What is the Italian flat tax regime?

Question: What is the Italian flat tax regime?
Answer: The Italian flat tax regime is a special tax arrangement available in Italy that allows individuals to pay a fixed annual tax on foreign-sourced income, rather than being taxed on their worldwide income.

When was the flat tax regime introduced?

Question: When was the regime introduced?
Answer: The Italian flat tax regime was introduced in 2017 by the Italian Government and has remained largely unchanged since then.

Why is this regime particularly advantageous?

Question: Why is this regime particularly advantageous?
Answer: Typically, Italian tax residents are taxed on their worldwide income. However, under the flat tax regime, all foreign income is covered by a single annual flat tax payment, providing significant tax relief.

Why should individuals move to Italy instead of other countries with favorable tax regimes like Monaco, Dubai, Malta, Cyprus, or Singapore?

Question: Why choose Italy over other countries offering favorable tax regimes?
Answer: People are drawn to Italy for its exceptional lifestyle. Currently, Italy is the only Western country offering such an attractive tax scheme, combined with the option to live in diverse locations—from the bustling city of Milan to the charming cities of Florence, Rome, and Venice, or the serene countryside of Tuscany and Lake Como. Italy also boasts a pleasant climate, high-quality real estate, efficient healthcare, and a strong educational system.

Does the flat tax regime include a visa or residency permit?

Question: Does the flat tax regime include a visa or residency permit?
Answer: No, the flat tax regime only addresses tax matters. EU citizens can move to Italy without a visa, but non-EU citizens must obtain a visa and residency permit to legally reside in Italy.

Which visa option is commonly chosen by non-EU citizens applying for the flat tax regime?

Question: Which visa is typically chosen by non-EU citizens under the flat tax regime?
Answer: Non-EU citizens often apply for the Italian Investor Visa, which offers a streamlined application process and greater flexibility.

The Annual Flat Tax

Question: What is the amount of the annual flat tax?
Answer: The annual flat tax was initially set at €100,000 but has been increased to €200,000 for individuals moving to Italy after August 10, 2024. However, this amount may be adjusted by the Italian Parliament within 60 days following the approval of the decree, with final rules expected in October 2024.

Question: Are family members also exempt from tax on foreign-sourced income?
Answer: Yes, family members can join the flat tax regime by paying a reduced annual lump sum of €25,000.

Question: Does the annual flat tax vary based on the applicant’s income?
Answer: No, the annual flat tax remains the same regardless of the applicant's income.

Question: Can taxes paid abroad be deducted by the annual flat tax?
Answer: No, taxes paid abroad cannot be deducted by the annual flat tax. Thus, the annual flat tax must be entirely paid each year of validity of the flat tax regime.

Scope of the Flat Tax Regime

Question: Are all foreign incomes fully covered by the annual flat tax?
Answer: Yes, all foreign incomes are covered by the annual flat tax. However, capital gains from the disposal of “substantial shareholdings” during the first five years are taxed at the ordinary rate (typically 26%) due to anti-abuse rules.

Question: What constitutes "substantial shareholdings"?
Answer: Substantial shareholdings are defined as holdings exceeding 2% of voting rights or 5% of share capital in a listed entity, or 20% of voting rights or 25% of share capital in a non-listed entity. If these holdings are sold within the first five years, ordinary tax rates apply.

Question: Is the anti-abuse rule always applicable?
Answer: The anti-abuse rule may not apply if the applicant commits to staying in Italy and applying the flat tax regime for five years after realizing the capital gain. Approval is subject to the discretion of the Italian tax authorities.

Question: Are there any other taxes on foreign assets under the flat tax regime?
Answer: No, there are no wealth taxes on foreign assets under the flat tax regime, which are typically imposed on ordinary Italian tax residents.

Question: Are gift and inheritance taxes applicable under the flat tax regime?
Answer: The flat tax regime exempts foreign assets from gift and inheritance taxes. However, assets located in Italy are subject to ordinary gift and inheritance taxes.

Question: Are there any other taxes applicable to flat tax regime applicants?
Answer: Italian-sourced incomes are taxed under ordinary Italian tax rules.

Duration of the Flat Tax Regime

Question: How long does the flat tax regime last?
Answer: The flat tax regime can be applied for up to 15 consecutive years.

