1 Legislative framework

1.1 Which legislative provisions govern private client matters in your jurisdiction?

Private client matters are governed by statutes such as Legislative Decree 346/1990 on inheritance and gift taxes and the Civil Code.

There is no single statute that governs all private client matters, both civil and fiscal, about the private client matters.

1.2 Do any special regimes apply to specific individuals (eg, foreign nationals; temporary residents)?

Special beneficial tax regimes have been introduced with the aim of enhancing investment and attracting high-net-worth individuals (HNWIs) to Italy. They include a regime available to pensioners who receive pension income from a foreign country and who wish to move to Southern Italy. Taxpayers who wish to avail of this regime must have lived abroad for the past five years before transferring their residence to Italy; if they qualify for the regime, they can benefit from a reduced tax rate of 7%, rather than a progressive tax rate of up to 43%, both on their pension income and on all income produced abroad while the tax regime remains valid.

Also, HNWIs who transfer their tax residence to Italy can apply a substitute tax to their foreign income, amounting to €100,000 for each fiscal year, in lieu of Italian income tax. This tax regime is available for individuals who are ‘newly resident' in Italy and who have been non-tax resident in Italy for at least nine of the 10 years preceding their transfer to Italy.

This represents an alternative to the application of the ordinary tax regime and is valid for a period of 15 years.

Special tax incentives are also available to athletes, artists and performers, as well as entrepreneurs, as long as they meet the following conditions:

  • They have lived as Italian tax non-residents for the previous two years before transferring their tax residence to Italy;
  • They qualify as Italian tax residents; and
  • They plan to remain in Italy for at least two years following the move and to perform their main work activity in Italy.

Such individuals currently enjoy a 70% personal income tax exemption on any employment, self-employment or business income earned in a five-year period, including the year of transfer and the following four.

1.3 Which bilateral, multilateral and supranational instruments in effect in your jurisdiction are of relevance in the private client sphere?

The supranational instrument that is most commonly used in Italy is the trust (ie, purpose trusts, trusts with beneficiaries, charitable trusts, discretionary and protective trusts, self-declared trusts). However, other instruments are also used, such as international fiduciaries companies, private foundations (from Panama, Luxembourg or Liechtenstein) and similar entities, and life insurance policies.

Other instruments available in Italy include the following:

  • Patto di Famiglia: This was introduced by the legislature as a good solution for the generational transfer of a family business. It is also considered a good solution to ensure continuity of governance, because it assures the continuity of the business and the satisfaction of the forced heirs. One or more of them will receive the company's shares and the others will receive cash or some other assets by the transferees (they can also renounce their reserved quota).
  • Fondo patrimoniale: This is an agreement between spouses to transfer properties or other registered assets to a separate family fund for the purpose of satisfying the needs of the family.

Foundations are mainly used by families or individuals for philanthropic or charitable purposes.

A life insurance policy is a stable instrument that provides protection for the policyholder against a potential future negative event or against the financial consequences of death and morbidity, as well as long-term savings and pension solutions.

2 Taxation

2.1 On what basis are individuals subject to tax in your jurisdiction (eg, residence/domicile/nationality)? How is this determined?

An individual's liability to Italian taxation is based on his or her tax residence and on the source of the income. If the individual qualifies as Italian tax resident, he or she will be subject to taxation in Italy on his or her worldwide sourced income; otherwise, he or she will be subject to Italian taxation only on income produced in Italy during the tax year.

As a general principle, according to Article 2 of the Tax Code, an individual is deemed to be Italian tax resident if he or she meets at least one of the following conditions:

  • enrolment in the Register of Resident Population for more than 183 days during the fiscal year;
  • ‘residence' in Italy, as defined in the Civil Code. This is deemed to be the place of habitual abode and is determined on the basis of the individual's physical presence in Italy, which must be regular and continuous; as well as on the individual's social and personal habits, family relationships and business and personal activities; or
  • ‘domicile' in Italy, as defined in the Civil Code. This is deemed to be the place where the individual has established his or her centre of vital and economic interests, and is determined on the basis of an evaluation of all facts relating to his or her business or personal relationships.

2.2 When does the personal tax year start and end in your jurisdiction?

The tax year for individuals in Italy is the calendar year (ie, from 1 January to 31 December.

