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Flat Tax: a good opportunity for high-income earners

19 April 2017

The Italian Budget law for 2017, entered into force on 1. Januay 2017, introduces the new “flat tax” valid for 15 years offering high-net-worth individuals considerable tax advantages when transferring their tax residence to Italy.

This becomes interesting for people who are used to regularly pay more than 100.000 euros income tax a year in their home countries, as flat tax itself is a lump sum tax of annually 100.000 euros, which the applicant must have produced abroad and pays to the Italian state in a single instalment within the applicated deadlines. The application of the flat tax offers additional advantages too, as it doesn’t require the usual extra tax payments of business activities or properties abroad – they don’t even have to be explicitly specified in the tax return. The flat tax furthermore is applicable to the law of succession and endowment.

Since March 8. 2017 it is possible to submit an application for the flat tax at the Tax Revenue Agency. In order to make use of the attractive tax benefits some conditions must be fulfilled:

  • the applicant must register at the local residents’registration office, complete a comprehensive questionnaire and transfer the principal residence to Italy (this requires an annual residency of at least 183 days or 184 days when dealing with a leap year).
  • The applicant must not have filed an income tax return in Italy for 9 years in the past 10 years before the entry into force of the law – meaning the applicant must have had a non-residents-status in Italy the 9 years prior to this option.
  • The amount of taxable income must have been produced in a foreign country (real estate, assets, employment, economic activities, …). Exceptions to this rule are only gains on shares or other holdings of the first 5 years of validity of the measure, to avoid that the tax residence is transferred to Italy for speculative purposes.

Once the tax authority office approves the application, the right of application for the flat tax is obtained for 15 years and can be extended to other family members by filing another application. Their annual lump sum tax amounts to 25.000 euros if they fulfill all qualifications.

As a matter of fact one can withdraw from this arrangement at any time. But be careful: The entitlement of the application for the flat tax automatically is cancelled when an incorrect amount has been paid, an amount has not been paid on time or has not been paid at all.

Further news regarding italian legislation