Question: Can the regime be interrupted?
Answer: Yes, the regime can be interrupted at any time, but once it is interrupted, it cannot be reapplied.

Question: Is there a minimum duration for the regime?
Answer: No, the regime can be applied for as few as one fiscal year or up to a maximum of 15 years.

Question: Can the regime be applied for only one fiscal year?
Answer: Yes, the regime can be applied for just one fiscal year, after which the individual may choose to become a regular Italian tax resident or apply another special tax regime, or move tax residency to another country.

Eligibility and Requirements

Question: Who is eligible to apply for the flat tax regime?
Answer: Individuals who have not been tax residents in Italy for 9 out of the last 10 fiscal years before applying are eligible for the flat tax regime.

Question: Why is the rule "9 out of 10" instead of 9 or 10 previous fiscal years?
Answer: The "9 out of 10" rule allows individuals to apply for the flat tax regime even after one year as a regular tax resident in Italy, offering flexibility if they do not wish to apply in their first year.

Question: Are there additional requirements for the flat tax regime?
Answer: Yes, applicants must transfer their tax residency to Italy and become Italian tax residents.

Question: Is owning a home in Italy necessary to become an Italian tax resident?
Answer: Yes, applicants must have a home in Italy, which can be leased or purchased. A home provided by friends or family may also qualify, subject to certain immigration rules.

Question: What other formal requirements must be met?
Answer: Applicants must pay the annual flat tax and file their annual tax return on time. Failure to do so results in forfeiture of the flat tax regime.

Italian Tax Residency

Question: How do I become an Italian tax resident?
Answer: To qualify as an Italian tax resident for a fiscal year (calendar year), an individual must meet at least one of the following criteria for the majority of the year (183 days or more):

  • Main residence (habitual abode) in Italy
  • Domicile in Italy, meaning the place where their family is located
  • Physical presence in Italy

Although no longer mandatory as of 2024, it is still recommended to register with the resident population in the municipality (Anagrafe) where you reside, as it strengthens your tax residency claim.

Question: What is “residency”?
Answer: Residency refers to an individual’s habitual abode, the house where they primarily reside and return to. An individual may own multiple homes, but the main residence is where they spend the most time.

Question: What is "domicile" exactly?
Answer: Domicile is the place where an individual has the strongest personal and family connections. It is essential to determine where the family resides to establish domicile.

Question: If my spouse stays in my home country while I move to Italy, can my domicile still be considered in Italy?
Answer: Not typically. If your spouse remains in your home country, it weakens the case for your domicile being in Italy.

Question: Do my children need to move to Italy with me and my spouse to establish domicile?
Answer: It depends on their age. Younger children (under 16-18 years) should ideally move to Italy and enroll in school there. Adult children, such as university students or working professionals, may stay in another country.

Question: If my spouse moves to Italy with me, will they also become an Italian tax resident?
Answer: Yes. Your spouse can opt for the flat tax regime (by paying €25,000 annually) or qualify as a regular Italian tax resident or apply another special tax regime like the "inbound workers regime."

Question: How strictly is the physical presence requirement enforced in Italy?
Answer: If other requirements are met, the physical presence requirement is less critical, but it's advisable to spend a significant amount of time in Italy.

Question: Do partial days in Italy count as full days for tax residency purposes?
Answer: Yes, even partial days spent in Italy count as full days for the purpose of meeting the 183-day rule.

Question: How do I register with the Anagrafe (Municipality Town Hall)?
Answer: Registering with the Anagrafe is a straightforward process that requires documents such as a property deed or lease agreement, basic health insurance, passports, and other forms. While easy for EU citizens, non-EU citizens must first obtain a visa.

Timing and Deadlines

Question: If I move to Italy on March 10, 2025, how will I be treated for tax purposes?
Answer: If you move to Italy on March 10, 2025, you will be considered an Italian tax resident for the entire tax year 2025 (January 1 to December 31), and the flat tax regime will apply for that year.

Question: Until when can I move to Italy to qualify as an Italian tax resident for the same year?
Answer: You must move to Italy by June 30, 2025, to qualify as an Italian tax resident for the 2025 tax year, as this satisfies the 183-day rule.

