Italian flat tax for foreigners living in Italy: our guide
Wishing to live the "Dolce Vita" but scared of the Italian tax system?
Italy is one of the world top destination for living, due to its history, culture, landscape, food and wine. However, many people decide not to make the move for a simple reason: Italian taxes!
Italian income tax rates rank high in among OECD countries, and High Net Worth Individuals (HNWI) are normally discouraged to move their tax residency to Italy because of adverse consequences to their personal wealth.
The Italian government has tackled this problem in 2017, introducing a new tax regime tailored to new residents of Italy: flat tax. Let's discover how it works.
For more information about this read also our article about the flat tax in details.
Italian income tax rates rank high in among OECD countries, and High Net Worth Individuals (HNWI) are normally discouraged to move their tax residency to Italy because of adverse consequences to their personal wealth.
The Italian government has tackled this problem in 2017, introducing a new tax regime tailored to new residents of Italy: flat tax. Let's discover how it works.
For more information about this read also our article about the flat tax in details.
Who is eligible?
New residents, who were not tax resident of Italy in the past 9 out of 10 years, can opt for the flat tax regime.
Individuals who were registered as resident of Italy in the past year can still qualify as long as the tie breaker rules included in the Double Tax Treaty protects them.
There are no citizenship limitations; Italian citizens and non-Italian citizens can apply indiscriminately. Citizens of countries with which Italy does not have any tax treaty in effect can also apply.
Individuals who were registered as resident of Italy in the past year can still qualify as long as the tie breaker rules included in the Double Tax Treaty protects them.
There are no citizenship limitations; Italian citizens and non-Italian citizens can apply indiscriminately. Citizens of countries with which Italy does not have any tax treaty in effect can also apply.
How does the flat tax regime work?
New residents opting for this flat-tax regime will pay, instead of ordinary tax rates, a flat-rate tax of € 100,000 per year on all their non-Italian sourced income; this option lasts up to 15 years.
The regime can also be extended to any family member, who will be subject to € 25,000 annual tax instead of € 100,000.
The lump sum payment covers any foreign income subject to the flat tax includes:
By opting for the new tax regime, taxpayers are exempt from:
Unlike other HNWI tax regimes in Europe, individuals can remit funds to Italy without any limitation because the lump sum tax already covered income made abroad.
The flat tax does not apply to any Italian sourced income and on capital gains realised upon the transfer of non-Italian "qualified" shareholdings in the first 5 years after the election.
The regime can also be extended to any family member, who will be subject to € 25,000 annual tax instead of € 100,000.
The lump sum payment covers any foreign income subject to the flat tax includes:
- Employment income;
- Rental income;
- Financial income;
- Self-employment income;
- Dividend income;
- Other sources income.
By opting for the new tax regime, taxpayers are exempt from:
- Donations and Inheritance taxes relating to assets and real estate owned abroad;
- Wealth tax on foreign real estate and financial activities;
- Remittances tax;
- Foreign Held Assets reporting and, that is filing the RW reporting form (disclosure form to be attached to the Italian tax return with respect to any asset held abroad).
Unlike other HNWI tax regimes in Europe, individuals can remit funds to Italy without any limitation because the lump sum tax already covered income made abroad.
The flat tax does not apply to any Italian sourced income and on capital gains realised upon the transfer of non-Italian "qualified" shareholdings in the first 5 years after the election.
Tax regime termination
The taxpayer can terminate this tax regime at any time by option, resulting in his foreign income being taxable in Italy at ordinary tax rates.
Other termination reasons occur when the taxpayer fails to pay the € 100,000 lump sum or when the taxpayer relinquishes tax residency from Italy.
Other termination reasons occur when the taxpayer fails to pay the € 100,000 lump sum or when the taxpayer relinquishes tax residency from Italy.
How to apply?
Tax Authorities have confirmed that the flat tax regime option can be done via tax return filing and paying the € 100,000 lump sum tax; however, the taxpayer may submit to the Italian Tax Authorities a formal ruling reporting the following information:
According to the recent guidelines, it has been clarified that a formal advanced ruling with the Italian Tax Authorities is not strictly mandatory; however it is advisable to do so, giving the taxpayer a better ground against the Tax office.