2.3 With regard to income: (a) What taxes are levied and what are the applicable rates? (b) How is the taxable base determined? (c) What are the relevant tax return requirements? and (d) What exemptions, deductions and other forms of relief are available?

(a) What taxes are levied and what are the applicable rates?

Taxable income in Italy is subject to personal income tax (Imposta sul reddito delle persone fisiche (IRPEF)). The IRPEF tax rates range from 23% to 43% in different bands as follows.

Taxable income Tax rates Taxes
From €15,000 23% 23% on taxable income
From €15,001 to €28,000 27% €3,450 + 27% on taxable income over €15,000
From €28,001 to €55,000 38% €6,960 + 38% on taxable income over €28,000
From €55,001 to €75,000 41% €17,220 + 41% on taxable income over €55,000
Over €75,000 43% €25,420 + 43% on taxable income over €75,000


(b) How is the taxable base determined?

The taxable base is determined on the basis of taxable income.

(c) What are the relevant tax return requirements?

Natural persons must file a tax return using the Redditi PF form or Form 730, depending on the type of income.

The simplified tax return (Form 730) can be used only for particular types of income (ie, incomes subject to ordinary taxation) if the taxpayer meets the following conditions:

  • He or she is tax resident in Italy in the year of filing Form 730 and was also tax resident in Italy in the previous year;
  • He or she has a withholding agent in Italy for the period of filing of the Italian income tax return; and
  • He or she has no value added tax (VAT) number.

Spouses may submit Form 730 jointly.

To facilitate filing of the annual tax return, taxpayers may also use Form 730 and the pre-completed personal tax return form provided by the Italian Revenue Agency. This contains information that is pre-entered automatically, including deductions for:

  • healthcare expenses;
  • university fees;
  • insurance premiums;
  • social security contributions; and
  • building renovation and energy efficiency subsidies.

If taxpayers receive income from business, are self-employed and VAT registered or receive other types of income not included in Form 730, they must submit a Redditi PF form.

A tax return must be submitted every year by the following deadlines:

  • Form 730: By 30 September, directly online or with the aid of a fiscal support centre or a qualified professional, or with tax deducted at source (ie, by the employer).
  • Redditi PF Form: By 30 November, online or with the aid of a fiscal support centre or a qualified professional.

Non-residents who are abroad at the time of filing of the tax return may submit their return by 30 November by registered letter or other equivalent means.

(d) What exemptions, deductions and other forms of relief are available?

Under the 2021 Budget Law, new deductions have been introduced by the Italian legislature with the aim of allowing taxpayers to deduct some expenses and costs from their gross income.

Tax credits can also be offset against a taxpayer's tax liability.

For example, with regard to taxable employment income, an employee's mandatory social security contributions are fully deductible and contributions paid to specific complementary pension funds are deductible up to €5,164.57.

With regard to personal income, as long as certain requirements are met, the main deductions from gross taxable income, if they have not been deducted from each kind of income, are as follows, if properly documented:

  • Employees' mandatory social security contributions are fully deductible;
  • Social security contributions paid for domestic employees (up to €1,549.37) are fully deductible;
  • Medical expenses for disabled individuals are fully deductible; and
  • Contributions paid to the specific complementary pension funds are deductible up to €5,164.57.

Contributions to certain religious entities are also deductible up to €1,032.91 (per taxpayer); while alimony paid to a separate or divorced spouse resulting from a court judgment can be fully deducted from taxable income.

2.4 With regard to capital gains: (a) What taxes are levied and what are the applicable rates? (b) How is the taxable base determined? (c) What are the relevant tax return requirements? and (d) What exemptions, deductions and other forms of relief are available?

(a) What taxes are levied and what are the applicable rates?

Interest income is generally subject to taxation, depending on the source of the income.

Interest income deriving from securities issued by private banks or companies listed on the stock exchange, or from bank or postal accounts, is subject to withholding tax.

The capital gains earned by the sale of qualified shareholdings are taxed as follows:

  • Capital gains made before 31 December 2017: 49.72% of the capital gain is included in the individual's annual gross income (income taxed applying progressive tax rates).
  • Capital gains made between 1 January 2018 and 31 December 2018: 58.14% of the capital gain is included in the individual's annual gross (income taxed applying progressive tax rates).
  • Capital gains made as of January 2019 will be subject to a flat tax rate of 26% on the whole capital gain. The 2018 Italian Financial Bill introduced a final withholding tax at 26%, for both tax resident and non-tax resident individuals, for capital gains deriving from a qualified or non-qualified shareholding (starting from 1 January 2019).