Question: What happens if I move to Italy on July 10, 2025?
Answer: If you move to Italy on July 10, 2025, you will be considered a non-tax resident for the 2025 tax year and cannot apply the flat tax regime until 2026.

Family Members and the Flat Tax Regime

Question: Which family members can benefit from the flat tax regime by paying the reduced €25,000 flat tax?
Answer: Eligible family members include the spouse, parents, children (including adoptive children), sons-in-law, daughters-in-law, father-in-law, mother-in-law, and siblings.

Question: What are the requirements for a family member to apply for the flat tax regime?
Answer: Family members must meet the same eligibility requirements as the main applicant.

Question: How do I extend the flat tax regime to a family member?
Answer: The main applicant must include the family member in the application by completing a checklist that indicates which family members will be covered.

Question: Can a family member file an advanced tax ruling separately?
Answer: Yes, family members can file a tax ruling either jointly with the main applicant or separately, even in a different tax year.

Question: Can a family member start applying the flat tax regime in a different tax year than the main applicant?
Answer: Yes, a family member can begin applying the flat tax regime in a subsequent tax year.

Question: What happens to family members if the main applicant stops applying the flat tax regime?
Answer: If the main applicant ceases to apply the flat tax regime, one family member must become the main applicant and pay the full flat tax of €100,000/€200,000.

How to Apply for the Flat Tax Regime

Question: How do I apply for the flat tax regime?
Answer: You must pay the annual flat tax on time and file an Italian tax return, including a specific section for the flat tax regime.

Question: Can I request approval from the Italian tax authority?
Answer: Yes, you can request formal approval by filing an advanced tax ruling.

Question: Is filing an advanced tax ruling mandatory?
Answer: No, it is not mandatory, but it is strongly recommended to mitigate potential risks.

Question: How long does the advanced tax ruling process take?
Answer: The tax authority has 90 days to respond, with a possible 60-day extension if additional information is requested. August is excluded from the timeline due to the Italian summer break.

Question: What documents are needed for an advanced tax ruling?
Answer: Documents proving tax residency in another country for 9 out of 10 previous fiscal years are required. This may include tax returns, residency certificates, utility bills, property documents, lease agreements, bank account certificates, employment contracts, and any other evidence that the applicant's center of vital interest was outside Italy.

Question: Can I apply for the flat tax regime if I spent time in Italy during the previous 9 out of 10 fiscal years?
Answer: Yes, spending time in Italy for holidays or work does not automatically disqualify you from applying.

Question: Can I still apply for the flat tax regime if I have a house, bank account, or other ties in Italy?
Answer: Yes, having ties to Italy does not automatically disqualify you, but they must be reported in the Checklist.

Question: What is the Checklist?
Answer: The Checklist is a form prepared by the tax authority listing any ties with Italy during the 9 out of 10 previous fiscal years. The applicant must indicate whether they had any such ties and include any family members to be covered by the flat tax regime.

Question: What should I do with the Checklist?
Answer: The Checklist should be attached to the advanced tax ruling and the same information included in the annual tax return.

Forfeiture from the Flat Tax Regime

Question: When does an applicant forfeit the flat tax regime?
Answer: An applicant forfeits the regime if they move their tax residency outside Italy, fail to pay the flat tax on time, or fail to file the annual tax return on time.

Cherry-Picking Mechanism

Question: Are foreign taxes deductible in Italy under the flat tax regime?
Answer: No, foreign taxes are not deductible against the annual flat tax.

Question: What is the Cherry-Picking mechanism?
Answer: The Cherry-Picking mechanism allows applicants to exclude income from specific countries from the flat tax regime and tax it under ordinary rules. This enables the deduction of foreign taxes paid in those countries against Italian taxes.

Monitoring Obligations

Question: Are there any monitoring obligations for assets held abroad under the flat tax regime?
Answer: No, there are no monitoring obligations, except for "substantial shareholdings" during the first five years.

Question: If I am the beneficiary of a foreign trust that holds substantial shareholdings, do I have monitoring obligations?
Answer: It depends on the nature of the trust. If the trust does not meet certain criteria, it may be considered non-existent from an Italian tax perspective, and you may have monitoring obligations for substantial shareholdings.

