Expatriate Executive: Italy

Summary of local taxation situation

A foreign national working in Italy or based there will be taxed in Italy either as a resident or as a non-resident.

Residence applies to individuals who:

• spend more than 183 days in the country (recorded on the Residents' Register);
• have habitual residence in Italy; or
• make Italy their main base or center of economic activities.

In order to lose tax residence it is simply necessary to stop fulfilling any of the above criteria in a given tax year.

Resident individuals are taxed on their worldwide income; non-resident individuals are taxed only on their local-source income. Income is defined to include many types of capital gain.

Income tax applies both at national level and at local level. For both residents and non-residents, the basic national tax rate is 23%, rising by degrees to 43%; the basic local rate is 1%, rising by degrees to 2.2%. Personal allowances depend on familial status.

60% of dividend income and capital gains from qualified shareholdings (usually a significant participation is required) is exempt from tax. Non-qualified dividends are subject to 12.5% withholding tax. The proceeds of many types of share investments can be rolled over. Other capital gains from share sales are subject to 12.5% tax.

Employed individuals pay social security taxes of about 10%; the employer pays about 23%. Private pension contributions are tax deductible up to EUR5,165 per annum.

There is no Alternative Minimum Tax in Italy, and no wealth tax.

Real estate acquisitions are subject to a sales tax, varying from 4% to 10% (the lower rates apply to permanent residents). If not subject to sales tax then registration tax is due on the purchase at a rate of 7%, although this can be reduced to 3% in respect of a primary residence. Annual real estate taxes are between 0.4% and 0.7% of 'cadastral' value, which is lower than market value.

Inheritance taxes apply to Italian residents at between 4% and 8% dependent on the degree of consanguinity.

NB: The Italian tax rules are considerably more complicated than the above simplified summary, and professional advice on the situation of any particular individual is a necessity.

Offshore Investment Opportunities

Revenue protection measures apply to countries having "preferential" tax regimes; offshore trusts or companies are deemed to be resident and must make annual tax returns. There are therefore not many tax-efficient instruments available to Italian residents. Before taking on Italian residence, there is however a case for putting income-generating assets into trust in less highly taxed (but not offshore) countries. The Italian authorities have maintained a 'black-list' of offshore jurisdictions, but plan as of late 2009 to switch to a 'white-list' system of acceptable countries. The list has not yet been issued. Residents must make an annual declaration of their overseas assets greater than EUR10,000, although this regulation is widely flouted. Italy introduced a GAAR in 2008 (Generalized Anti-Avoidance Rule).

Once Italian residence has been terminated, and if non-residence is expected to be permanent, then an ex-Italian resident is free to invest offshore in order to obtain the best possible returns.

www.lowtax.net contains extensive information on the investment, tax and legal regimes in 50 of the main offshore jurisdictions. Further information is available in our Investment Information Providers Section, and the four main types of offshore investment are described in the Guide to Offshore Investment on this site.

NB: The suggestions given above do not constitute investment advice. They are intended only to assist individuals in finding appropriate professional advice, which is essential for anyone planning offshore investment.