INTERNATIONAL TAX COMPLIANCE REGULATIONS IN (PART 12): Italy

By Sergio Finulli and Andrea Angheleddu, COMMA 10

Italian residents pay taxes on all their income, irrespective of where it is earned, on the basis of the worldwide taxation principle, while non-residents only pay taxes on the income earned by them in Italy.

In the case of private individuals, the place of residence for tax purposes is determined on the basis of their place of domicile.

In the case of companies and non-profit entities, the place of residence for tax purposes is determined on the basis of their registered offce and operating offce addresses and the places where they conduct their main business.

Taxpayers calculate the taxes payable by them on a self-assessment basis. There is no general ruling system, but rulings do apply in the case of companies conducting business at international level.

Foreign Tax and Financial Reporting Requirements for Italy

1. Main types of business and taxes payable by each entity

Private individuals are subject to personal income tax (IRPEF) and the additional local taxes applicable to them. The overall tax rates vary from 24% to 47%. Financial income such as interest, dividends, and capital gains are generally subject to a fixed rate of 26%.
Corporations are subject to corporate tax (IRES) at the rate of 24%, as well as regional productivity tax (IRAP) at 3.9%, although a higher rate may apply in some regions.
Partnerships are subject to IRAP. They allocate their income to their partners, who pay personal income tax, or IRPEF, on those earnings.
Non-profit entities are subject to IRES at 24%, in the same way as corporations, and to IRAP at 3.9% on any commercial business conducted by them. Financial earnings are generally subject to the same 26% rate as private individuals.

2. Types of trusts, foundations and tax rates for each structure

Foundations are set up in Italy only for purposes which serve the public interest, such as charity foundations, and are recognised as such by the relevant public authorities. They are subject to the same tax rates as non-profit organisations.
There are no Italian regulations on trusts, but those set up abroad are recognised. Trusts which are regarded as resident in Italy for tax purposes, on the basis of their operating offce addresses or the places where they conduct their main basis, are subject to taxation on all their income, irrespective of where it is earned, in accordance with the worldwide taxation principle, in the same way as non-profit organisations.

Non-resident trusts are subject to the same system of taxation, but only on their income earned in Italy. The income from “transparent” trusts is allocated to the beneficiaries, who pay tax at the rate applicable to private individuals on the earnings in question.

3. Tax compliance requirements for owners of foreign assets such as bank accounts, insurance policies, shares, etc.

Individuals resident in Italy, foreigners included, must declare the investments and financial assets held by them abroad each year, when they file their tax returns.

This obligation extends to virtually all kinds of asset, including real estate properties, financial assets, insurance policies, precious metals, the contents of safe deposit boxes, and so on. Specific rules apply to the methods for the valuation of the assets held abroad, especially those in states which are not EU members and the countries defined as jurisdictions which do not cooperate with the Italian tax authorities.

There are two specific taxes which apply to such assets, the first on foreign real estate properties (IVIE), and the second on the value of financial assets (IVAFE). These are calculated in such a way as to subject foreign assets to the same rate of taxation which would have applied if they were located in Italy.

In the case of the tax on foreign real estate properties (IVIE), taxes paid abroad on those properties may be deducted, while taxes payable on the value of financial assets and the obligations to declare these may be reduced if they are held through an Italian trust company.

4. Tax compliance requirements for estate and wealth planning matters

For taxation purposes, foreigners resident in Italy are subject to obligations on their earnings and their assets.

As Italian residents are subject to taxation on the basis of their income, irrespective of where it is earned, all income from foreign sources has to be declared to the Internal Revenue Agency each year, and will be taken into consideration in the calculation of the total taxable income and the taxes payable on it in accordance with the Italian regulations. In this way, financial income is generally subject to taxation at the fixed rate of 26%.

When taxes are payable at the standard rate applicable in Italy, any taxes payable abroad on income earned in foreign countries may be deducted. As the tax rates on private individuals in Italy are of a progressive nature, the credit on taxes paid abroad is frequently insuffcient to fully offset the taxes due in Italy.

There is no global tax on assets in Italy, and there is no obligation to declare global assets. Single assets such as real estate and financial assets are taxed on an annual basis and specific rules apply to each category of assets. Certain assets, such as works of art, are not subject to any form of asset tax in Italy.

5. Tax compliance requirements on sale of real estate

Real estate transfers in Italy are subject to a deed of notary, and registration tax is normally payable at the rate of 9%. If the seller is a corporation, VAT may also be due, in which case the taxes due on the deed of sale and purchase are reduced to 3%. Capital gains tax only applies for private individuals when a property is sold within five years of its purchase.

Collaboration with Other GGI Members

One increasingly important critical factor for foreigners with business interests in Italy regards withholding taxes applicable to dividends, interest, and royalties paid out abroad. By means of collaboration with another GGI member, it was possible to obtain certification from the relevant tax authority for the application of the EU Interest and Royalty Regime, as extended to Switzerland, to a Swiss permanent establishment.

Future Developments, Outlook, and Summary

Italy is one of the founder members of the EU and one of the world’s ten leading economies in terms of industrial production and exports. It has a network of consolidated international relations and has signed several treaties against double taxation. The country is open to international relations and investments, and the general principle adopted by it to detect any limitations is that of reciprocity. Italy could potentially become an important location for high-networth individuals. In 2017, a nondom system was introduced which lays down a tax of EUR 100,000 for all income of a foreign source.

Inheritance tax is limited (subject to a maximum rate of 8%) and in some cases no inheritance taxes are payable at all if the heirs continue to conduct a business inherited by them for a period of five years.

Significant tax reductions on income earned in Italy from self-employment and employment, with taxation on 30% of the income only, are possible for persons transferring their place of residence to Italy.

Sergio Finulli

GGI member firm
COMMA 10 Chartered Accountants & Lawyers
Advisory, Auditing and Accounting, Corporate Finance, Tax
Milan, Italy
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COMMA 10 is a firm built on the cornerstone of professional collaboration between chartered accountants and lawyers. The firm provides its clients with comprehensive accounting, corporate, and tax services, as well as legal support, corporate restructuring, and bankruptcy services in multiple industries. COMMA 10 is based in Milan and provides integrated services to individuals, private and public companies as well as non-profit organisations.

Sergio Finulli is a Founding Partner of COMMA 10 and a GGI member since 1997. He is a chartered accountant and legal auditor, and currently regional Vice Chairperson Europe of the GGI International Taxation Practice Group (ITPG).