Capital gains earned through the sale of non-qualified shareholdings are taxed applying a flat tax rate of 26%.

On the other hand, for real estate capital gains, the taxable base is the difference between the sale price and the original cost of the real estate, together with all additional purchase costs (eg, notary fees).

Real estate capital gains are taxed at progressive tax rates or at a substitutive flat tax of 26% under certain conditions.

(b) How is the taxable base determined?

The taxable base is calculated on the difference between the sale price of the asset and its purchase cost, which may include some legal and administrative expenses.

(c) What are the relevant tax return requirements?

The so called ‘Modello Redditi' return includes capital gains, among other things (Form RT).

(d) What exemptions, deductions and other forms of relief are available?

Interest income deriving from bonds issued by government or similar entities, both Italian and foreign, is subject to a withholding tax rate of 12.5%.

However, there are some exemptions, which are applicable to capital gains deriving from the following sales:

  • the sale of real estate, if owned for more than five years; and
  • the sale of real estate, even if owned for less than five years, if it has been used as the seller's primary residence for most of the period of ownership.

2.5 With regard to inheritances: (a) What taxes are levied and what are the applicable rates? (b) How is the taxable base determined? (c) What are the relevant tax return requirements? and (d) What exemptions, deductions and other forms of relief are available?

(a) What taxes are levied and what are the applicable rates?

Inheritance tax and gift tax are proportionate to the value of the inherited (or donated) assets, with different tax rates and different tax allowances applicable according to the relationship between the deceased and his or her heirs, as follows:

  • 4% for transfers to spouses or relatives in the direct line (of ascent and descent), to be applied to the total net value exceeding a share of €1 million for each beneficiary;
  • 6% for transfers to brothers or sisters, to be applied to the total net value exceeding €100,000 for each beneficiary;
  • 6% for transfers to other relatives to the fourth degree or relatives-in-law to the third degree, to be applied to the total net value transferred, without application of any allowance; and
  • 8% for transfers to all other persons, to be applied to the total net value transferred, without application of any allowance.

(b) How is the taxable base determined?

The taxable base is equal to the value of the assets and rights transferred, after the deduction of burdens and charges to which the heir (or the donee) may be subject.

(c) What are the relevant tax return requirements?

An Italian inheritance tax return must be filed and electronically sent to the Italian Revenue Agency (to the office in whose area the deceased was resident) within one year of the date of death of the deceased, by one of the persons liable to pay it.

The declaration of estate must be submitted by:

  • the heirs, those with title to inheritance and the legatees (provided that they have not expressly waived the right or – because they are not in possession of the estate – request the appointment of an estate trustee before the time limit for submitting the declaration of estate expires), or their legal representatives;
  • the legal representatives of the heirs or legatees;
  • those placed in possession of the property, in the event of absence of the deceased or a finding of presumed death;
  • the estate administrators;
  • the trustees of estates in abeyance;
  • the executors of the will; or
  • the trustees.

(d) What exemptions, deductions and other forms of relief are available?

There is no obligation to submit an inheritance tax return if the following conditions are met simultaneously:

  • The estate is passed on to the spouse and relatives in the direct line of the deceased;
  • The value of the estate does not exceed €100,000; and
  • The estate does not include immovable assets or real property rights.

An additional allowance of €1.5 million is provided for transfers to people with a disability recognised as severe under Law 104/1992.

The tax rates (4%, 6% or 8%) depend on the degree of relationship.

Also, certain liabilities are deductible if proved by officially dated documents, such as debts of the deceased, funeral expenses and medical expenses.

Also, in the case of non-residents, Italian inheritance tax remains payable, although it is calculated only on those assets situated in Italy.

An exemption applies to transfer of a business or of a participation in companies or partnerships in favour of the spouse or descendants, provided that they have carried out an effective business activity for at least five years. This exemption applies only if the recipient receives a controlling stake or achieves control of the company, taking into account other participations owned before the transfer. The transfer of quotas in partnerships is exempt for inheritance and gift tax purposes, including where the considered heir or donee does not receive a controlling stake or achieve control of the company. The Italian Revenue Agency has stated that this exemption applies to:

  • the transfer of a controlling shareholding in joint ownership to the descendants; and
  • the transfer of a controlling shareholding in favour of a trust, whose beneficiaries are the descendants or the spouse of the settlor.

