Moving to Italy

Are you considering moving to Italy?

Here’s what you need to know:

By decree of December 27, 2023, which came into effect on January ^1st, 2024, Italy has redefined the rules applicable in this country regarding tax residency and the regime for expatriates.

A. Tax Residency in Italy

According to the new provisions, individuals are considered tax residents in Italy if they have:

• their domicile or residence in Italy, or
• their closest personal and family relationships, or
• their physical presence in Italy for the majority of the tax year (i.e., more than 183 days), including fractions of days. A tax year is aligned with the calendar year and cannot be divided (partial residence during a year is not possible).

In case of risk of maintaining ties with France, it will be necessary to verify which of the two countries has the right to consider the person as a resident, in accordance with the Franco-Italian tax treaty signed on October 5, 1989, as supplemented by the protocol and exchange of letters.

 

B. The Common Law Tax Regime in Italy

Just like in France, an Italian tax resident is taxable on their worldwide income.

• Income

Income tax is progressive, with some exceptions (see below). The income tax scale is as follows:

Base	Rate
< 28,000 €	23%
From 28,001 to 50,000€	35%
>50,001€	43%

Various reductions and tax credits are applicable, allowing for a reduction in the final amount of tax due.

Some income types are exempt from the aforementioned scale and are taxed on a fixed basis. This is notably the case for dividends, interest, and capital gains, taxed at 26% (unless otherwise opted for).

In addition to this income tax, there are regional and municipal taxes at low rates (between 0.9% and 3.33%).

Some additional taxes and contributions may also apply, notably:

• Variable remunerations in the financial sector are subject to a “surcharge” of 10%
• Self-employed individuals are subject to a “surcharge” of 3.9% (productivity tax)
• Regular salaries are subject to social contributions: employer contributions are 30% while employee contributions are 10%.

Note: Italian income tax is strictly personal: each adult individual is responsible for their own tax. This country does not recognize the concept of household taxation applicable in France.

• Real Estate

Upon purchase, four taxes apply (property tax, cadastral tax, stamp duty, and VAT if applicable).

When acquiring a primary residence, a tax corresponding to 2% of the cadastral value applies. For the acquisition of a secondary residence, this tax is increased to 9%.

Real estate capital gains are only taxable if the property is sold within the first 5 years following its purchase. As in France, the sale of the primary residence is exempt. In case of taxation, a flat rate of 26% applies, unless opting for the progressive scale.

In the case of the sale of French real estate by an Italian resident, the capital gain is in principle taxable in France, with a tax credit in Italy if a tax is applicable in that country.

• Life Insurance

Surrenders of life insurance contracts are subject to a 26% tax[1] in Italy, unless opting for the progressive scale.

For reference, in France, these surrenders are subject to an allowance (4,600€ / 9,200€) and then subject to a flat tax (PFU, or “Flat Tax”) of 30% beyond that.

In the case of a total or partial surrender of a French life insurance contract by an Italian resident, a 10% withholding tax will be applicable in France, then Italian taxation will apply.

• Gratuitous Transfers (Inheritances and Gifts)

Inheritance or gift tax was reintroduced in 2006. However, the rates are substantially different from those we know in France[2]:

• Spouse and children: 4% tax on amounts over 1 million euros
• Brothers and sisters: 6% on amounts over 100,000 euros
• Parents: 6% (from the first euro)
• Third parties: 8% (from the first euro).

France is one of the few countries to have signed an inheritance tax treaty with Italy.

Under this treaty, it is possible, for the settlement of the estate of a person who died in Italy and owned Italian assets, to have no taxation in France, even if the beneficiaries are domiciled in France[3].

• Wealth Tax

The wealth tax (IVAFE) rate is 0.2%. If wealth tax is paid abroad, it will be deductible from the Italian IVAFE.

In addition, current accounts held are subject to a tax of 34.20 € per account, provided the balance exceeds 5,000 €.

In any case, a minimum payment of 1,000 € is to be made.

Real estate owned abroad by an Italian resident is subject to a specific wealth tax (IVIE), at a rate of 1.06% since this year.

 

C. The Tax Regime for Expatriates

From January 1^st, 2024, individuals transferring their tax residence (i.e., expatriates) and becoming Italian tax residents can benefit from the following measures:

• a 50% exemption on remuneration received (increased to 60% in case of dependent minor child(ren))[4],
  • for 5 years
  • within a limit of 600,000€

• the duration of the expatriate regime is 5 years, extended by 3 additional years in case of:
  • minor child
  • purchase of main residence in Italy during the 12 months preceding the change of residence or after arrival

Under the following conditions:

• Any expatriate must have had a foreign residence for at least 3 years preceding their settlement in Italy, non-residence period extended to 6 years if maintaining the same employer
• Possess nationality of an EU, EEA country, or one that has concluded a tax treaty with Italy
• Commitment to be tax resident in Italy for at least 4 years;
• The professional activity must be primarily carried out on Italian territory during the tax period;
• Workers must meet the high qualification or specialization criteria defined by legislative decrees 108/2012 and 206/2007 (expatriation regime reserved for intellectual or technical professions and senior executives).
• This status is lost, with the obligation to repay reduced taxes and interest, if residence is moved “abroad before 4 years (whereas it” was previously 2 years).

 

D. Flat-Rate Taxation of Foreign Income

An expatriate taxpayer can benefit from a flat-rate and liberating tax of 100,000 €/year on all foreign-source income (200,000€ according to Decree of August 7, 2024) regardless of the amounts of this income (except for capital gains from the sale of so-called “qualified” shareholdings in the first 5 years of taxation in Italy).

Under the following conditions:

• This regime is only applicable by option
• The person concerned must not have been a resident of Italy for 9 of the last 10 years
• The flat-rate regime is applicable for a period of 15 years.

Under this regime, it is not necessary to leave assets abroad: they can be freely repatriated to Italy.

Inheritance and gift tax is exclusively due on Italian assets.

Note that:

• The taxpayer cannot simultaneously benefit from this optional flat-rate regime and that of expatriates
• This regime becomes really interesting from 500,000 € of foreign income
• Some countries may not consider these Italian residents as fully resident and fully taxed in that country. In such a scenario, these other countries might be tempted to tax assets and income on their territory. It is possible to take steps to mitigate this risk.

 

E. The Tax Regime for Retirees in Southern Italy

Retirees can benefit from a fixed taxation of 7% on all foreign income, provided they settle in certain regions of Southern Italy.

Under the following conditions:

• The regime is optional (option in the income tax return)
• Not having been a resident in Italy for the 5 years preceding arrival
• Receiving pensions paid from abroad
• Becoming an Italian resident in a town of less than 20,000 inhabitants located in the Southern regions
• This regime is applicable for 10 years.

 

Want to know more? Don’t hesitate to contact the Firm: we would be delighted to assist you with your project.

[1] Just like income from movable capital and capital gains, cf. § Income.

[2] For reference, the scale applicable in direct line (children, grandchildren) goes up to 45%, and the rate applicable in case of gratuitous transfer to a third party is 60%

[3] Notwithstanding the terms of Article 750 ter of the CGI

[4] This income tax reduction could reach 90% in certain regions of southern Italy in 2023.