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The IBSA Podcasts
IBSA podcasts contain information from a global community of entrepreneurs and professional advisors dealing with international business structuring and regulatory compliance.
Hosted by Roy Saunders, who has over 50 years’ experience within the financial sector, these podcasts delve into enlightening conversations with a wide range of leading professionals aiming to demystify the complex world of business and provide invaluable insights to help listeners deal with various complex technical matters to best support their business and clients.
Disclaimer: We believe the information in this podcast to be correct at the time of recording. The information given is relevant at the time in line with governmental legislations. Competent counsel in the jurisdiction(s) whose laws are involved should be consulted. The podcast is made available by the IBSA for educational purposes only and to provide general information. The information should not be used or relied upon as a substitute for competent legal advice from a licensed professional in your jurisdiction.
The IBSA Podcasts
Navigating Italy's Attractive Tax Landscape
Learn about the benefits of Italy’s attractive tax regime for high-net-worth individuals with our guest, Walter Andreoni, an International Tax Lawyer from Mercanti e Associati in Milan. Discover how Italy’s flat tax of €100,000 on foreign source income and a 15-year duration, aims to entice wealthy individuals to move long-term to this beautiful country. Walter expertly navigates through the intricacies of this regime, explaining the balance between generous tax benefits and the economic contributions expected from new residents.
In this episode, Roy and Walter also compare Italy's tax regime with those of other enticing destinations like Spain and Portugal. Like these countries and as required by the EU, they explain that the aim is not to assist tax avoidance, hence its anti-abuse rule concerning the taxation of foreign capital gains realised within the first five years of residence. But whether you’re a fund manager or just exploring new residency options, this episode is packed with valuable information to help you make an informed decision about moving to Italy. Although somewhat biased, Walter explains that it is Italy’s lifetime allure that, combined with tax benefits, makes Italy the perfect relocation choice.
This series of podcasts explores the beneficial tax regimes in Italy, Spain, Portugal, Malta, Cyprus, Switzerland, Singapore, Israel and Dubai in respect of where UK residents may wish to emigrate in light of the non-dom changes introduced by the Conservatives, and the likely tightening of these rules under the new Labour government.
Hello and welcome to the IBSA series of podcasts on considering countries to where UK residents may wish to emigrate, in light of the non-dom changes introduced by the Conservatives and the likely tightening of these rules under the new Labour government, including bringing foreign trust assets within inheritance tax and increasing capital gains tax rate to income tax levels, those particularly aimed at fund managers. My name is Roy Saunders, founder and chairman of the IBSA, the International Business Structuring Association, a multidisciplinary global association of entrepreneurs and their professional advisors, dedicated to sharing their expertise with each other within a great networking platform. Our current series of 15-minute podcasts will review beneficial tax regimes in lots of countries. 10 countries Italy, Spain, Portugal, Malta, Cyprus, Switzerland, Singapore, Hong Kong, Israel and Dubai. So today I'm joined by Walter Andreoni, an international tax lawyer with Mercanti e Associati in Milan. So, Walter, Italy joins Spain and Portugal amongst the countries offering great food, wonderful weather and an excellent tax regime for incoming residents. So can we start by you discussing this regime in Italy?
Speaker 2:Yes, thank you, roy, for inviting me to this podcast. It's an honor to be here and having the chance effectively to explain how Italy decided, together with many other countries before, to attract high net worth individuals, or ultra high net worth individuals, willing to enjoy the country but getting rid of all the other issues of the country, and one of them was absolutely the high level of taxation. So you're 100% correct. Italy implemented a specific legislation which is aimed to attract individuals with high potential, not only, let's say, to let them enjoy the favorable tax regime, but with the aim of having these people injecting new and fresh money to invest in the country. So it's not a purely kind of gift that the country gives, but it's a gift expecting that people which would be attracted from this regime will then contribute to, let's say, increase the level of investments.
Speaker 2:How do they do it? They do it by applying, I believe, a quite wise mechanism that, in its technical feature, is pretty simple, but it creates a lot of issues that should be governed in a certain way. The mechanism is simple, as I said. What Italy is doing is exempting the foreign source income and, in exchange of this, will apply a flat tax of 100,000 euro, all the income that the people that becomes a new resident applying this regime, that all this income that will be instead produced in Italy, so sourced in Italy, if there will be some, will be taxed ordinarily as any other Italian taxpayers. Of course, if we look for the highest level of efficiency of the system, the individuals thinking to come to Italy with this new regime will refrain to produce domestic income and will enjoy only the incoming income sourced abroad.
