Senior Associate Milan
"Income generated overseas will be subject, for each tax period, to a substitute tax set at a flat rate of €100,000."
Notably, going against the general principle of income being taxed on a worldwide basis, the regime allows individuals who are tax residents in Italy the option of not including personal income generated overseas in their personal income tax (“IRPEF”).
For each tax period in which this option is valid, such income will be subject to a substitute tax, set at a flat rate of €100,000. This tax, which is not deductible from any other tax or contribution, will be paid in a single payment by the date set for the payment of the balance of income taxes (30 June, or 30 July with an additional 0.4%).
One can opt into the non-dom regime for (i) the annual income tax return relating to the first fiscal year in which one becomes an Italian tax resident; or (ii) the tax return of the subsequent fiscal year.
However, an optional advanced tax ruling can be filed to receive a formal statement from the Italian tax authorities on the eligibility for non-dom tax regime.
Subjective scope of application
The rule covers various types of individuals who transfer their tax residence to Italy. These must not have been fiscally resident in Italy in at least nine of the ten tax periods (monitoring period) prior to the start of them taking up the option.
Once signed up to the Italian non-dom regime, the main beneficiary may request it also cover one or more family member as defined in the Italian Civil Code provided that they are also resident in Italy during the validity period of the option. In this case, an additional substitute tax of €25,000 is available per family member to whom the option is extended.
"One can opt into the non-dom regime for the annual income tax return relating to the first fiscal year of Italian tax residence or the subsequent fiscal year."
Objective scope of application
The substitute tax, both with reference to the main beneficiary and to their family members, affects income generated abroad. The optional regime does not apply to capital gains from the disposal of qualified shares within the first five fiscal years of validity of the option. Finally, the beneficiary may choose, for themselves or their family members, not to claim the substitute tax with reference to income generated in one or more foreign states or territories, giving specific indication of which when exercising the option or with an amendment at a later date. In such cases, the ordinary IRPEF regime applies for income generated in the designated states or territories, with the taxpayer receiving a tax credit for said income.
Duration of the option
The substitute tax regime on income generated abroad ceases 15 years after the first tax period under which the option was taken up ends. However, the taxpayer or family members to whom it was extended can revoke it in any tax return after the first in which the option was taken up. The benefits of the option also cease in the event of failure to pay, in whole or in part, the substitute tax, without prejudice to the effects produced in previous tax periods. This is also the case if tax residency is transferred from Italy to another state or territory, with benefits ending with the tax period in which the beneficiary lost residence in Italy for tax purposes.
Other considerations
Taxpayers who exercise the option (and family members to whom it is extended) for the substitute tax on foreign income and with reference to the tax periods of validity of the option, also benefit from an exemption on tax on the value of (i) properties they own abroad; and (ii) financial products, current accounts and savings books referred to Legislative Decree 201/2011.
Finally, opting into the Italian non-dom regime cannot be combined with other tax regimes benefiting individuals, such as the 7% flat rate for pensioners or the inbound workers regime. For inheritances and donations made in tax periods during which the option is being exercised, tax is due only on assets and rights forming part of such in Italy.
Key contacts
Senior Associate Milan
Milan
