High-Tax Country Resident Planning To Stay Put: 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.

Income tax applies both at national level and at local level. Residents are taxed on their world-wide income; 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 subjuect 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.

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. 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).

For an individual wishing to explore the investment opportunities further afield, www.lowtax.net contains details of the investment and tax regimes for 50 offshore jurisdictions.

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.