Speaker 1:And how long is the regime for? And also Portugal. I had a conversation with Ana in Portugal, who said that gains capital gains are not exempt under the non-habitual residence regime, which has now been abolished. Nevertheless, what's the situation in italy as regards foreign countries?
Speaker 2:the the regime will last for a maximum of 15 years and the length of this regime, I believe, is just right, because if you think of implementing an attractive regime which is too short in time, people will not decide to move, because immigration first of all, before being a potentially relevant and effective way of tax planning, it's first of all a change of life.
Speaker 2:So if the immigration has 15 years' time in front of you, it's worth doing it, it's worth understanding whether it is a good idea. So this, I think, is one of the keys of success of our regime. The second point you touch is about capital gain tax and it's absolutely an interesting point. The Italian legislation provides for an anti-abuse rule that says that if an individual becomes a new resident and sell a relevant shareholding in the first five years of immigration, from the immigration, the capital gain will be taxed, even if the capital gain source is a foreign source. And this is to avoid a kind of strategy which may come to the mind of some new resident, to step in the country getting the advantage of the foreign income being exempt, sell the relevant shareholding and then go away. So this is the point After the five years, also, capital gains from the sale of relevant shareholding will be exempt.
Speaker 1:Okay, so you mentioned 15 years being irrelevant and a good period of time. We in the UK, under the Conservative government, introduced a four-year period, which, I agree with you, is very short, so we don't know what the Labour government is going to do. What's the criteria for individuals becoming tax resident in Italy and what's the limit of time that they can spend in Italy without being tax resident?
Speaker 2:what's the limit of time that they can spend in Italy without being tax resident? Yes, the main criteria is that, in order to be eligible for the application of this favorable regime, a foreign individual shouldn't have been resident in Italy for at least nine years over a period of 10 years before the immigration. So what you need to show is a solid tax resident abroad before the immigration. Also, this was done in order to avoid that specifically Italian resident or previous resident that were probably going to work abroad for a short period of time had the opportunity to come back and get the advantage of this favorable regime. The whole idea of this legislation is to attract foreigners or long-term foreign Italian citizen, and this is the target, and that's why the observation period of 10 years before the immigration should be populated by at least nine years of genuine foreign tax residence.
Speaker 1:And you don't have to prove to the Italian authorities that you're going to benefit the country coming in. For example, in Portugal you have this idea of R&D. If you like, research and development in various different areas to benefit the economy. You're quite happy for high net worth individuals to come without any business affiliation there.
Speaker 2:Correct, correct. I think this was a legislation exactly meant for them. And by observing how high net worth or ultra high net worth individuals behave economically, it's enough to understand how much they can inject potential new economy in the country. You know, when those families enter into your economy, they buy real estate, they restore historical real estate with the benefit for the community. Right, because many real estate are quite kind of benefit for the community. Right, because many real estate are quite kind of important for the community, but they are not kept the way they should.
Speaker 2:And we always need to think that, even when this person will leave the country or will resell the real estate, they cannot go away with their real estate with them. Right, it will remain here, it will remain restored and showing the best of its beauty, let's say. And also, they employ people to help them at various levels. They need to buy cars, they go to theatres, they go to restaurants, they make holidays in Italy, so all this is creating a new economy. I think this is the aim of this kind of legislation and should be welcomed.
Speaker 1:Okay, and for foreigners, like UK citizens or perhaps other non-EU citizens, what visas are required in order to be able to get into Italy and become resident there?
Speaker 2:Yes, this is another important point. It's not enough, let's say, to have the idea to enjoy a tax new system, but also you need to have a legal title to reside permanently in the country and if you are, of course, if you are an eu passport holder, you can benefit from the uh, from the schengen area legislation and the free movement of yeah, unfortunately we can't.
Speaker 1:We're not members unfortunately.
