ITALY: An Introduction

Italy remains one of the most attractive European countries for Private Clients. In fact, the Italian government is committed to reorganise and simplify the tax system for people living in the country, and especially to attract new residents. Accordingly, the 2024 Italian Budget Law and the Legislative Decrees implementing the Tax Reform framework represent the cornerstones of the government's monetary and fiscal policy: the aim is to reduce the tax wedge and to bring the Italian legal system into line with international practice and double taxation conventions. As a result, starting from 2024 personal income taxation is reduced in the number of progressive tax brackets (from four to three) and the tax rate for income up to EUR28,000 is reduced at 23%, instead of 25%. In addition, from 2024 the tax-free zone, the so-called 'no tax area', includes a tax exemption for employees and pensioners with an income up to EUR8,500. However, the Budget Law has increased the tax rate on real estate located abroad (ie, IVIE) from 0.76% to 1.06% and the tax rate on foreign financial assets held in states or territories with a privileged tax regime, the “black list” jurisdictions, (ie, IVAFE), from two per thousand to four per thousand.

Furthermore, the Legislative Decree implementing the Italian Tax Reform on International Taxation has revised the Italian tax residence criteria for individuals and corporations.

Therefore, under the new provision, the individuals are deemed to be tax residents in Italy if for the majority of the tax period (ie, more than 182 days or 183 in case of leap year), also including fractions of a day, alternatively have their residence, domicile or are physically present in the Italian territory. The new concept of domicile refers to the place where personal and family relationships are primarily developed. Unless proven otherwise by the Italian Tax Authority, persons registered for the greater part of the tax period in the Register of the resident population are also presumed to be resident.

According to the new rules, companies and entities are considered tax-resident in Italy if for the greater part of the tax year alternatively (i) have their registered office in Italy, (ii) Italy is the place of effective management (ie, where strategic decisions are made) or (iii) the place of day-by-day management (ie, where the management activity is implemented in practice).

Also, significant changes to the special tax regime for inbound workers moving to Italy have been introduced. The regime is applicable to individuals who will become tax resident in Italy from 2024. This new regulation provides a 50% reduction (60%, in presence of particular circumstances) on taxable employment and self-employment income (with a yearly maximum of EUR600.000) for up to five tax years for taxpayers who have a high degree of specialisation and qualification, as defined by internal regulations, and maintain the Italian tax residence for at least four years and have not already been tax residents in Italy in the preceding three tax years. While, for employees moving to Italy to work for the same current employer or with an entity of the same corporate group, special rules apply. In compliance with the EU fundamental freedoms, the 2024 Budget Law has extended the Participation Exemption (PEX) regime to EU and EEA companies without an Italian permanent establishment (PE). The PEX regime allows Italian companies and non-resident commercial companies but with reference to participations in permanent establishments in Italy to benefit from a 95% tax exemption on capital gains arising from the sale of participations, fulfilling various conditions including possession of participations for at least 12 months uninterruptedly. So now, also EU and EEA companies will be able to benefit from the same tax advantages as Italian companies in respect of capital gains from substantial Italian participations, being subject to a 26% foreign capital gains tax calculated on only 5% of the relevant gain (ie, 95% exemption), provided that the law requirements are met.

Another centerpiece of the Legislative Decree on International Taxation is the introduction of a global minimum tax regime in Italy, in compliance with the EU Directive 2022/2523. This system reduces the risks of eroding the tax base and shifting the profits as well as ensures that large multinational groups pay a minimum corporate tax rate. In particular, Italy has chosen to introduce a national minimum tax, while the additional minimum tax (AMT) will only be imposed on Italian income if the foreign jurisdictions in which the controlled companies are located do not impose an equivalent national minimum tax. Similarly, the supplementary minimum tax would only be applicable, and therefore generate revenue, under the double condition that the country where the multinational group companies are located does not introduce a qualified national minimum tax (qualified domestic minimum top-up tax) and that the country of the parent company does not apply the AMT.

Also, an additional tax incentive to attract economic activities to Italy is currently waiting to receive the EU Commission authorisation. The proposal is aimed at introducing tax benefits for economic activities that move to Italy (known as reshoring), granting a 50% tax exemption on income derived from the exercise of business and related professional activities previously carried out in a non-EU country and relocated in Italy. This advantage lapses if the economic activities are transferred again out of Italy within five tax periods (or ten, in the case of large companies) following the end of the exemption period with the penalty of the unpaid tax, together with interest.

With regard to the tax treatment of the crypto-assets, the Italian Tax Authority, with Circular n. 30/2023, has issued clarifications. The discipline refers to any income phenomenon attributable to the holding, redemption and transfer of values and rights using distributed ledger technologies. All capital gains and other income from transactions related to crypto-assets are taxable as miscellaneous income and subject to taxation at the rate applicable to financial assets (26%). The income earned by non-residents is also subject to the new rules as long as related to crypto-assets held in Italy with service providers or intermediaries domiciled in Italy or, if non-resident, in their permanent establishment. Furthermore, the income is considered generated in Italy if the crypto-assets, or rather the keys to access to them, are held directly by the individual, through storage media (such as USB sticks) located in Italy or if the owner of the storage medium is resident in Italy during the tax period in which the income is generated, unless evidenced otherwise by the taxpayer. In addition, specific rules on fiscal monitoring obligations require the intermediaries involved in transactions of crypto-assets to or from abroad to report to the Italian Tax Authority and Italian residents to declare in Form RW of their annual tax return the crypto-assets held.

Regarding gift and inheritance tax, Italy maintains its reputation as a "tax haven" due to its persistent low tax rates, high allowances and absence of a wealth tax. Finally, the Italian legislator is willing to regulate the tax regime applicable to capital gains deriving from sales of works of art, antiques and collectors’ items, to reduce the VAT rate on their importation and to extend the reduced VAT rate to their disposal. Taking into account all the factors discussed above, Italy proves to be an appealing and enticing destination for living, working and investing in.