Flat Tax for High Net Worth Individuals

Flat Tax for High Net Worth Individuals (HNWIs) - Why Italy is an Ideal Choice

Italy has introduced an attractive tax regime aimed at High Net Worth Individuals (HNWIs) who
wish to become new residents. This regime is designed to attract investments and human capital,
offering incentives such as a flat tax on foreign income, exemptions from inheritance and gift taxes, and
simplified immigration procedures.

Key Features of the Flat Tax Regime

Flat Tax on Foreign Income:

• Fixed Tax Rate: HNWIs who move to Italy can choose to pay an annual flat tax of EUR
  200,000 on foreign income, regardless of the total amount of income earned abroad.
• Reduced Rate for Family Members: Family members, including spouses, children, siblings,
  parents, and in-laws, can benefit from a reduced annual flat tax.

Exemptions and Benefits:

• No Additional Tax on Foreign Income: HNWIs can transfer their foreign income to Italy
  without incurring additional taxes.
• Exemption from Tax Monitoring and Wealth Taxes: Individuals who adhere to the flat tax
  regime are exempt from tax monitoring obligations and wealth taxes on foreign assets.
• Limited Italian Taxation: Only income generated in Italy and capital gains from the sale of
  qualified shares within five years are subject to taxation in Italy.
• Exemption from Inheritance and Gift Taxes: Foreign assets received through donation or
  inheritance are exempt from Italian inheritance and gift taxes. Only assets located in Italy are
  subject to such taxes.

Flexibility of the Regime

The flat tax regime offers significant flexibility to taxpayers:

• Selective Taxation: Individuals can choose to exclude certain countries or assets from the flat
  tax regime, opting to include them in their Italian tax return under ordinary rules. These items
  would then be subject to normal Italian taxation and may be eligible for foreign tax credits.

Eligibility and Duration

• Eligibility Requirements: To qualify, an individual must have been a non-resident of Italy for
  at least 9 of the last 10 years prior to applying.
• Application Process: It is recommended to request a tax ruling to confirm eligibility.
  Applicants must provide proof of previous residence and sources of foreign income.
• Duration: Once approved, the flat tax regime is valid for up to 15 years. The agreement
  terminates if the full amount of the flat tax is not paid annually.

Additional Considerations for HNWIs

Corporate and Financial Considerations

Foreign Companies:

• Under the flat tax regime, Controlled Foreign Corporation (CFC) rules do not apply. This is
  significant because CFC rules typically apply to income generated in low-tax jurisdictions, but
  the flat tax does not distinguish based on foreign tax levels.
• The presence of a board of directors mainly composed of Italian residents (not subject to the
  flat tax regime) could cause the company to be considered an Italian resident for tax purposes.

Bank Deposits and Financial Income:

• Income from foreign bank deposits or financial assets held abroad is subject to the flat tax,
  even if the assets are managed by an Italian intermediary.
• Income generated by assets located in Italy or capital gains from the sale of shares in Italian
  companies is excluded from the flat tax.

Immigration and Visa Options

HNWIs moving to Italy to benefit from the flat tax regime must comply with the country’s
immigration requirements. Visa options include:

1. Investor Visa: Requires a minimum investment of EUR 2 million in government
   bonds, EUR 0.5 million in an Italian company, or a EUR 1 million donation to a cultural or
   social cause in Italy.
2. Elective Residence Visa: Ideal for those who can financially support themselves without
   working in Italy. Applicants must have accommodation in Italy and demonstrate an annual
   income of at least EUR 31,000 from non-employment sources.
3. Self-Employment Visa: Available for individuals intending to assume corporate roles in Italy.
   Applicants must meet minimum financial requirements and demonstrate that the company has
   been operational for at least three years.

Long-Term Residency and Family Integration

• HNWIs who reside in Italy for five consecutive years can apply for permanent residency,
  provided certain conditions are met.
• Family members can also move to Italy under the flat tax regime, as long as the main applicant
  demonstrates sufficient financial resources and adequate accommodation.

Conclusion

The Flat Tax Regime for HNWIs in Italy offers significant financial and lifestyle benefits, making it
an attractive option for individuals seeking favorable tax treatment on foreign income, flexibility in
managing global assets, and access to Italy's rich culture and lifestyle. By simplifying taxation and
offering additional exemptions, Italy is positioning itself as a key destination for global investors and
high-net-worth individuals.

Atty. M. Sammarco, International Tax Attorney
Dr. Marco Gianni, Head of Strategy
www.sammarcolegal.it