2.6 With regard to investment income: (a) What taxes are levied and what are the applicable rates? (b) How is the taxable base determined? (c) What are the relevant tax return requirements? and (d) What exemptions, deductions and other forms of relief are available?

(a) What taxes are levied and what are the applicable rates?

The taxation of dividend distributions depends on whether the participation is classed as a qualified shareholding or a non-qualified shareholding.

The taxation of dividends deriving from qualified shareholdings changed as of fiscal year 2018. As from 1 January 2018, dividends deriving from qualified shareholdings will be taxed through the application of a 26% substitutive tax.

However, the tax law provides for a transition period, during which the dividends from qualified shareholdings distributed from 1 January 2018 to 31 December 2022 and referring to profits produced before 31 December 2017 will be included in the individual's gross income as follows:

  • 40% of the dividend realised until 31 December 2007;
  • 49.72% of the dividend realised between 1 January 2008 and 31 December 2016; and
  • 58.14% of the dividend realised between 1 January 2017 to 31 December 2017.

(b) How is the taxable base determined?

The taxable base depends on the period in which the profits were produced.

(c) What are the relevant tax return requirements?

Dividend distributions deriving from non-qualified shareholdings – such as dividends granted by Italian companies – are subject to final withholding tax at a rate of 26% to be applied at source, rather than through the annual Italian tax return.

(d) What exemptions, deductions and other forms of relief are available?

Dividends distributed by a foreign entity that are not paid through an Italian resident broker will be included (net of foreign taxes withheld) in the individual's tax return and taxed at a flat rate of 26%. In this case, no foreign tax credit can be claimed.

Dividends distributed by a foreign entity and paid through an Italian resident broker are subject to tax at a 26% flat rate (net of foreign taxes withheld), although in this case no further action will be required.

2.7 With regard to real estate: (a) What taxes are levied and what are the applicable rates? (b) How is the taxable base determined? (c) What are the relevant tax return requirements? and (d) What exemptions, deductions and other forms of relief are available?

(a) What taxes are levied and what are the applicable rates?

In Italy, there are five categories of taxes that are levied on real estate, as follows:

  • personal income tax, which is levied income produced from the property or from possession of the property;
  • asset tax, based on ownership or possession of the property;
  • tax on public services provided to the property owner;
  • tax on the transfer of property for consideration (VAT, registration, mortgage, land);
  • tax on the transfer of real estate for free (inheritance and gift tax); and
  • tax on rental (dry coupon, registration and stamp duty on leases).

(b) How is the taxable base determined?

The taxable base depends on the tax category.

Property tax relates to the possession of real estate and is calculated based on the cadastral income of the property, which is set by the local tax authority in whose jurisdiction the property is located, on the basis of specific parameters.

Property tax is levied on the cadastral value of the property, which is determined by applying a multiplier to the cadastral income of the property (which is recorded in the Cadastral Register and is thus publicly available).

(c) What are the relevant tax return requirements?

The standard tax payment form is the so-called F24.

The payment can be made electronically.

(d) What exemptions, deductions and other forms of relief are available?

An individual need not pay property tax for the property that he or she lives in as his or her primary residence, which is registered as such in his or her Italian tax return.

However, if the individual lives in a ‘luxury property' (Category A1, A8 or A9), property tax must still be paid.

Additional reduced property tax rates and exemptions might apply depending on the property status, owner's conditions and local rules.

2.8 With regard to any other direct taxes levied in your jurisdiction: (a) What taxes are levied and what are the applicable rates? (b) How is the taxable base determined? (c) What are the relevant tax return requirements? and (d) What exemptions, deductions and other forms of relief are available?

(a) What are they and what are the applicable rates?

Corporate income tax (IRES) is levied at a rate of 24%.

The entities that are liable to IRES are:

  • joint stock companies and partnerships limited by shares, limited liability companies, cooperative companies and mutual insurance companies, European companies and European cooperatives, but only if they are tax resident in Italy;
  • public and private entities resident in Italy, including trusts, undertakings for collective investment and non-profit organisations; and
  • all sorts of companies and other legal entities, including trusts, which are not tax resident in Italy, but only if they have Italian sourced income.

