High-Tax Country Resident Planning To Go Offshore: Italy

If you are resident and domiciled in Italy (which will be the normal situation for a native-born Italian individual) then you are taxable on your world-wide income and capital gains. Wealth tax was abolished in 2008, but inheritance tax applies.

Many resident individuals will be participating in domestic Italian tax-privileged savings and investment instruments, and usually these can simply be discontinued on leaving without serious tax penalties.

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 first necessary to stop fulfilling residence criteria in a given tax year. The departing individual should make sure that their name is deleted from the Residents' Register (Anagrafe della popolazione residente).

Establishing non-residence for an Italian tax resident sometimes amounts to demonstrating that residence has been established in another high-tax jurisdiction, since there is a provision in the law which presumes continued residence on the part of an Italian citizen who moves to a 'low-tax' jurisdiction, 'unless it can be proved otherwise'.

The effect of this law was famously demonstrated in the case of the late Luciano Pavarotti, and success in moving to a low-tax jurisdiction probably requires a complete separation from Italian property and business assets.

There are gift and inheritance taxes in Italy which are not easily escaped, although within a family the rates are quite low.

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.

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. Costs incurred in respect of overseas subsidiaries in 'tax haven' countries (i.e. those not on the 'white list') many not be deducted in some circumstances.

For an individual who knows she is going to leave Italy, there is therefore a case for switching income-generating assets into capital appreciation assets to a country on the white list outside Italy, or at any rate for ensuring that gains are not made during Italian residence which could incur capital gains tax. Gains which crystallise after residence has finished will escape Italian tax.

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.

Once a definite decision to move offshore has been made, careful thought should also be given to existing Italian capital assets, including pension assets. Will it be possible to move them offshore without incurring capital gains tax? Is it desirable to move them early and pay the tax anyway? These are complex questions, and the answer will depend on individual circumstances, but for many individuals there will be interesting tax planning possibilities.

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.