HOT TAX TOPIC – RELOCATION TO ITALY OF INDIVIDUALS: AN OVERVIEW ON TAX AND IMMIGRATION INCENTIVES (WITH FOCUS ON CRYPTOCURRENCIES)

Foreword

Over the last years, Italy substantially expanded its offer of incentives targeting high net worth individuals, workers, professionals and researchers, sportspersons and retirees willing to relocate to the Italian territory for tax purposes.

In detail, the Italian incentives encompass both favourable tax regimes and VISA schemes dedicated to non-EU citizens.

The following summarizes the key regimes that eligible applicants may consider in their relocation plans involving Italy, with a focus on holders and traders of cryptocurrencies.

New residents tax regime

The new residents tax regime is a territorial tax regime available to natural persons aiming at relocating to Italy and becoming an Italian tax resident. The regime applies also to Italian returnees.

It is required not to have been resident for tax purposes in Italy for the last 9 out 10 years preceding the Italian relocation.

In a nutshell, under the new residents tax regime, subject to a EUR 100,000 substitutive tax to pay annually, the applicant is exempted from (a) income tax on income sourced outside the Italian territory, (b) inheritance, gift tax and property taxes on assets located outside the Italian territory and (c) reporting obligations of the value of foreign assets and investments.

Conversely, Italian-source income and Italian investments remain subject to the ordinary tax regime.

The regime lasts up to 15 years (at the applicant’s will) and may be extended to family members provided that the annual substitutive tax is increased by EUR 25,000 per member.

Procedure-wise, the applicant can start a ruling procedure with the Italian tax authorities to secure a safe application of the regime even before his / her relocation to Italy (the procedure generally lasts 120 days). The ruling procedure offers the opportunity to fine tune the regime having regard to the income and investments of the applicant and maximize the tax benefits from a wealth planning angle (e.g. taxation of financial income and gains arising from securities trading, review of foreign trust structures, taxation of income from working activities or gains arising from cryptocurrencies, etc.).

With specific regard to cryptocurrencies, some recent guidelines issued by the Italian tax authorites opened the door to tax planning opportunities. In the tax authorities’ view, cryptocurrencies are akin to “foreign currencies” and are subject to the overall tax regime of the latter. In a nutshell, for individuals holding cryptocurrencies outside a business activity, (a) gains arising from trading activities (including “cash-outs” to fiat currencies) would be subject to a final 26% substitutive tax (in some cases, if a threshold is exceeded) and (b) the year-end market value of the cryptocurrencies is subject to annual reporting duties (regardless of where the wallets are located).

In this context, the “new residents tax regime” may exclude income tax on gains arising from trades of cryptocurrencies (including “cash-outs” to fiat currencies) and the annual reporting duties. To this end, an official ruling (filed as non-Italian residents) can be obtained to achieve full tax protection and clarity on “cash-outs” (and other trading activities) before relocating to Italy.

In a recent ruling published in August 2022, the tax authorities fully confirmed the above strategy and the access to the tax benefits at issue that several eligible taxpayers were already able to apply thanks to non-public rulings issued in the past.

Similar conclusions may extend to proceeds deriving from staking of cryptocurrencies based on other recent official guidelines.

Italy’s endeavour to reach a leading international position for attracting high net worth individuals may offer interesting wealth planning opportunities to cryptocurrency holders envisaging to “cash-out” their gains for fiat currencies.

Retirees tax regime

Another tax incentive targets foreign natural persons holding foreign pensions and is essentially a territoriality regime similar to the “new residents tax regime” (outlined above).

This regime is available to non-residents holding a foreign pension willing to relocate to an Italian municipality of southern Italy, having less than 20,000 inhabitants.

It is required not to have been resident for tax purposes in Italy for the last 5 years preceding the Italian relocation.

In a nutshell, under the retirees tax regime, subject to a 7% substitutive tax to pay annually, the applicant is exempted from (a) income tax on income sourced outside the Italian territory, (b) property taxes on assets located outside the Italian territory and (c) reporting obligations of the value of foreign assets and investments.

Conversely, Italian-source income and Italian investments remain subject to the ordinary tax regime.

The regime lasts up to 10 years (at the applicant’s will).

Procedure-wise, the applicant can start a ruling procedure with the Italian tax authorities to secure a safe application of the regime even before his / her relocation to Italy.

Also this regime could grant the same tax benefits for cryptocurrency holders and traders as mentioned above.

Italian VISA schemes and Investor VISA

Non-EU citizens are generally required to obtain a VISA and thus a residence permit in order to relocate to Italy (and benefit from the above-mentioned regimes).

Italy offers several VISA schemes that applicants should carefully consider depending on the circumstances (e.g. elective residence VISA, investor VISA, working VISAs, etc.).

The “elective residence VISA” (visto per residenza elettiva) is a traditional VISA for applicant not intending to carry out a working activity in Italy. The main requirements are:

• having a house in Italy at disposal (either owned or rented) for enrolling with the Italian register of population;
• carrying out no working activity in Italy (managing personal investments would be acceptable);
• providing evidence of sufficient economic resources for his / her own maintenance in Italy.

Alternatively, a fast-track procedure to obtain a VISA is the so called “investor VISA” (visto investitori) which applies provided that the applicant meets one of the following requirements:

• EUR 2,000,000 is invested in Italian government bonds;
• EUR 500,000 is invested in an Italian company;
• EUR 250,000 is invested in an Italian innovative start-up;
• EUR 1,000,000 is invested in philanthropic donations in the fields of culture, education, immigration management, scientific research or cultural heritage restoration.

Indirect investments through foreign companies are allowed at certain conditions.

The investor VISA is subject to a procedure aimed at assessing the above listed conditions and the availability of funds to the applicant. It grants a residence permit with initial validity of two years, renewable upon expiration for an additional three years. Family members of the foreign investor can obtain family permits allowing them to remain in Italy.

How we can help

Our tax team regularly advises clients on the above-mentioned regimes, which may include holding and trading cryptocurrencies, and also assists both individuals and corporate entities with a cross-border analysis to identify and implement the most suitable relocation scheme to the client’s needs.

We are part of a non-exclusive international network which covers some of the major European jurisdictions and key markets in USA and Asia (such as Singapore and Hong-Kong): our cross-border capability enables us to deliver to the clients global services wherever required.

[Should you need any further information or clarification, please contact giorgio.vaselli@galaw.it or eugenio.romita@galaw.it]