Starting in 2017 natural persons who move their fiscal residence to Italy can opt to pay taxes on income earned abroad, providing that the interested person, for at least nine years during the ten years preceding the beginning of the option validity, did not reside in Italy, for fiscal purposes. The tax applies to all income, except for capital gains generated from the cession of ‘qualified’ shares held in a company (The 2017 Budget Law – Legge 11 dicembre 2016, n. 232, art. 1, co. 152).
The total amount of tax to be paid is EUR 100,000 for each tax period in which the above option is valid, regardless of the income amount actually earned. The amount is reduced to EUR 25,000 for each tax period for each family member included in the visa extension. Therefore family members who earn income abroad, except for capital gains generated from the cession of ‘qualified’ shares held in a company, are taxed a total amount of EUR 25,000 instead of EUR 100,000 as of the principal applicant.
Subject to a positive response from the Tax Agency, the option must be accomplished within the deadline for the declaration of income concerning the tax period in which the applicant moved his/her residence to Italy and has been operative since that tax period.
The option lasts fifteen years and can be withdrawn by the applicant. In any case, the option is automatically annulled in the case of failure to pay the tax amount entirely or partially. After withdrawal or annulment, a new option cannot be obtained. One or more family members can choose not to exercise the option, by requesting regular taxation of income earned abroad.
How many people have chosen this option? Here are the official statistics of the Agenzia delle entrate:
– Those people’s incomes (not exceeding EUR 600,000) made in Italy, as entrepreneurs, employees, or working investors, will contribute to the personal revenue for 50% of the amount. For example, assuming an annual income of € 100K earned in Italy, the new resident will pay tax such as his income would be like € 50K. A greater tax advantage will be recognized if the investor/worker moves to Italy with a minor child or in the case of the birth of a child during the period of residence in Italy. In these cases, taxes will only be paid on 40% of the income.
– Foreign nationals who enter Italy (with a visa that allows them to work, as in the case of an investor visa) must possess a high qualification or specialization requirements; these are one of the following:
a) a higher education course of at least three years’ duration or a post-secondary professional qualification of at least three years duration ;
b) a qualification corresponding to one of the professions regulated under Italian law (e.g. agronomist, social worker, estate agent, doctor, etc.);
c) a higher professional qualification attested by at least five years of professional experience;
d) a higher professional qualification attested by at least three years of relevant professional experience acquired over the previous seven years.
– Another condition for obtaining this tax benefit is the obligation to transfer tax residence to Italy and maintain it for at least five years;
The facilitated treatment provided for by Legislative Decree 209 of 27 December 2023 also concerns income deriving from business activities and from the exercise of arts and professions exercised in an associated form, carried out in a non-EU country and transferred to Italy; in fact, income produced in Italy is taxed only on 50% of the value of production, for a total period of six years.
Italy also attracts foreign retirees who want to choose a country other than their own to spend their old age. How? With a sharp tax reduction on all income generated abroad; not only on pensions but also, for example, on real estate income, equity profits, annuities, etc.
The tax on all these incomes will be 7% for ten years.
These advantages are also expected by Italians who want to return to Italy and EU citizens, but here we only look after non-EU citizens. Let’s see in detail the conditions that must be satisfied by a foreign pensioner who wants to move to Italy:
– he must hold a pension paid by a foreign state;
– his last tax residence has to be in a State which signed a no double taxation agreement with Italy (the TIEA – Tax Information Exchange Agreement or subscription of the Council of Europe/OECD Convention on Mutual Administrative Assistance in Tax Matters);
– he must not have had a tax residence in Italy in the past five years;
– he must obtain an entry visa for Italy (e.g. investor visa, elective residence);
– he must transfer his tax residency to a Municipality with less than 20,000 population in one of the following Southern Regions: Sicily, Calabria, Sardinia, Campania, Basilicata, Abruzzo, Molise, and Puglia. This means that he must reside in the chosen municipality at least 183 days a year.
This tax break is established by Article 24 of the Consolidated Income Tax Act which, indeed, declares a substitute tax regime for all income produced abroad at a rate of 7%. The rule also provides an exemption from any bureaucratic fulfillment related to activities held abroad.
Moreover, it should be remembered that the newly resident pensioner who receives income from different states will also be able to choose the states for which he wants to apply for the benefit.
Please note: all those conditions need to be observed to access the above tax break. The non-EU entrepreneur and investor, to move the fiscal residency to Italy, needs an entry visa as employed or self-employed and practice from Italy, because the tax break is available in this case only. People with elective residency or business permit only, for example, are not eligible for it.