Speaker 2:But but there are solutions and those solutions are long-term visas. So this is what we need. We need long-term visas for these individuals willing to come and, in general, for this cluster of people which are interested in this regime. The visas which are common are the elective visa or the residence by election, or the investor visa as well. They have two different, let's say, ways of being requested. The investor visa is a more kind of complex, because you need to first apply for, let's say, the green light from the Ministry of Economic Development and then, with this okay, preliminary, okay you go to the consulate or embassy in your immigration country and ask for the investor visa. This will give you the possibility to enter in the country as much as you want.
Speaker 2:Of course, there are criteria again to get the investor visa, because the cornerstone of the visa is the investment. Just to give you the example of which are the four kinds of investment you can invest €500, euro into an Italian company. You can invest 250,000 euro in a company which is a startup company. You can invest 2 million in bonds, treasury bonds, or you can invest 1 million into a philanthropic activity. Of course, it goes without saying that among these four, the most, let's say, preferred. The preferred one is the 500,000 in shares of a listed, solid Italian company.
Speaker 2:So this is normally the main way the other visa requires you to. It's released based on the fact that you choose Italy as the place where you would like to reside permanently, and then you need to prove that you have a substantial possibility to maintain yourself without working, because the elected visa doesn't allow you to work as an employee in the country. You can continue, by the way, if you are an entrepreneur, if you are director of foreign companies, to continue your activity, but you cannot be employed by anyone else. But, let's say, it's not the purpose of the people that would like to take advantage of this regime to come in Italy and work as employee right. So this is the visa which allows them maximum freedom.
Speaker 1:Okay, that's brilliant. So now we've got a new government in the UK and we can see that there's going to be a substantial change in attitude to taxation and lots of other social things like immigration and so on. What do you see in terms of? Well, you've got a new, relatively new Italian Prime Minister who met the King yesterday, I think it was and shared a joke with him. What's the likelihood of the joke being played on the wealthy individuals who come to Italy in the future and the tax regime being abolished?
Speaker 2:Well, on this kind of situation, you never know the future, right? But let's see a bit of what happened till today and consider that this legislation has been introduced in 2017, and look around all other countries in Europe. What they did with their regime. All those countries, excluding Italy, changed this regime quite often. They made a kind of fine tunings, and those tunings were never to get the system better, but they worsened the system.
Speaker 2:Italy, on the other side, and probably unexpectedly also for the international audience, didn't change a word of this legislation. It maintained the principle as they were in 2017. So, frankly speaking, looking at the success that this legislation is having and the numbers are probably increasing over time because of the other regime not being so pleasant anymore and the international context having worsened over time, I believe this number of people that decide to choose Italy as a place to reside and enjoy the regime will probably increase in the future. I would like also to say that we cannot expect huge numbers. We're not talking about millions of people coming right, because the way the system is conceived is for a certain part of the individuals, and only them, can enjoy this regime.
Speaker 1:And one last question the EU are happy with this regime, as they are with other beneficial tax regimes.
Speaker 2:The EU, let's say, is. I believe it's happy because, if not, they would have, let's say, already said something about it. I remember that at the early stage, when the legislation was drafted, the EU imposed the anti-abuse legislation on the exemption on capital gain that we were discussing just some minutes ago. So they do not want that. This kind of regime is exploitable in order to evade capital gain tax and making a kind of non-genuine immigration. This is another point. This immigration should be genuine.
Speaker 2:You need to move your tax residence to Italy. It's not enough to just get a visa and then stay exactly as you were before, staying and living in your country with your family, with your children going to school exactly where they were going. Emigration must be genuine. I will never underline this enough, because it's a misconception that this kind of regime can be exploited, that they can be kind of just a facade of a personal situation. That's why I say, if you would like to emigrate, this should not be driven by the reduction of your taxes. It's a component of your, let's say, way of choosing. First of all, you need to decide that Italy will be the place where you will always return for a period of your life.
Speaker 1:OK, that's brilliant, brilliant and I think that's that's fine. That explains it all very well, very comprehensive. Thank you very much, walter. You've been terrific in explaining everything and very interesting indeed. Thank you everybody for listening and we will go on to the next country very soon. So thank you, walter.
Speaker 2:Thank you, roy, thank you very much everyone. Very soon so. Thank you walter, thank you roy, thank you very much everyone.