(b) How is the taxable base determined?

Under Italian tax law, all income derived by companies and other business entities qualifies as business income.

To determine the tax base for IRES purposes, the starting point is the profit or loss calculated for accounting purposes, as shown in the entity's financial statements. This amount must be increased or decreased in accordance with the tax provisions governing the determination of the tax base for IRES purposes.

Income derived by non-commercial entities may qualify for each of the six categories of income (ie, income from immovable property; employment income; professional income; business income; financial income; other income) under Italian tax law.

To calculate the tax base of a non-commercial entity for IRES purposes, it is first necessary to calculate the tax base for items falling within the different categories.

After the separate calculation of the relevant tax base with respect to each item of income falling into one of the different six income categories, the total tax base of the entity is derived from the sum of each of those tax bases.

Tax-exempt items of income and items of income that are subject to a final withholding tax or to a substitute tax are not added to the income that is subject to IRES.

(c) What are the relevant tax return requirements?

IRES taxpayers must file their tax return electronically (Redditi SC) every year.

The corporate income tax return must be submitted to the Italian Revenue Agency no later than the last day of the eleventh month following the end of the tax period.

(d) What exemptions, deductions and other forms of relief are available?

Undertakings for collective investment set up in Italy or established in Luxembourg are exempt from corporation tax in those cases provided for by law.

2.9 With regard to any indirect taxes levied in your jurisdiction: (a) What taxes are levied and what are the applicable rates? (b) How is the taxable base determined? (c) What are the relevant tax return requirements? and (d) What exemptions, deductions and other forms of relief are available?

(a) What are they and what are the applicable rates?

The other indirect taxes when an individual buys a home are VAT, registration, mortgage and land taxes. The applicable rates depend on the declared cadastral value.

However, the rule of cadastral value does not have blanket application: for example, if the buyer of a house purchases not as a private purchaser, but as a company, the tax base will be determined by the commercial price of the property.

The amount of these fees to be paid varies depending on the type of property and the characteristics of the buyer and seller.

For example, the registration tax is 2% (on the cadastral value) in case of a first home and 9% in the case of a second home (the percentage is due on the cadastral value in the case of a private purchase; or is calculated on the declared price where the purchaser is a company or a natural person who buys as a sole proprietor or a professional).

The fixed mortgage tax and land registry tax are €50 each.

The VAT rate is 4% on a first home, 10% on a second home and 22% on luxury homes.

(b) How is the taxable base determined?

The declared cadastral value in the deed represents the tax base on which registration, mortgage and land taxes are applied.

It is usually lower than the market value of the property.

(c) What are the relevant tax return requirements?

Not applicable.

(d) What exemptions, deductions and other forms of relief are available?

Not applicable.

3 Succession

3.1 What laws govern succession in your jurisdiction? Can succession be governed by the laws of another jurisdiction?

The Civil Code governs succession, including where assets are located in different countries, or in case of a foreign will or the testator's foreign citizenship; while Law 364/1990 governs the tax aspects.

In a will, it is possible to choose Italian or foreign law through the ‘electio legis', which is a general principle through which an individual can choose the law to which his or her estate will be subject after death.

3.2 How is any conflict of laws resolved?

In general, the Italian legal system has adopted the principle of unity of succession; as a consequence, the law of the deceased's country of nationality applies.

3.3 Do rules of forced heirship apply in your jurisdiction?

Yes, the Civil Code imposes strict forced heirship rules (through Articles 536 and following).

According to these provisions, ‘forced heirs' are defined as follows:

  • the surviving spouse (since 2016, Italy also recognises civil partnerships between two people of the same sex);
  • the children of the deceased and, if they die before the deceased or do not accept the heritage, their grandchildren in the same position as the children; and
  • in the absence of children, the ascendants of the deceased.

The forced heirship rules provide that the reserved quota of the estate must be necessarily transferred to the heirs and cannot be freely disposed of by the deceased.

The quota reserved to each forced heir depends on the composition of the family of the deceased upon his or her death.