Furthermore, the ruling could be requested before the taxpayer moves to Italy; Italian Tax Authorities have up to 120 (180) days to approve or deny such request and such time could be spent to plan the move to Italy.
Once a positive ruling is obtained, the tax office cannot deny or clawback the application at any time!
- Taxpayer’s personal data, including Italian tax code;
- Jurisdiction (or jurisdictions) under which the taxpayer has been tax resident during the previous fiscal years;
- Jurisdiction (or jurisdictions) that the taxpayer wishes to exclude from the flat tax.
According to the recent guidelines, it has been clarified that a formal advanced ruling with the Italian Tax Authorities is not strictly mandatory; however it is advisable to do so, giving the taxpayer a better ground against the Tax office.
Furthermore, the ruling could be requested before the taxpayer moves to Italy; Italian Tax Authorities have up to 120 (180) days to approve or deny such request and such time could be spent to plan the move to Italy.
Once a positive ruling is obtained, the tax office cannot deny or clawback the application at any time!
Does the flat tax cover any Italian income?
The flat tax does not cover any Italian sourced income, and these sources will be taxable at ordinary progressive tax rates.
This regime, however, can be used in combination with other new residents tax regime available in Italy. Most notably the new residents tax regime allows for a reduction up to 90% of your Italian taxable income for new residents.
This regime, however, can be used in combination with other new residents tax regime available in Italy. Most notably the new residents tax regime allows for a reduction up to 90% of your Italian taxable income for new residents.
Does the flat tax regime help with my VISA?
Despite the tax regime does not include an outright VISA grant, this regime works well combined with the Investor VISA.
This VISA grants a 2 year right to settle in Italy upon providing any of the following investments:
You can invest the aforementioned amounts in YOUR startup or YOUR limited company in Italy; there is no requirement that the business was already active prior the application. During the whole VISA period the applicant must hold the investment in Italy.
For more VISA opportunities, and more detailed information, please refer to our dedicated website page.
This VISA grants a 2 year right to settle in Italy upon providing any of the following investments:
- € 2,000,000 in Italian 10 year Government bonds;
- € 1,000,000 in an Italian limited company;
- € 500,000 in an Italian limited company, reduced to € 250,000 if the company is an innovative startup.
You can invest the aforementioned amounts in YOUR startup or YOUR limited company in Italy; there is no requirement that the business was already active prior the application. During the whole VISA period the applicant must hold the investment in Italy.
For more VISA opportunities, and more detailed information, please refer to our dedicated website page.
Why is this regime beneficial for High Net Worth Individuals?
This particular regime has been widely appreciated by the High Net Worth Individuals community as it gives the option and the flexibility to live in Italy without much hassle and fear from the tax office investigations.
Furthermore, this regime still allows for Double Tax Treaty income tax exemptions and withholding tax waiver or reduction. In fact, we have helped many individuals to restructure their foreign assets and income, exploiting the Double Tax Treaties opportunities, to only pay € 100,000 on their worldwide income.
This regime is well appreciated by individuals who realize large capital gains, capping their tax liability to € 100,000.
A good tax planning allows you to reduce your total tax burden to € 100,000.
Furthermore, this regime still allows for Double Tax Treaty income tax exemptions and withholding tax waiver or reduction. In fact, we have helped many individuals to restructure their foreign assets and income, exploiting the Double Tax Treaties opportunities, to only pay € 100,000 on their worldwide income.
This regime is well appreciated by individuals who realize large capital gains, capping their tax liability to € 100,000.
A good tax planning allows you to reduce your total tax burden to € 100,000.
How can we help you?
Accounting Bolla is a Certified Chartered Accountant firm under the Italian and the UK laws.
We have a wide expertise in helping our international clients with the Flat-tax regime application and its subsequent compliance.
We can support you in multiple:
Want to read more? Check also our guide about freelancing in Italy, filing your taxes in Italy, or retiring in Italy.
We have a wide expertise in helping our international clients with the Flat-tax regime application and its subsequent compliance.
We can support you in multiple:
- Flat tax regime application advisory;
- Tax planning;
- Income and assets restructuring;
- Italian tax implications advisory;
- Ruling submission;
- VISA application;
- Tax return filing and Italian tax compliance.
Want to read more? Check also our guide about freelancing in Italy, filing your taxes in Italy, or retiring in Italy.
