The 2017 Italian Budget Law introduces a tax relief for individuals transferring their tax residence to Italy, in accordance with similar regimes adopted by other countries such as the United Kingdom, Switzerland and Portugal. The relief is part of a package of measures intended to facilitate investment in Italy and to attract high-net-worth people and highly-skilled workers or managers. 

The relief involves the possibility to opt for the application of a substitute tax on all foreign-sourced income, as an alternative to ordinary worldwide taxation at progressive rates up to 43%. The option can be exercised by any individual moving his/her tax residence to Italy, provided that he/she has not been tax resident in Italy for at least nine out of the ten tax years preceding the start of the option period. 

The option, which is subject to advance clearance from the Revenue through a ruling procedure, allows the taxation of all foreign income through the application of a €100,000 lump-sum substitute tax. Only the capital gains arising out of significant interests generated in the first five tax years of the option period are excluded from the relief. The option can be withdrawn at any time and ceases to have effect upon expiry of a period of 15 years. 

The option for the special regime can be extended to one or more family members, provided that they in turn meet the conditions for its exercise. In such a case, the substitute tax will amount to 25,000 Euro per family member besides the above-mentioned €100,000 substitute tax.

Italy has one of the most favourable inheritance and gift tax regimes in Europe, rating as low as 4% for immediate relatives and spouses, with a 1-million exemption allowance. In this regard, the 2017 Italian Budget Law provides for a further tax relief for individuals who decide to exercise the option. For successions and gifts taking place throughout the election period, inheritance and gift tax is indeed levied only on assets and rights situated in Italy. In other words, there is an exception to the principle of taxation on a worldwide basis in favour of the principle of taxation on a territorial basis. 

The UK's decision to leave the EU (Brexit) and the restrictions applicable from April 2017 to the so-called “resident non-domiciled” rules will make our country particularly attractive to UK individuals - especially those with significant assets - who decide to transfer their residence to Italy.