Since its introduction with the 2017 Budget Law, the Italian regime of new residents (also known as the Italian “res-non-dom” regime, to distinguish it from the English regime of “non-domiciled residents” of which it replicates some characteristics, distinguishing itself – for the better, in the opinion of the writer, for others) has been attracting an increasing number of foreign clients. This regime is aimed exclusively at those who have spent at least nine of the last ten years abroad before the transfer decision and seeks to encourage the transfer to Italy of the so-called “high net worth individuals” (HNWI): it may therefore interest individuals who have gained long-lasting experience abroad and who are endowed with a high-income capacity. The goal is to attract these individuals to live in Italy by leaving their businesses abroad. These subjects may also decide to start businesses in Italy, bringing investments and jobs to our country.
By opting for the regime for new residents, it is possible to apply to all foreign income a flat substitute tax of €100,000 for each tax year for a maximum period of 15 years, thus derogating from the principle of worldwide taxation, which regulates the taxation on the income of persons fiscally resident in Italy, and in most countries over the world. The regime for new residents proves to be all the more advantageous, the higher the foreign income the flat substitute tax allows to cover, the lower the possible withholding taxes made in the countries of the source of the same income. To illustrate in a fairly typical case: a client who moves to Italy from England (where he was a resident under the UK “res-non-dom” regime) and continues to receive dividends from the English company he set up in previous years will pay €100,000 both in the case the dividends received in one year are equal to 1 million euro (which would correspond to a tax, in Italy, equal to € 260,000) and in the case, the dividends received are to 5 million euro (which would correspond to a tax, in Italy, equivalent to € 1.3 million).
In addition to the clear economic advantage linked to tax savings, the regime for new residents offers a series of far-reaching advantages: among these, the most appreciated concern, on the one hand, the benefits in the context of gift and inheritance taxes and, on the other, the exemption from the obligation of full disclosure of foreign assets, activities and income to which residents in Italy are required under the ordinary regime. This last benefit has an enormous scope that only tax advisors accustomed to extricating themselves from the declaratory complications of the RW tax declaration (the part of the tax return in charge of disclosure of foreign assets) can fully appreciate, but whose final positive effects are obviously in favor of the client.
Within the framework of simplicity and transparency that characterizes the deal of the new residents’ regime, some critical issues related to its practical application have emerged over the years. The Tax Administration has clarified its position from time to time concerning the application doubts submitted to it through the Ruling (“Interpello”) institute.
With the response to question 178 of 2020, in particular, the Revenue Agency intervened in the coordination between the flat-rate tax regime envisaged for new residents and the possession of a unit-linked policy stipulated with a Luxembourg insurance company operating in Italy under the freedom to provide services (in Italy, LPS). This is a widespread investment among clients evaluating the transfer of residence to Italy with an option for the new resident regime, and the issue deserves particular attention.
The ruling 178/2020 was brought by an insurance company based in Luxembourg operating in Italy under the freedom to provide services in the life insurance sector and marketing unit-linked policies. In particular, the insurance company asked whether it would be permitted not to apply the withholding tax (envisaged at the rate of 26%) on the proceeds of unit-linked policies collected by subjects who have opted for the Italian new resident regime. In fact, as income from foreign sources, such income should not be subject to any levy in Italy (since their taxation is covered by the payment of the substitute tax of € 100,000) on the part of these subjects: the doubt has arisen however, as the option relating to taxation according to the regime of new residents is exercised in the tax return of a specific year (year “x”), which is filed to the Revenue Agency only in the following year (year “x+1”), therefore necessarily the year after that of the liquidation of the proceeds of the unit-linked policies.
In the opinion of the Tax Authorities, Italian tax withholding agents (to which foreign insurance companies are assimilated for the case in question) do not have the right not to exercise the withholding tax since the presentation of the tax return for the year in which the income is paid is an essential condition for the completion of the option of the new resident regime. Therefore, in the opinion of the tax authorities, it is not permitted not to apply the 26% withholding tax on income from unit-linked policies before the tax return has been submitted (for example, based on a simple declaration of intent by the taxpayer).
If the new resident client is subject to this withholding tax by the insurance company, only the request for a refund (according to article 38 of Presidential Decree 602/73) remains possible, although of little appeal to clients given the not simple prospects of the refund itself at the Italian financial administration with regards to timing.
When a client is considering moving to Italy under the new resident regime, it is therefore always advisable to verify the possible presence of investment instruments such as unit-linked policies in the client’s portfolio and to determine in advance the time horizon of this investment: it is, in fact, possible that the client intends to keep the investment well beyond the time horizon of the planned residence in Italy and in this case there is no problem, just as it is possible on the contrary that closing the life insurance policy and realizing the income before the transfer in Italy and without the application of the 26% withholding tax may be the best advice. If, on the other hand, this assessment is not possible or the client changes his mind during his residence in Italy, it is still possible to ask the Tax Authorities for a refund of the withholding tax paid by the insurance company; a such refund will be possible starting from the moment in which the client, with the submission of the tax return for the reference year, can confirm having opted for the tax regime for new residents with regards to the year the income was paid
