THE FLAT TAX SCHEME FOR NEW RESIDENTS
The subsidized and optional regime for new residents is aimed exclusively at persons who decide to transfer their fiscal residence in Italy and consists in the possibility to pay a flat tax rate on foreign income, as an alternative to the ordinary taxation. They can choose this regime, which has a maximum duration of 15 years, regardless of their nationality. In fact, access is allowed to both foreigners and Italians, providing they have been fiscally residing abroad for, at least 9 of the last 10 previous tax periods starting from when the selection begins to be effective.
Italian citizens deleted from the registry office of the resident population and transferred to States or territories with a preferential tax regime ("tax havens" – Dm 4 May 1999) can also join the scheme. However, they must be able to overcome the presumption of residence in Italy.
THE EXTENSION TO THE RELATIVES
Who exercises the option to the flat tax scheme may request to extend its efficiency to one or more of the following family members:
• your spouse or civil union partner;
• children, including adopted ones, and, in their absence, the next descendants;
• parents and, in their absence, the next ascendants;
• the adoptive parents
• sons and daughters-in-law;
• brothers and sisters.
Family members must also move their residence in Italy for the subsidized scheme to be effective.
FOREIGN SOURCE INCOME INCLUDED IN THE SCHEME
Only income that the neo-resident produces abroad may be subject to flat tax. The income produced in Italy are taxed according to the ordinary rules of the Italian legislation.
Foreign source income included in the scheme:
• self-employment income derived from activities exercised abroad;
• income from a business carried on through a permanent establishment abroad;
• employment income paid abroad;
• income from a property that the neo-resident owns abroad.
• the interests arising from foreign bank accounts to the neo-resident;
• capital gains that the neo resident carries out following the sale of non-qualified shares in foreign companies.
FOREIGN INCOME EXCLUDED FROM THE SCHEME
Capital gains from the sale of qualified shares (held in non-residents companies and entities) made by neo-resident during the first 5 years of application of the flat tax scheme are excluded from the scheme itself. Then, in the event of a sale of the share before the expiry of the five-year period, the appreciation (capital gains) is subject to the ordinary tax regime provided for by Italian legislation.
Incomes coming from one or more foreign Countries may be excluded from the application of the flat tax. In this case, the taxpayer (neo resident) may choose to subject to ordinary income taxation incomes coming from certain jurisdictions (cherry picking clause). This choice must necessarily relate to all the income produced in the excluded country or territory.
THE REQUEST TO IRS
Those who are interested in the flat tax scheme may contact Italian IRS to have an opinion on whether the conditions required for access subsist. The request for clarification can be made through a specific instance of questioning, which can be filed even when the person concerned has not yet transferred his residence in Italy. It is unacceptable, however, the instance of private letter ruling submitted after the exercise of the option for the flat tax scheme.
IRS ANSWER TO QUESTIONING
the IRS responds to the instance within 120 days of his receipt (except for the possibility to get an integration document review), stating its opinion on the existence of conditions for access to the flat tax scheme. The response to the questioning is not binding for those who presented (nor it is open to challenge), while it is binding on every organ of the Inland Revenue, for the specific case and to the person who requested the questioning. Therefore, any negative response does not prevent the interested party to opt for access to the scheme
HOW TO EXERCISE THE CHOICE
The choice to the flat tax scheme on foreign income has to be made in the tax return for the tax year in which taxpayers have transferred their fiscal residence in Italy or in the tax return for the next tax period.
Whether an instance for questioning was presented (for the main taxpayer or for the family), in the tax return will be given minimum information. If, on the other hand, an instance has not been presented to the IRS, you can still exercise the option directly into the tax return but, in that case, you must state the elements necessary for the detection of the conditions to access the scheme:
• non-resident status in Italy for a time at least 9 over the previous 10 tax years from the commencement of validity of the option;
• the jurisdiction or jurisdictions in which the taxpayer had his last fiscal residence;
• any foreign states or territories for which you intend to exercise the right not to avail of the application of the substitute tax;
• the items required in the checklist listed in the tax return.
If the financial administration, in the control, ensures that they do not use the conditions for the application of the flat tax scheme, the option exerted by the taxpayer will be deemed invalid, with each consequence in the Tax recovery and on sanctions.
The option may be validly exercised in the tax return even when, despite having been presented special instance of questioning, taxpayer has not received response from the IRS.
THE OPTION FOR FAMILY MEMBERS
The choice to extend to family members the option to the new resident scheme must be made by the taxpayer in the tax return for the tax year in which the family has moved its tax residence in Italy or in the tax return for the next tax period.
FLAT TAX PAYMENT
Whoever intends to make use of the flat tax scheme for the neo-residents shall pay a flat-rate income tax calculated at the rate of 100,000 euros for each tax year in which the option is valid, regardless of type and amount of foreign income. If the scheme is extended to family members, the flat tax on foreign income produced by each of them amounts to 25,000 euros. The payment of the tax must be made through the F24 model in a lump sum within the time-limit for payment of the balance of income taxes.
Stakeholders, both as major contributors and as family members, must pay their own sets.
With the payment of the flat tax, taxpayer’s liability due in Italy on foreign source income is completely fulfilled which means, therefore, that he will not have to undergo other taxes.
INHERITANCE AND DONATION TAX
Those who have exercised the option are exempted from inheritance and donation tax for the existing assets and rights abroad. In fact, in case of a transfer by inheritance or donation over the duration of the flat tax scheme, inheritance and gift tax payable is limited to goods and rights existing in Italy. The exemption also applies to family members who have been extended the regime.
THE DURATION OF THE SCHEME
The scheme ceases, however, after 15 years from the first tax period of validity of the option, without the possibility to ask for a renewal. After the deadline, foreign income is included in the total income of the taxpayer resident and ordinary income tax is payable. In addition, for family members, the effectiveness of any extension of the option ceases, regardless of the period for which they have made use of the scheme.
The option for the flat tax may still be revoked before expiration by both main contributor and familiar that has been extended to it. The withdrawal must be carried out with the same conditions as the exercise of the option and will be effective starting from tax period in respect of which the tax return was made.
In the event of withdrawal of the main contributor, effects will also be produced against family members who had been extended the option, irrespective of whether they have carried themselves their option possibility. While the withdrawal made for family members will result in the loss of benefit only towards the latter.
The withdrawal can be exercised even if the taxpayer has already paid the tax for the same tax period. In this case, the tax already paid but not due, can be used in compensation or request a refund. The main taxpayer which extended to one or more family members the option to the flat tax scheme may decide to revoke this extension, despite wanting to continue using it for himself. Of course, the withdrawal may concern only one, some or all of the family members who use the optional regime and may be manifested in respect of each of them in different tax periods. The family member is obliged to indicate in his tax return withdrawal made against him by the main contributor.
It remains a possibility for the excluded family member to opt for application of flat tax scheme as the main contributor, pouring the amount of 100,000 euros.