The tax incentive for new residents is intended for individuals who move their residence for tax purposes to Italy and consists in the possibility of paying a substitute tax on income generated abroad.
This was introduced by the budget law 2017 (Law of December 11, 2016, no 232)
It is possible to opt for this benefit regardless of the nationality of the applicant. provided they have been fiscally resident abroad for at least 9 of the 10 tax periods preceding the one in which the choice becomes effective.
Italian citizens canceled from registers of the resident population and who moved to States or territories having a preferential tax regime can also benefit from the incentive. However, they must be able to overcome the presumption of residence in Italy.
It is also possible to extend such tax incentive to the family members. Specifically:
- Spouse or member of a civil partnership
- Children, even adoptive ones, and, in their absence, the direct relative in the descending line
- Parents and, in their absence, the direct relative in the ascending line
- Sons in law and daughter in law
- Father in law and the mother in law
- Brothers and sisters.
Also family members must have been residing abroad for at least 9 of the 10 tax periods prior to the one in which person moves to Italy.
Only income generated abroad is subject to the substitute tax. Income generated in Italy is taxed according to the ordinary rules.
The following items of income fall within the scope of the regime:
- income from self-employment generated from activities carried out abroad
- income from business activities carried out abroad through a permanent establishment
- income from employment carried out abroad
- income from a property that the new resident owns abroad.
They also include interest from bank accounts paid by non-residents and capital gains generated by the new resident following the sale of unqualified shareholdings in foreign companies.
Capital gains resulting from the sale of qualified participations (held in companies and non-resident entities) made during the first 5 tax periods of application of the tax incentive cannot be subject to the substitute tax.
Therefore, in the event of sale of the investment before the end of the five-year period, the capital gain is subject to the ordinary tax provided for by Italian law.
It is possible to exclude the income generated in one or more foreign countries or territories from the application of the substitute tax. In practice, the taxpayer can choose to tax the income generated in certain jurisdictions (cherry picking) by using the ordinary taxation scheme. However, this choice must cover all income generated in the country or territory subject to exclusion.
Individuals benefitting from the incentive are equal to €100,000 for each tax year in which the option is valid, regardless of the type and amount of the income generated abroad. If the scheme is extended to the family members, the payment of the substitute tax on the foreign income generated by each member amounts to €25,000. The payment of the tax must be made through the F24 form in a single payment within the deadline for the payment of the income tax. The parties concerned, both as principal taxpayers and as family members, must pay the tax by themselves. With the payment of the tax, the tax obligation due in Italy on foreign source income is deemed fulfilled.
The regime ceases after 15 years from the first tax period in which the option becomes effective, without the possibility to request a renewal.
Once the regime has ceased, foreign income becomes part of the total income of the resident taxpayer and is subject to ordinary income tax (Irpef). Moreover, for family members, the effectiveness of any extension of the option is no longer valid, regardless of the period for which they have benefited from the regime.
The option for the substitute tax can in any case be revoked before its expiration by both the principal taxpayer and the family member to whom it has been extended.
The revocation must be made in the same way as for the option and will be effective starting from the tax period referred in the tax declaration.