FOCUS: Res non dom – Italy’s Resident non-domiciled Tax Regime

FOCUS: Res non dom - Italy's Resident non-domiciled Tax Regime

The 2017 Italian Stability Law (Law no. 232/2016) has introduced the so called “Res non dom” system

The “Res non dom” system is a special tax regime for foreign income generated by both Italian and foreign citizens, who wish to move their tax residence to Italy.

This tax regime has been adopted by Italy in order to attract more high net worth foreign citizens and to boost Italian economy with new investments and capital.

Subjective requirements:

The individual has to transfer the tax residence to Italy.

According to Italian Income Tax Consolidation Act Article 2(2) only people registered in the register of the Italian resident population for the majority of the tax period or people who are resident or domiciled in Italy can be considered tax resident in Italy.

  • The individual must not have been resident in Italy for at least nine out of ten tax periods before electing to apply the new tax regime.

During the whole term of effectiveness of the “Res non dom” regime, people benefitting from it are allowed to request its extension to one or more family members, as identified by Article 433 of the Italian Civil Code (i.e. spouses, children or adoptive children, parents or adopters, sons and daughters-in-law, fathers and mothers-in-law, brothers and sisters).

People benefitting from the system are subject to a flat-rate substitute tax of the Personal Income Tax (IRPEF) of 100,000 euros for each tax period, regardless of the amount of taxable foreign income. If the special tax regime is extended to family members, the substitute tax will amount to 25,000.00 euros.

The flat-rate substitute tax has to be paid in full in a single instalment. In case of non-payment, voluntary correction of tax return is not allowed.

The “Res non dom” ceases after 15 years, without the possibility of renewing the option. After this term, foreign income will become part of the total income of the resident taxpayer and will be subject to ordinary personal income tax (IRPEF), without prejudice to double taxation agreements.

How to access the “Res non dom” regime:

  • By submitting a formal query for an Advance Tax Ruling to the Italian Revenue Agency (Taxpayer Division). (not mandatory);
  • By stating the option in the income tax return relating to the tax period in which tax residence is transferred to Italy or in the income tax return relating to the following tax period.

Advantages of the “Res non dom” regime

  • Exemption from filling in the RW part of the Italian tax return, relating to fiscal monitoring of foreign businesses and investments.

In case qualified holdings which ordinarily can cause taxable value appreciation fall under the first five tax periods in which the option becomes effective, taxpayers are not exempted from filling in the foreign holding value in the RW part of the Italian tax return;

  • Exemption from paying property value tax on the value of properties held abroad and from paying value tax on financial products, current accounts, and bank books;
  • Inheritance and donation taxes are limited to property and rights held in Italy at the time of succession or donation, for all successions opened and for all donations made during the whole term of effectiveness of the option.