For instance, if a family is composed of the spouse and two children, the quota reserved to the children is 50% of the estate (25% per child) and the quota reserved to the spouse is 25%. In this case, the remaining 25% of the estate can be freely disposed of.

Also, lifetime gifts shall be considered in order to calculate the quota reserved to the forced heirs. If lifetime gifts prejudice the reserved quota of the heirs, they can apply for a reduction, which is a remedy provided under Italian civil law with the aim of making transfers in excess of the disposable quota partially or totally ineffective.

3.4 Do the rules of succession rules apply if the deceased is intestate?

If a will does not exist for the deceased or if an existing will has been declared invalid, the Italian general rules on intestate succession will apply. Therefore, the closest relatives of the deceased are entitled to a share of the assets in accordance with the provisions of Italian law.

The Italian lines of intestate succession are as follows:

  • The surviving spouse is entitled to inheritance if he or she is still married or legally separated at the time of death (but a divorced spouse is not recognised).
  • Spouse and one surviving child: One-half to the wife; one-half to the child.
  • Spouse and two surviving children: One-third to the spouse; two-thirds to the children.
  • If there is no surviving spouse, the following are entitled to inheritance: parents, siblings (brothers and sisters) and their descendants, uncles, aunts and other collateral (nieces, nephews and so on); the Italian state.

3.5 Can the rules of succession be challenged? If so, how?

No, the rules that govern succession cannot be changed.

4 Wills and probate

4.1 What laws govern wills in your jurisdiction? Can a will be governed by the laws of another jurisdiction?

The Civil Code includes dispositions on wills. However, a will can be governed by the law of another jurisdiction if expressly chosen by the individual before his or her death.

4.2 How is any conflict of laws resolved?

Law 218/1995 and EU Regulation 650/2012 include dispositions on conflicts of law.

In particular, Law 218/1995 governs successions where assets are partitioned and located in different countries, or in case of a foreign will or the testator's foreign citizenship.

Article 46 determines the applicable law as the testator's national law at the time of his or her death; this is the main governing factor, although not exclusive, in succession. Thus, if the deceased was Italian, Italian law will be the sole applicable law.

With regard to the forms of wills, the applicable law will be either:

  • the law of the country where the deed was written;
  • the law governing its substance;
  • the testator's national law; or
  • the law of the country of residence or place of affairs at time of death.

EU Regulation 650/2012 introduced new rules on jurisdiction, applicable law, recognition and enforcement of acts in matters of succession. The main governing factor is the habitual residence of the testator: in this case, the law of the country where the deceased lived for a significant period of time will be applicable. This is generally the law of the place where he or she had established his or her centre of business, personal life and property, with the former having priority over the others.

The regulation also introduced the exception clause or ‘optio legis', which allows the testator to elect the law that will govern the succession of the whole estate, regardless of the actual location of the assets, through an express declaration to elect the law of his or her country of citizenship.

4.3 Are foreign wills recognised in your jurisdiction? If so, what process is followed in this regard?

Yes, foreign wills are recognised and accepted in Italy, due to the introduction of EU Regulation 650/2012. The general principle of favour testament is always recognised.

The dispositions on both international jurisdiction and the applicable law refer to the law of the state in which the deceased had his or her habitual residence at the time of death (Articles 4 and 21), as a single law will govern the succession.

It is also possible to choose the law of one of the states whose nationality one possesses. However, this option must be made in a declaration in the form of a disposition of property upon death.

4.4 Beyond issues of succession discussed in question 3, are there any other limitations to testamentary freedom?

No.

4.5 What formal requirements must be observed when drafting a will?

In Italy, several type of wills are recognised by law:

  • A holographic will is a private deed that must be handwritten, dated and signed personally by the testator. It can be kept by the testator, but it is more convenient for the testator to deliver the will to a public notary to avoid destruction before or after death.
  • A public will must be delivered to a public notary in the presence of two witnesses and signed by the testator.
  • A secret will is a very rare type of will, which must be delivered to a public notary in the presence of two witnesses.

4.6 What best practices should be observed when drafting a will to ensure its validity?

It is important to observe all formalities set out in the Civil Code. Failure to do so will result in the will being declared invalid.

4.7 Can a will be amended after the death of the testator?

No, it cannot be amended after the death of the testator.

4.8 How are wills challenged in your jurisdiction?

Wills can be modified at any time before the death of the testator, as long as the requirements of the particular type of will are respected.

