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New tax regime for individuals transferring their residence to Italy

21 December 2016

ITR Correspondent

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Individuals transferring their tax residence to Italy may benefit from new tax regimes being introduced in Italy. Nicola Saccardo, a partner at Maisto e Associati, explains the changes that apply to high-net worth individuals and skilled employees.

The Italian Parliament approved the Budget Law 2017 on December 7 2016, which will enter into force on January 1 2017.

The Budget Law 2017 provides two new tax regimes for individuals that transfer their tax residence to Italy. These regimes intend to make the transfer of tax residence to Italy appealing and to attract mainly high-net worth individuals and skilled employees. In particular, the Budget Law 2017  introduces an optional substitute tax on foreign-sourced income and gains and broadens an existing partial exemption regime for Italian-sourced employment income (the so-called "inpatriate regime"), as better explained below. The two regimes are alternative, so individuals moving to Italy cannot benefit from both regimes.

The substitute tax on foreign-sourced income and gains

An option for a substitute tax on foreign-sourced income and gains is available to individuals (whether Italian or foreign nationals) that acquire Italian tax residence. This optional regime is subject to the following conditions:

  • The individual must not have been a resident in Italy for Italian tax purposes in at least nice of the 10 years prior to the first year of effect of the option;
  • The individual must exercise the option for the regime in the income tax return and inform the Italian tax authorities about the last state of residence prior to the first year of effect of the option, so that the Italian tax authorities can inform the foreign tax authorities; and
  • The option must be exercised after having obtained a positive ruling, which must confirm that the individual may qualify for the optional regime.
The optional regime of the substitute tax on foreign-sourced income and gains is as follows:
  • Foreign-sourced income and gains are subject to a substitute tax (in lieu of the levy of income tax according to general rules) equal to €100,000 per year (such income and gains are not subject to any additional income taxation, even if remitted to Italy);
  • The foreign-sourced income and gains subject to the substitute tax do not qualify for any foreign tax credit;
  • Capital gains on substantial shareholdings realised in the first five years of effect of the option are excluded from the scope of the substitute tax and are subject to income tax under general rules with the benefit of a foreign tax credit (subject to general conditions and limitations);
  • The individual can opt for income and gains sourced in one or more foreign states to be excluded from the scope of the substitute tax and therefore be subject to income tax under general rules with the benefit of a foreign tax credit (subject to general conditions and limitations). Depending on treaty provisions, the exclusion may be helpful to allow the individual to qualify for treaty benefits in the state where the income and gains are sourced;
  • Foreign-held assets are not subject to reporting obligations and are exempt from wealth taxes;
  • Foreign-situs assets are not subject to inheritance and gift tax;
  • The option for the substitute tax regime is effective up to a maximum period of 15 years. The option can be revoked by the individual, but, if revoked, is not available anymore; and
  • The substitute tax regime can be extended to one or more qualifying family members against the payment of an annual substitute tax of €25,000 (rather than €100,000) per family member benefitting from such a regime. Therefore, if e.g. two spouses transfer their tax residence to Italy and both of them wish to benefit from the substitute tax regime, the overall annual substitute tax would be €125,000.

The (amended) inpatriate regime


Italian tax law already provided for an inpatriate regime, consisting of a partial exemption regime for Italian-sourced employment income derived by individuals who transfer their tax residence to Italy. The Budget Law 2017 improves the inpatriate regime by broadening its scope and increasing the exempted portion of the income.

The inpatriate regime, as amended, applies to several categories of individuals. This includes, for instance, EU citizens, or citizens of states with whom Italy has concluded a double tax treaty or a tax information exchange agreement, that have a bachelor’s degree and have been continuously employed for the past 24 months or more outside Italy. Following the amendments, the inpatriate regime consists of a 50% (rather than 30%) exemption from income tax for Italian-sourced income from employment (and self-employment) for the first year of Italian tax residence and the subsequent four years.

The table below sets out a comparison of the main features of the two alternative regimes.

  Substitute tax regime  Inpatriate regime 
Italian-sourced income from employment and self-employment Ordinary taxation 50% exemption
Foreign income and gains €100,000 substitute tax with no foreiogn tax credit (but capital gains on substantial shareholdings realised in the first five years are subject to ordinary taxation) Ordinary taxation
Foreign assets No wealth taxes, inheritance and gift tax and reporting obligations Ordinary taxation
Family members Can benefit from the substitute tax regime by paying €25,000 each Ordinary taxation
Duration Up to 15 years Five years


This article was written by Nicola Saccardo, partner at Maisto e Associati.

Email: n.saccardo@maisto.it

Nicola Saccardo is a partner at the Italian tax law firm Maisto e Associati. He is based in the London office of Maisto e Associati. He graduated from Bocconi University in Milan, holds an LLM in international taxation from Leiden University (Netherlands) and is admitted to the Italian Bar. He practices Italian tax law. His areas of expertise include international and EU tax, taxation of private equity transactions and corporate reorganisations, taxation of high-net worth individuals and taxation of financial instruments. 






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