italy are liable to taxation in Italy only6.

The 7% flat tax is due in a single instalment by the ordinary deadline for the payment of any personal income tax or “IRPEF” balance (i.e. 30 June following the end of each fiscal year)7.

The additional requirements for this tax regime to apply are that:

• the individual has not been tax-resident in Italy in the five fiscal years before the one in which the regime begins to apply; and
• the last country in which the individual was tax-resident has an “administrative cooperation” agreement with Italy8 (e.g. an EU Member State).

The Italian Tax Authority is expected to provide further clarification on this new tax regime.

The main differences between this new tax regime for foreign pensioners (under Art. 24-ter of ITC) and the previous “Non-Dom Regime”9 (under Art. 24-bis of ITC) are summarised in the following table:

Conclusions

The introduction of the new tax regime aims to attract individuals receiving pensions from abroad and moving their tax residence to Italy, as per the previous Non-Dom Regime. However, the 7% flat rate on foreign income may represent an additional and significant tax saving.