Question: If I am the main shareholder of a foreign holding company, do I have monitoring obligations for substantial shareholdings held by the company?
Answer: If the holding company lacks business substance and is merely a vehicle for holding assets, you may have monitoring obligations for substantial shareholdings held by the company.

Question: If I hold a 30% stake in a foreign operative company with substantial shareholdings held underneath, do I have monitoring obligations?
Answer: Given the company's business substance, you are likely only required to monitor the substantial shareholdings of the company itself, not those held by the company.

Italian Wealth Taxes for Assets Held Abroad

Question: Are there any wealth taxes on assets held abroad, such as shares, portfolios, or real estate?
Answer: No, there are no wealth taxes on assets held abroad under the flat tax regime.

Italian-Sourced Income

Question: Is Italian-sourced income covered under the flat tax regime?
Answer: No, Italian-sourced income is fully taxable under the flat tax regime.

Question: If I work as an employee of my foreign company while in Italy, how will I be taxed?
Answer: Income from work performed in Italy is considered Italian-sourced and is subject to regular Italian taxation, while income from work performed abroad is covered by the flat tax regime.

Combining Multiple Tax Regimes

Question: Can I switch between the flat tax regime and the "inbound workers regime"?
Answer: Yes, you can switch regimes in different tax years, but only one regime can be applied per tax year.

Foreign Trusts and Entities Holding Substantial Shareholdings

Question: If I am the beneficiary of a foreign trust that sells a substantial shareholding within the first five years, will I be taxed?
Answer: It depends on the trust's nature. If the trust is deemed non-existent for Italian tax purposes, you may be taxed on the capital gain personally.

Question: If I am the main shareholder of a foreign company that sells a substantial shareholding within the first five years, will I be taxed?
Answer: If the company lacks business substance and is merely a vehicle for holding assets, you may be taxed on the capital gain personally.

Question: If I hold a 30% stake in an operational foreign company with substantial shareholdings held underneath, will I be taxed on capital gains?
Answer: Given the company's business substance, you are unlikely to be taxed on capital gains realized by the company. The income will be recognized at the corporate level, and dividends received will be covered by the flat tax regime.

Additional Questions

Question: Is there a way to avoid the anti-abuse rule for substantial shareholdings?
Answer: An applicant may file a special tax ruling requesting an exemption from the anti-abuse rule. Approval is at the discretion of the tax authorities and may require the applicant to remain in Italy under the flat tax regime for five additional years after the sale.

Question: Are cryptocurrency gains taxed under the flat tax regime?
Answer: No, income from cryptocurrencies held abroad is covered by the flat tax.

Question: Are incomes from tax havens absorbed by the flat tax?
Answer: Yes, all foreign income is covered by the flat tax, regardless of its country of origin.

Question: Are foreign incomes or assets taxed if remitted to Italy?
Answer: No, the flat tax regime is not based on remittance. Foreign income and assets are not taxed if brought into Italy.

Question: As the director of a foreign company, is there a risk of attracting the company's tax residency to Italy?
Answer: The Italian tax authority has clarified that applicants under the flat tax regime are not subject to rules that would attract the tax residency of a foreign entity to Italy. However, a thorough analysis is recommended.

Question: How are stock options and RSUs taxed under the flat tax regime?
Answer: Stock options and RSUs are considered employment income. If they are granted for work performed in Italy, they are taxable as Italian-sourced income. If granted for work performed abroad, they are covered by the flat tax regime.

Question: Are carried interests absorbed by the flat tax?
Answer: Generally, carried interests are absorbed by the flat tax, but their specific nature should be analyzed. In some cases, if considered employment income, they may be taxable in Italy (same tax treatment of stock options and RSU).

Final Comments

This Q&A provides a general overview of the key aspects of the Italian flat tax regime. It is not intended as formal tax advice. For personalized assistance, we recommend a detailed, tailored tax analysis.

If you have specific questions or need tailored advice regarding your tax situation, our team at Move To Dolce Vita is here to help. We specialize in providing personalized tax and legal advice for individuals moving to or residing in Italy. Contact us today to schedule a consultation and ensure your transition to Italy is as smooth and beneficial as possible.