Italy: Flat tax for new individual residents | KPMG | GLOBAL

Italy: Flat tax for new individual residents, new guidance

Italy: Flat tax for new individual residents

Guidance from the tax authority aims to clarify an optional tax regime for new individual tax residents of Italy. Under the new regime, individuals that are new tax residents of Italy can elect to be subject to a flat-tax regime if: (1) transfer their tax residence to Italy; and (2) have had foreign residence status for at least nine of the last 10 fiscal years.

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Background

Under the flat-tax regime, individuals who previously have not been tax residents of Italy and who transfer their tax residence to Italy will pay, instead of ordinary tax, a flat-rate substitute tax of €100,000 per year on all their non-Italian sourced income (and a flat tax of €25,000 for eligible family member). Under the flat-tax regime, foreign income subject to the flat tax includes:

  • Employment income
  • Rental income
  • Capital income
  • Self-employment income
  • Corporate income (with or without permanent establishment)
  • Other income

New guidance

The circular provides that to qualify for the flat tax, the individual must actually move to Italy. The authorities may remove an individual from the register if, after visiting the person’s residence at appropriate intervals, the authorities cannot find the person at the address.

The circular further provides:

  • Tax rulings are optional, and thus, it may be advisable for taxpayers to consider whether to verify in advance that they satisfy the requirements for the flat-tax regime.
  • Newly domiciled individuals must show they are not subject to the controlled foreign corporation rules or the rules on the full taxation of dividends and capital gains arising from ownership or transfer of shares in companies that benefit from a preferential tax regime.
  • Taxpayers may “cherry-pick” one or more foreign countries or territories and exclude the income generated from those areas from the flat-rate substitute tax, thus benefitting from foreign tax credits that might otherwise be excluded. However, these individuals will have to pay inheritance and gift tax on assets located in the countries that they have chosen to exclude.
  • Individuals who exercise the option are also considered to be residents for purposes of relevant income tax treaties.

 

Read a June 2017 report [PDF 174 KB] prepared by the KPMG member firm in Italy

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