Founder of Studio Gnudi Associazione Professionale
by Piero Gnudi, Founder of Studio Gnudi Associazione Professionale
The Italian fiscal system, unfortunately, does not have a good reputation, either at home or abroad. The main criticisms are to do with the uncertainty of interpretation, the frequency of regulatory modifications – which makes tax planning uncertain – and the slowness of the judicial system (also) in tax matters.
This criticism is largely justified and could, incidentally, also be applied to the fiscal system of other countries. However, it should not override the various positive aspects that the Italian fiscal system has to offer to a non-Italian who wishes to either invest in our country or transfer residency to Italy.
Corporate taxes are in line with those in the major countries in the EU: the total rate is 27.9% (the sum of IRES corporate income tax (24%) plus IRAP regional tax on production (3.9%)). In this respect, Italy is, therefore, more cost-effective than Germany and France, whose tax rates are, respectively, 30/33% and 31%. Of the major founding members of the EU, only Spain has a lower level of corporate income tax than Italy (25%).
Without a doubt, there are certain countries in the EU that are particularly active in cross-border tax competition and which offer very low rates, such as Ireland (12.5%), Bulgaria (10%) and Hungary (9%). Yet of the larger countries, Italy proves to be one of the most cost-effective in this respect.
The effective tax burden may prove to be further alleviated by specific provisions such as:
- Participation Exemption which excludes from the taxable base 95% of dividends received and capital gains arising from the sale of shares held for investment purposes for at least a year;
- partial tax concessions on income derived from the direct or indirect use of intellectual property (patent box);
- increased amortization of investments in new capital equipment that makes use of digital technology (Industry 4.0).
The uncertainties in interpretation that undeniably exist can be overcome through a preventive ruling procedure which, after a few difficult start-up years, is now rather efficient and rapid; a preferential channel exists for those rulings relating to large investments (€20 Million).
As regards private individuals, income is subject to progressive tax with a maximum rate of 43%, which is applied to incomes in excess of €75,000 per annum. Added to this are regional and local council taxes that vary between locations, ranging from 1.23% to 4.23%. This level of taxation is comparable to that of the major European countries.
In general, capital gains are not included in the total taxable income but are subject to a fixed tax rate of 26% which is generally deducted at source.
An interesting opportunity is available exclusively to non-Italian individuals who choose to transfer their residency to Italy. They may, in fact, opt for a fixed tax of €100,000 per year which covers all their income from foreign sources, including capital gains. Income from Italian sources remains subject to the normal taxation rules. This optional regime can be extended to family members living under the same roof, with the payment of a further €25,000 per year per family member. Through the express affirmation of the Italian tax authorities, those who exercise this option are covered in all respects by the benefits afforded to residents for tax purposes, under the conventions of which double international taxation can be avoided. The option has a duration of 15 years, it cannot be renewed, and it terminates earlier if the taxpayer either revokes it or transfers residency outside Italy. It is a very favorable arrangement, above all for High Net Worth Individuals from abroad who choose to live in Italy and whose income derives in significant measure from investments and/or from operations carried out abroad.
A further aspect that is of great interest to HNWIs resident in Italy are the inheritance and gift taxes, which are among the lowest in the world. The rate for inheritance and gifts to spouses, parents, and offspring is 4%, with a tax-free allowance of €1 Million per beneficiary. This rises to 6% in the case of relatives and similar, with a reduction in the tax-free allowance to €100,000. In all other cases, the rate is 8% without tax-free allowances. Furthermore, in the case of the transfer of unquoted shareholdings, the estimated value upon which tax is calculated is the book net worth, not the market value. In addition to this, a regulation aimed at simplifying the generational handover of companies provides for a total exemption in the case of free transfer of a company or controlling shareholdings to offspring, on the condition that the beneficiaries commit to retaining these for at least 5 years.
In simple conclusion to this brief explanation, I think we can safely say that Italy offers industrial investors conditions that are in line with those of other European countries of comparable dimensions and that it is a very cost-effective tax haven for HNWIs who choose to reside there.