4.9 What intestacy rules apply in your jurisdiction? Can these rules be challenged?

Inheritance may be devolved to the spouse, descendants, ascendants and other relatives and, in their absence, to the Italian state if there is no will or the will is invalid.

The Civil Code sets out many rules for each type of scenario. For instance, under an intestate succession, the estate is transferred as follows:

  • If the heirs are the spouse and only one (legitimate/natural/adopted) child, each inherits half of the estate;
  • If the heirs are the spouse and more than one child, the children inherit two-thirds and the spouse one-third;
  • If the spouse survives but there are no children, the spouse succeeds the deceased together with the ascendants and siblings; and
  • If there is no spouse or children, the ascendants and siblings inherit the estate.

In any case, the beneficiaries cannot challenge the adequacy of their provision under the intestacy rules.

5 Trusts

5.1 What laws govern trusts or equivalent instruments in your jurisdiction? Can trusts be governed by the laws of another jurisdiction?

Italy does not have a proper trust regulation. However, the instrument of trust has been recognised in Italy through the ratification of the Hague Trusts Convention of 1 July 1985 (Law 346/1989).

The convention aimed to harmonise the private international rules relating to trusts, in order to allow civil law countries to borrow the trust instrument from foreign jurisdictions whose legislation regulates those instruments.

5.2 How is any conflict of laws resolved?

The legislation of a foreign country can be used to regulate a trust without any problem.

5.3 What different types of structures are available and what are the advantages and disadvantages of each, from the private client perspective?

There are many types of trusts in Italy; the main ones are as follows:

  • Purpose trusts and trusts with beneficiaries: If the trust fund is managed to achieve a goal, it is a ‘purpose trust'; whereas if the trust fund is managed for the interests of one or more beneficiaries, it is a ‘trust with beneficiaries'.
  • Trusts of public interest purpose (charitable trust): The purpose of this type of trust should fall within a category that has been characterised over time at the jurisprudential level. This type of trust is less common in Italy than in common law countries, but is becoming increasingly common.
  • Fixed trusts and discretionary trusts: A trust with beneficiaries is called a ‘fixed trust' if the trust deed grants the beneficiaries rights to the income of the trust and to the trust fund. With a discretionary trust, the trustee will identify the beneficiaries and decide whether to assign benefits and how much should be distributed.
  • Protective trusts: This type of trust is used if the beneficiary is prevented from having his or her own interests, or if the creditors execute acts of execution on those assets.
  • Self-declared trust: Where the settlor appoints himself or herself as a trustee, this is a ‘self-declared trust'. Trust experts and the Italian Supreme Court have long debated the validity of this type of trust; but today it is listed among the types of trusts recognised by the Italian jurisdiction.

5.4 Are foreign trusts recognised in your jurisdiction? If so, what process is followed in this regard?

Italy signed the Hague Trusts Convention and implemented it through Law 364/1989.

As a consequence of ratification, trusts regulated by a foreign law may be recognised in Italy pursuant to the provisions of the Hague Trusts Convention.

According to the convention, as implemented in Italy, a trust created pursuant to and governed by the law of a country that has provisions governing trusts is recognised and valid in Italy, subject only to the overarching limitation of Italian public order principles.

5.5 How are trusts created and administered in your jurisdiction?

Trusts are usually set up before a notary public, but this is not mandatory if there are no specific types of assets to be transferred to the trust estate (ie, real estate requires a public deed).

Also known as a deed, the document that establishes the creation of a trust must contain information about the person or company setting up the trust, the trustee and the beneficiaries (if any).

The estate can encompass various assets, including money, real estate, art works, jewellery, title of ownership and shares in a company.

Trusts are administrated by the trustee (and co-trustee, if any). The role of trustee can be fulfilled by an individual (whether professional or not), a trust company, a private trust company or another legal entity.

5.6 What are the legal duties of trustees in your jurisdiction?

The trustee has control or powers of administration of the property in the trust, with a legal obligation to administer it solely for the purposes specified or for the interests of the beneficiaries.

The trustee has the power and the duty, in respect of which he or she is responsible, to manage, employ or dispose of the assets in accordance with the terms of the trust and the special duties imposed upon him or her by law.

