To date, in contrast with most of the foreign tax policies, preferential regimes for foreign income in Italy are not about to be restricted. In fact, alongside the well-known Res Non-Dom regime, there is also the substitute tax for foreign pension holders who transfer their tax residence in southern Italy.
The facilitation
The facilitation scheme under consideration provides for the application of annual substitute tax of 7 percent on any type of income produced abroad.
Therefore, the following would be included in the relief:
- income from real estate located abroad;
- capital income paid abroad;
- income from employed work performed abroad;
- self-employment income derived from foreign activities;
- foreign business income;
- capital gains earned as a result of the sale for consideration of shareholdings in foreign companies;
- income derived from activities abroad and from assets located abroad.
The regime is valid for 9 tax periods following the one in which it becomes effective; therefore, the duration of the substitute tax could be extended for a total of 10 years.
Access Requirements
The tax regime in question was introduced specifically for individuals with a pension paid by a foreign entity, who meet the following requirements:
- a previous foreign residence of at least 5 tax periods;
- a foreign residence in a country that shares tax-relevant information with Italy.
As anticipated, individuals wishing to take advantage of the preferential regime must transfer their tax residence to one of the municipalities located in the Regions of the South, namely: Sicily, Calabria, Sardinia, Campania, Basilicata, Abruzzo, Molise and Apulia.
In addition, the municipality of residence chosen must have a population of less than 20.000 residents.
Inheritance and donations taxes
Another aspect that’s worth taking into consideration by taxpayers who choose to transfer their residence to Italy concerns Italian inheritance and gift taxes.
In fact, in Italy, inheritance and gift taxes currently in force are among the lowest in Europe, standing at between 4 and 8 per cent with very high exemption, reaching up to EUR 1 million for transfers in favour of spouses, children or descendants in a direct line.
Most attractive locations for the transfer of residence
As regards the choice of municipality, the list of suitable locations includes most of the municipalities in Sardinia, a region where around 83% of the towns have fewer than 5.000 residents. The municipalities in question are mainly concentrated in the northern part, an area renowned for tourism and the presence of luxury residences, thus constituting a valid alternative to large Italian cities.
Moreover, through the transfer of residence it will be possible to enter a new real estate sector through the purchase of one's own home. As mentioned above, some of the properties located in areas with a strong tourist influx could constitute investments with a lasting value.
In conclusion, given what has been considered, the access to the regime could be advantageous in many respects: both from the point of view of the efficiency of income flows coming from abroad and the advantageous inheritance taxation in force in Italy.
Fidinam can help
This article was edited by Lorenzo Portolano and Francesco Fasolo, tax consultants at Fidinam Italia.
If you have any questions or require tax advice, please contact us using the appropriate form.
