The 2019 Italian Budget heralded good news in the form of a tax break for pensioners with foreign income who have not been resident in Italy during the last 5 years and become resident in a town with a population of less than 20,000 in the regions of Sicily, Sardinia, Campania, Basilicata, Abruzzo, Molise or Puglia.
All income from foreign assets for people in such circumstances will be subject to a flat rate tax of 7% for 9 years (previously 5 years) and they will also be exempt from the normal reporting requirements on foreign assets, the RW section of the tax declaration and as such exempt from the normal wealth taxes on foreign assets (IVAFE and IVIE).
The reason for this unusual generosity from the Italian tax authorities is competition from Portugal which, as many of you will be aware, introduced a tax regime for pensioners who move to Portugal which suspends tax on foreign pension income for the first 10 years of residency and during that period a 20% flat rate of tax is applied to other income.
Actually the original proposal was to mirror the Portuguese system in Italy on the basis that since Portugal introduced their regime in 2012 they have attracted somewhere between 80,000 and 100,000 new residents (including many Italians) whose spending power has added 1.2% to the country’s GDP amounting to $3.5 Billion per annum.
However, with the well reported issues around the budget deficit the conditions have been rather watered down from a ‘full Portuguese’ with the tax break lasting 9 years with a 7% rate on foreign income, and although I think the regeneration aspect of the legislation is admirable it does unfortunately limit the numbers of eligible pensioners as there are many who already own a property in a non-participating region of Italy but have not yet applied for residency.
For Italy, it is not only attracting foreigners which is key but also the thousands of Italians who are working abroad many of whom have opted to retire to Portugal or Cyprus rather than Italy on their return to Europe over recent years.
If you are eligible for the regime you are now presented with a number of financial planning opportunities. This is particularly the case for those with investment assets overseas as the usual 26% capital gains tax will not apply during the 9 year period and IVAFE, the 0.2% per annum wealth tax will also not apply. This can be very advantageous over a 9 year period if you organise yourself correctly. The exemption also extends to any overseas income, including dividends which would also be taxed at 7% rather than the standard 26%. No Italian sourced income is included the regime.
For those who are becoming resident now or in the future in one of the eligible regions there is the opportunity to plan in advance and maximise your benefits during the 9 year period setting yourself up for the transition back to the normal tax regime following the 9 year exemption period in the best possible circumstances.
There is a planning opportunity to draw down on pension funds during the period to take full advantage of the lower level of tax. In addition, there is also an opportunity to build investment assets outside of Italy in a very tax efficient manner and when the period is coming to an end, move those assets into a tax efficient structure in Italy.
We are well positioned to help everyone who can benefit from this regime, we specialise in cross border financial planning, dealing with people in many different countries and have access to a wide range of UK and EU-based and regulated solutions which can be used to maximise the benefits offered in advance, during and after the 9 year period.
Please feel free to get in touch to arrange a call or initial consultation on the above.