Italy’s non-domiciled tax regime to profit from UK’s changing stance

In 2017, the UK scrapped its non-dom tax regime. Consequently, an increasing number of individuals are instead relocating their tax domicile to Italy

At the start of 2017, in a bid to attract more wealthy citizens and capital to Italy, Rome introduced a non-domiciled tax regime. Now, citizens can move their tax domicile to Italy without too much administrative effort. All income they receive from non-Italian sources is taxed at a flat rate of €100,000 ($117, 666) per year, plus €25,000 ($29, 412) per year for every additional participating family member, for a maximum of 15 years.

Non-EU citizens can receive a residence permit by taking part in a specific investment programme in Italy. However, all participants are only eligible for the programme if they have not been liable for taxation in Italy for more than one year out of the last 10. World Finance spoke with Benedikt Kaiser, Partner at Kaiser Partner, about what this move could mean for the Italian economy and how the application process works.

From the UK
Italy hopes to follow in the footsteps of other countries that have introduced a non-dom tax regime and seen a positive impact on their economies. To put the potential financial gain into perspective, according to The Independent, the UK Exchequer could lose £6bn ($7.9bn) a year from abolishing privileges for UK non-doms.

“Although the advantages of the programme for the UK had been obvious, ironically, it was the conservative Prime Minister Theresa May that campaigned against it ahead of last year’s snap election,” said Kaiser. When asked for his opinion as to the reason why, he answered simply: “Isn’t it popular to criticise the wealthy?”

Kaiser believes that Italy can benefit from the UK’s unexpected move: “The correlation between the removal of tax privileges for non-doms in the UK and the subsequent introduction of the Italian programme is most likely not accidental. I am sure some will move from the UK to Italy given the attractive conditions there.”

The potential advantages for the Italian economy are numerous. “Those participating will need a residence, so they invest in real estate,” Kaiser explained to World Finance. “They will also create new job opportunities and will also spend money shopping, most likely on high-end, Italian-made goods.”

Application process
Applications are made through the Italian tax authorities, and are relatively simple to administer with the right partners on board. “We highly recommend that applicants begin the approval far in advance, especially if they are currently based in another country,” Kaiser explained. This is because it takes three months for the application to be processed, regardless of whether it is successful or not. “It is also worth looking into in more detail first, before you start transferring your tax residency, so you can find out to what extent you will benefit from the ruling,” he added.

Following the country’s legal tradition, and as a part of the Italian tax regime, Kaiser predicts that the programme is likely to become more and more intricate as time passes, as it is still in its early stages. “In any case, with the right advisor and tax specialist, the transition will be smooth,” said Kaiser. “Assuming that the application is prepared in the right way, you could very well lower your tax burden for you and your family, and do so efficiently.”

That said, US citizens are not able to benefit from the regime, as they are taxed by their global income. Kaiser noted: “A non-dom programme is not particularly attractive for US citizens. However, they often consider transferring funds abroad in order to geographically diversify their wealth. Kaiser Partner does exactly this from our
subsidiary in Zurich.”

Kaiser Partner’s help
In order to support clients with the process, the team at Kaiser Partner advises clients to first ask the Italian tax authorities for a preliminary tax ruling. “We believe that you should discuss the result with your wealth manager and tax advisor before going further,” Kaiser told World Finance. “Another important action to start off with is to revise the structuring of your wealth. Do you really profit within given wealth structures? Will your privacy effectively be protected? Wealth restructuring can address crucial questions like these.”

As Kaiser Partner also provides family office services, the team frequently discusses the question of residency with clients. “While it’s important to bring all financial aspects to the table, one should also consider emotional aspects; it doesn’t make sense to move to a country for tax reasons when you don’t feel comfortable there,” Kaiser explained.

“The question of residency is something that should be carefully considered. As a consequence, we are expecting a gradual increase of the number of participants we work with. Indeed, we are happy with this kind of intake because it’s about quality, not quantity. That being said, we don’t hide the fact that the Italian non-dom programme certainly stands out against others around Europe,” Kaiser concluded.