Italy introduces ‘non-dom’ tax status for foreign residents

7 December 2016, the Italian parliament approved the Finance Act 2017, which introduces a special tax status for non-domiciled residents who pay a ‘flat-rate tax’ on income produced abroad. The law, which is intended to attract capital investment to Italy, was one of the last acts of outgoing Prime Minister Matteo Renzi before his resignation.

Article 1 of the Finance Act 2017 adds a new provision to the Italian Consolidated Income Tax Code permitting non-domiciled residents who disclose their tax residency location to the Italian authorities to pay an annual charge of €100,000 for themselves (and €25,000 for their relatives) on certain foreign income including income from rental activities, capital, employment and corporate income with or without a permanent establishment.

Ordinary taxes will be applied only on capital gains from ‘qualifying holdings’, realised in the first five fiscal years and on Italian-source income. Inheritance and gift tax will be due on Italian assets only and not on assets held abroad. The law also offers an exemption from monitoring obligations (RW Form) and from related wealth tax payments.

The new regime will be available to all individuals, regardless of nationality or domicile, who have been non-resident in Italy for at least nine out of the previous 10 fiscal years. This will include returning Italian nationals. It will apply for up to 15 years, but will terminate immediately if any tax is not paid, or is only partially paid, by the due date for remittance of the tax.

The process of obtaining Italian entry visas and resident permits will accelerated for foreign investors who invest a minimum of €2 million in Italian government bonds or a minimum of €1 million in an Italian company for at least two years, or who donate a minimum of €1 million for philanthropic purposes in a sector that furthers the Italian economy.

This fast-track route is subject to evidence of the existence of the funds and their legal origin. The initial length of the residence permit will be two years, renewable for a further three years. After five years, if the above requirements are still satisfied, permit holders will be able to claim a long-term EU residence permit.