Updates to Italy's Competitive Special Tax Regime

Italy introduced a special tax regime introduced by Article 16 of Law Decree no. 147 aimed at high net worth individuals (HNWI) who had not previously lived in Italy but were prepared to commit to living in Italy for a set period of time. Commonly known as the flat-rate tax it offered a highly attractive flat-rate tax on the global income of an individual (excepting that earned in Italy) as well as other equally advantageous tax rates. There have been several amendments since the law’s enactment as well as additional tax provisions in 2017 and 2019 addressing the special tax regime for HNWI and those who have retired.

There are broadly four categories that have been addressed by the special tax regime amendments, foreign workers planning to live in Italy, professional sportsmen and women, HNWI and retired individuals.

Foreigners who wish to retire to Italy will benefit from an excellent climate, a unique cultural environment, first-class cuisine and one of the best tax rates in Europe.  The foreign-sourced income earned by the retiree is subject to a 7% flat-rate tax and is valid for nine years after the initial registration as an Italian tax resident.  In order the benefit from the special tax regime there are certain criteria to be fulfilled:

• Being a retired person, in receipt of a foreign pension
• Being qualified as non-tax resident of Italy for the five years preceding the transfer to Italy
• To become tax resident of Italy in one of the Southern Regions (Sicily, Calabria, Sardinia, Campania, Basilicata, Abruzzo, Molise and Apulia) and into a municipality with less than 20,000 inhabitants.

The Italian real estate market in those regions is extremely favourable, in the southern half of Italy.  There are a number of highly attractive real estate schemes for individuals who relish a refurbishment project, as well as economically favourable schemes that do not involve restoration.

HNWI who choose to live in Italy but have not lived in Italy for the previous nine years will benefit from the flat-rate tax which amounts to a single payment of €100,000 on all foreign income, regardless of how much the foreign income amounts to.  Family members can also join the scheme and pay a flat-rate of €25,000 on their entire foreign income. The special tax regime extends for 15 years starting from the first year of tax residency.

Foreign workers and sportsmen and women can gain a considerably reduced tax rate if they comment to living in Italy for at least two years, with additional benefits in the shape of significant further tax reductions if they choose to live in any of the following: Abruzzo, Basilicata, Calabria, Campania, Molise, Puglia, Sardinia or Sicily.  The employment categories have been eased enabling a wider range of employment possibilities for workers.  The favourable tax rates apply to earned income in Italy the income derived from sponsorship deals acquired by sportsmen and women will depend on their contract but almost certainly not be included.  Other factors such as having or adopting a child or purchasing a property will incur further tax reductions.

For more information on the special tax regime please click here