Res non dom - Italy's Resident non-domiciled Tax Regime: description and requirements
The 2017 Italian Stability Law (Law no. 232/2016) has introduced the so called "Res non dom" system (pursuant to Article 24bis of the Italian Income Tax Consolidation Act), a special tax regime for foreign income generated by both Italian and foreign citizens, who wish to move their tax residence to Italy.
The same system had already been adopted by different European countries. Italy has adopted it in order to attract more wealthy foreign citizens and to boost Italian economy with new investments, consumption and capital.
In order to benefit from Italy's tax regime for new residents, the following subjective requirements have to be met:
- The individual has to transfer his/her tax residence to Italy, pursuant to Article 2(2) of the Italian Income Tax Consolidation Act, according to which only people registered in the in the register of the Italian resident population for the majority of the tax period or people who are resident or domiciled in Italy can be considered tax resident in Italy.
- The individual must not have been resident in Italy for at least nine out of ten tax periods before electing to apply the new tax regime.
Moreover, during the whole term of effectiveness of the new tax regime, people benefitting from it are allowed to request its extension to one or more family members, as identified by Article 433 of the Italian Civil Code (spouses, children or adoptive children, parents or adopters, sons and daughters-in-law, fathers and mothers-in-law, brothers and sisters, whether by whole or half blood). The option must be stated in the income tax return relating to the tax period in which tax residence is transferred to Italy.
People benefitting from the "Res non dom" system are subject to a flat-rate substitute tax of the Personal Income Tax (IRPEF) of 100,000 euros for each tax period, regardless of the amount of taxable foreign income. In case the special tax regime is extended to family members, the substitute tax on foreign income will amount to 25,000.00 euros.
The flat-rate substitute tax has to be paid in full in a single instalment using form F24 by the deadline for paying the balance of the income tax. In case of non-payment, voluntary correction of tax return is not allowed.
The "Res non dom" system is of a temporary nature, that is the option ceases after 15 years from the first tax period of effectiveness, without the possibility of renewing the option. After this term, foreign income will become part of the total income of the resident taxpayer and will be subject to ordinary personal income tax (IRPEF), without prejudice to double taxation agreements.
Foreign/Italian citizens can access the "Res non dom" regime:
- By submitting a formal query for an Advance Tax Ruling to the Italian Revenue Agency (Taxpayer Division). However, this is not mandatory;
- Stating the option in the income tax return relating to the tax period in which tax residence is transferred to Italy or in the income tax return relating to the following tax period.
Res non dom - Italy's Resident non-domiciled Tax Regime: what are the advantages of the new tax regime?
Taxpayers who choose to adhere to Italy's Resident non-domiciled Tax Regime enjoy the following advantages:
- Exemption from filling in the RW part of the Italian tax return, relating to fiscal monitoring of foreign businesses and investments.
In case qualified holdings which ordinarily can cause taxable value appreciation fall under the first five tax periods in which the option becomes effective, taxpayers are not exempted from filling in the foreign holding value in the RW part of the Italian tax return;
- Exemption from paying property value tax on the value of properties held abroad and from paying value tax on financial products, current accounts, and bank books;
- Inheritance and donation taxes are limited to property and rights held in Italy at the time of succession or donation, for all successions opened and for all donations made during the whole term of effectiveness of the option.
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.