The Hague Trusts Convention also provides that the title to trust assets which are under the control of the trustee stands in the name of the trustee or in the name of another person on behalf of the trustee; and that the trust assets constitute a separate fund and are not a part of the trustee's own estate.

The settlor transfers to the trustee not only the assets, but also the correlating property rights on them. However, the assets stay separate from the trustee's patrimony, so that the trustee's creditors cannot impair the trust assets.

The trustee is entitled to the transferred rights, but some restrictions may apply in the exercise of his or her powers of administration, as imposed by the settlor in the act of constitution.

5.7 What tax regime applies to trusts in your jurisdiction? What implications does this have for settlors, trustees and beneficiaries?

In 2007, the Italian Revenue Agency issued Circular 48/E, which provides administrative guidance on the interpretation and application of the new tax provisions on trust. The circular clarifies the tax treatment of trusts for both income tax and transfer (indirect) tax purposes.

In 2010, the Italian Revenue Agency issued additional interpretative guidance by way of Circular 61/E.

So, from a tax point of view, the Italian tax system regulates three type of trusts:

  • Trusts where beneficiaries of income have been appointed (so-called ‘transparent trusts): The trust's income is attributed to the beneficiaries regardless of its distribution and the beneficiaries are taxed directly on their share of the trust's income.
  • Trusts where beneficiaries of income have not been appointed (so-called ‘opaque trusts'): The trust will be liable to income taxation.
  • Mixed trusts (both transparent and opaque): The trust deed provides that some the trust income should be allocated as capital and some should be distributed to the beneficiaries. In this case, the beneficiaries are liable to taxation only on the income distributed.

5.8 What reporting requirements apply to trusts in your jurisdiction?

All foreign trusts with tax effects in Italy must be filed and registered in the Italian Register of Enterprises. They include trusts with Italian settlors, Italian beneficiaries, Italian assets or Italian source income, or and trusts that are treated as Italian resident trusts under Italian tax law.

The trustees of trusts that are subject to the new disclosure and filing rules must collect, conserve and disclose adequate information about the trust's ultimate beneficial owners, including the settlor, the trustee, the guardian, the beneficiaries and any other person with any type of control or authority over the trust.

Italy is close to introducing a proper register for beneficial owners and persons with significant control of companies and other legal entities.

The Fifth EU Anti-Money Laundering Directive (2018/843), implemented in Italy in 2019, has further strengthened the disclosure obligations for beneficial owners. Among other changes, the legislative decree that implemented the directive provides for:

  • greater access to, and exchange of, information on beneficial ownership between competent authorities; and
  • improved checks on transactions involving high-risk third countries.

Pursuant to the Common Reporting Standard and the US Foreign Account Tax Compliance Act, the Italian Revenue Agency must exchange information with all other countries about Italian tax residents with assets abroad.

5.9 What best practices should be observed in relation to the creation and administration of trusts?

The settlor should always include specific provisions in the trust deed, to avoid any doubts or misunderstandings regarding his or her wishes and the trust's administration.

It is also very important that the deed provide solutions to any possible scenario.

Also, trustees and protectors should be people who will act in the best interests of the beneficiaries or to pursue the purpose of the trust.

6 Trends and predictions

6.1 How would you describe the current private client landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

The current private client landscape recognises the individual's need to protect his or her estate and to plan his or her succession appropriately. Due to the COVID-19 pandemic, people are increasingly feeling a need to invest their money in solid instruments to guarantee the protection of their assets. The art and collectibles business has also been growing exponentially.

In this context, all related legal and tax issues have become much more relevant, from estate planning to portfolio diversification with alternative assets.

With regard to the taxation of trusts regime, the Italian Revenue Agency is expected to publish a new circular with the aim of finally resolving the debate over the tax event regarding when inheritance or gift tax is due.

The Italian Revenue Agency is also expected to issue clarifications on the special tax regimes for non-residents in the next future.

7 Tips and traps

7.1 What are your top tips for effective private client wealth management in your jurisdiction and what potential sticking points would you highlight?

The top tips for effective private client wealth management are as follows:

  • Conduct succession and estate planning in advance;
  • Consider all tax implications while conducting succession and estate planning;
  • Seek the support of trustworthy wealth management practitioners; and
  • Stay updated on new legislative provisions introduced by the legislature.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.