Italy – one of the most attractive tax destinations for the wealthy suddenly got more expensive

06 Sep 2024

La dolce vita translates to ‘the sweet life’, and it’s far more than just a phrase in Italy, it really does represent an entire lifestyle associated with their culture and way of life. Italians have a particular appreciation of celebrating quality time with family and friends and take great pride in beautiful things, particularly their own country which has simply stunning scenery, architecture, art, music and fashion. They fully embrace living life in the moment, enjoying the simple things, just as much as appreciating luxury and indulgence.

It’s probably fair to say that it’s not just the Italians who would like a little slice of that same La Dolce Vita.

Italian Tax Incentives

Italy has always been a magnet for visitors and investors from all over the world, but a recent survey has suggested that it is expected to be the top 2024 European destination for globally mobile Millionaires, ahead of Switzerland, Greece and Portugal. This reflects attractive tax incentives for new tax residents who can relocate to Italy and benefit from various tax regimes. One of these, the Special Tax Regime (STR) or Flat Tax Regime, has proved very popular with ultra-high net worth individuals who choose to become tax resident in the country for the first time.

This tax regime aims to attract high net-worth individuals and retirees to Italy by offering 100,000 euro pa fixed tax rate on all foreign income and gains. This policy was initially introduced in 2017 by the Renzi government with the aim or attracting capital and boosting the economy

Millionaires exit the UK

Fast forward to the Spring 2024 announcement by the then Conservative Government, indicating that Non-Domicile status in the UK will be abolished, latterly confirmed by Labour. The changes to the UK non-dom tax regime has led to many UK resident non-dom’s, seriously considering permanent relocation elsewhere, thus avoiding  UK tax on their overseas sourced income and gains.

The Italian Flat Tax Regime, alongside the many benefits of living in Italy in terms of lifestyle and attractive location, is proving to be a very interesting lifestyle and efficient tax option for those seeking to move within Europe.

2024 Changes to STR Italian Flat Tax Regime

On Wednesday 7th August 2024, Italy’s Prime Minister, Giorgia Meloni, announced plans to double this Flat Tax levy on worldwide income from 100,000 euro to 200,000 euro with immediate effect.

Foreign national individuals already resident in Italy will continue to pay the lower annual levy of 100,000 euro with the new charge only applying to new applicants.   This measure is part of broader tax reforms designed to enhance Italy’s appeal as a business and lifestyle destination.

There are two main type of Flat Tax regimes in Italy:

Italian STR – Further Details

The Flat Rate scheme is targeted at high-net-worth individuals of any nationality who have not been tax resident in Italy for at least 9 of the previous 10 years.  These individuals can remit worldwide income to Italy and pay at flat charge of 200,000 euro, regardless of the actual amount of income earned worldwide / remitted to Italy, and the scheme can be applied for a maximum duration of 15 years, however the taxpayer can remove the option at any time.  The tax perk status automatically lapses in the event of failure to pay the annual lump sum value either partly or in full.

Those looking to move with their families can ensure that family members such as spouse or civil partner, children, siblings and ‘in law’ family members, can also benefit from the regime, but this is subject to an extra 25,000 euro charge per person annually.

Following the end of the Flat Tax duration should residents wish to remain in Italy they may transition to standard tax regimes in Italy.

The attractive benefits of the scheme include:

• The taxpayer will not need to declare their worldwide income in Italy
• Exemption from wealth tax on foreign financial investments
• Exemption from inheritance tax

Note that the flat rate scheme does not apply to Italian sourced income and capital gains realised upon the disposal of certain shareholdings during the first five fiscal years of the eligibility of the Flat Tax Regime, which will remain subject to progressive Italian tax rates.

Flat Tax Scheme for Pensioners

There is an alternative ‘Flat Tax’ is for retirees domiciled outside of Italy who become tax resident in municipalities in southern Italy such as Arbuzzo, Apulia, Basilicata, Sicily, Calabria, Sardinia or Campania. They can benefit from a flat tax rate of 7% on all non-Italian sourced income for a period of up to 10 years.

To benefit from this preferential rate the individual must:

• Have not been an Italian tax resident in the last 5 years
• Must receive pension income paid by a non-Italian entity
• The country where the individual tax resident before relocation to Italy is included in the Italian whitelist of countries providing for adequate exchange of information with Italy

There are many tax aspects to consider when relocating overseas, not least ensuring there is a clear break from UK tax residence to be able to take full advantage of any tax efficient jurisdiction. We would therefore always recommend that holistic tax advice is provided to ensure a joined-up approach across both the country of departure and arrival. To that end, we work closely with our Italian network associates to ensure this joined up approach to both UK and Italian Tax advice, well in advance of any planned relocation.

If you are considering a move overseas and need help with your tax position, please contact either Carol Edwards or Lynn Gracie at AAB.