Highlights of the Italian 'New Resident' Regime
On March 8, 2017, Italian tax authorities released the implementation rules to the newly introduced Italian “new resident” regime to attract high net worth individuals to Italy. The primary benefit of the regime is an annual substitute tax of Euro 100,000 on all the foreign income of a "new resident".
The regime is now live and new residents can freely opt for the regime immediately, starting from fiscal year 2017.
The implementation rules clarify how to request for the application of the new regime, the content of the ruling request that must be filed to access the regime, the time limitations (which allow individuals that have been resident in Italy for tax purposes in 2016 to access the regime), and the (absence of) disclosure obligations of asset held abroad.
Overall the rules are extremely favorable for individuals who wish to migrate to Italy as a new resident.
Application to benefit from the regime
Tax authorities clarified that to benefit from the “new-resident” regime, it is not mandatory to file a ruling request. A newly transferred individual who meets all the requirements may elect to access the regime either by (i) exercising an explicit option in the income tax return for the fiscal year in which they transfer their residence to Italy (or in the following year); or by (ii) filing a specific ruling request to the tax authorities, who will, in response, attest the compliance of the requesting individual with the requirements set forth to access the regime. Family members can be included in the regime from the beginning or at a later time, as long as a substitutive tax of Euro 25.000 for each person included in the regime is paid.
The option for the “new-resident” regime is automatically renewed each year, up to a maximum of 15 years. Nonetheless, the Italian “new-resident” is free to withdraw the option for the regime at any time, simply by notifying the central tax assessment department (ufficio centrale accertamento) or by including a specific declaration in the tax return. In the event that the “new-resident” cease to benefit from the regime, family members that were included in the regime will cease to benefit from the regime as well. Despite this, those family members can exercise a new (independent) option to become a “new-resident”, which they can extend to their family members, for the remaining time (up to 15 years from the original option).
The implementation rules allow a "new-resident" individual to file a ruling request to confirm that the individual meets the residence requirements set forth to access the regime. The tax authorities clarified that such a request shall focus on proving that the applicant has not been resident in Italy for tax purposes for 9 out of 10 of the previous calendar years. In order to do so, the applicant shall prove that he/she had no “centre of vital interests” in Italy for at least 9 out of the 10 preceding calendar year, both with respect to personal and emotional ties and with respect to economic interests. The tax authorities clarified that individuals which became tax resident in Italy in 2016 can access the regime as long as in the previous 9 years he/she has been a resident for tax purposes abroad.
A specific checklist that should be attached to the ruling request has been released by the tax authorities. The checklist includes a description of all family and emotional ties and a full description of Italian source items of income (that will be taxed according to ordinary rules). If the checklist is not attached to the ruling request or to the tax return in which the option is exercised, the request to access the regime shall be inadmissible.
The implementation rules clarified that a "new-resident" will not be required to disclose any assets held abroad before migrating to Italy in the ruling request or in the tax return. No disclosure of such assets held abroad is required during the regime as well, since a “new-resident” is not required to fill in the section of the tax return (section RW) in which normal Italian residents disclose their assets owned abroad.
The chance for the “new-resident” to choose whether to file a ruling request to the tax authorities is one of the most important clarifications in the implementation rules, since it was not particularly clear from the law whether the ruling request should be mandatory or optional. In any case it may be advisable to obtain a ruling to provide more certainty in specific circumstances. For example, individuals who are planning to transfer their residence for tax purposes to Italy from a “black-listed” country may opt for the “new-res” regime as well. In these circumstances, it is particularly advisable that the relevant person files a ruling request to the tax authorities. As a matter of fact, given the general “presumption of residence in Italy” for individuals who transferred their residence from a black-listed jurisdiction, it would be particularly important that the tax authorities ascertain that the applicant has been effectively resident in the black-listed jurisdiction for at least 9 of the 10 previous years.
There are some consequences that are noteworthy once a person joins the "new-resident" regime. A “new-resident” will be considered an ordinary tax resident once they join the regime, which means that they should spend at least 183 days in Italy in a year. Careful tax planning will be required to avoid any risk of assessments by the tax authorities of the “country of origin” (i.e. the State from which the "new-resident" transfers their tax residence), claiming a fictitious transfer of residence to Italy.
Lastly, careful tax planning concerning sources and nature of income should be required. Caution should be exercised with respect to Italian source income, such as employment income arising from Italian based corporation. With respect to foreign source income, one shall consider that a "new-resident" might not benefit from any tax credit for tax paid abroad or from any tax treaty benefit: taxes levied abroad might not be deducted from the sum of Euro 100.000 to be paid. If a "new-resident" wishes to benefit from tax credit for foreign income and/or from tax treaty benefits, they shall exclude the country in which foreign income source are taxed from the regime, by applying the so called “cherry picking” option or through the ruling request. In this case, the new-res will pay (i) ordinary taxes in Italy on such foreign items of income held in the excluded country, as well as (ii) foreign taxes on those items of income; but, they will benefit from tax credit for such taxes paid abroad.