ITALY Trends and Developments Contributed by: Guglielmo Maisto, Marco Cerrato, Alessandro Bavila and Stefano Tellarini, Maisto e Associati
Maisto e Associati Piazza F. Meda 5 20121 Milan Italy Tel: +39 0277 6931 Fax: +39 027 769 3300 Email: milano@maisto.it Web: www.maisto.it
The Forfait Tax Regime Under Italian tax law, an optional Forfait Regime is available to individuals transferring their tax residence to Italy, who have not been Italian residents in at least nine out of the previous ten years. Under such tax regime, that was introduced back in 2017, a yearly substitute flat tax applies in lieu of ordinary taxation on foreign-source assets and income, irrespective of their amount. In particular, the flat tax shelters ordinary income tax on all foreign income (with the sole excep - tion of capital gains on “substantial shareholdings” realised in the first five years), as well as inheritance and gift tax (IHGT), wealth taxes and reporting obliga - tions on foreign assets. In 2024 the amount of such yearly substitute tax was increased from EUR100,000 to EUR200,000 for individuals who moved to Italy as from August 2024. The “Forfait Tax Regime” has nevertheless retained its appeal following such increase. The coincidence between the increase of the flat tax and the wave of exits from the UK triggered by the local elections has indeed resulted in an increase in the arrivals of HNWIs while at the same time avoiding a “massive relocation” which could have raised concerns about the fairness of the regime. Because of the relevant changes in the UK tax rules (notably, the abolition of the “res-non-dom regime” in the UK, the reform of the IHGT rules affecting existing offshore trust structures as well as the review of the taxation of carried interest), Italy has benefited from an increased relocation of investment fund manag - ers who are more and more selecting Milan as their financial hub and their place of residence. This trend
is stimulated by the favourable tax environment for the private equity market granted by Italian tax rules. Besides the Forfait Regime, the relocation of fund managers is incentivised by clear rules on the taxation of carried interest providing for an un-rebuttable pre - sumption of the financial nature of those proceeds if certain conditions are met (ie, (i) minimum investment of at least 1% by the management team; (ii) hurdle rate; and (iii) holding period of at least five years). Even in the absence of any of the above conditions, the tax authorities may confirm the qualification of car - ried interest as financial income based on an overall assessment of all facts and circumstances supporting the real financial nature of the investment originat - ing the carried interest (see Circular letter 16 October 2017, No 25/E). In the context of the Forfait Regime, the qualification of the carried interest as financial income determines that, if paid by a non-Italian entity, the carried interest is entirely sheltered by the flat tax as foreign-source income. In addition to the above, another rule recently intro - duced in Italy allows for a “tax-safe” relocation of investment fund managers to the country. The so- called “Investment Management Exemption” (IME) regime, enacted with the Budget Law for 2023, excludes the existence of an Italian Permanent Establishment (PE) of foreign investment funds, by ruling out, subject to certain conditions, that an Ital - ian advisory company contributing to the conclusion of contracts for the purchase of financial instruments by a foreign fund may represent a PE of the fund. In particular, the presumption is applicable, subject to various conditions and requirements, for, amongst others, funds established in an EU member state and
310 CHAMBERS.COM
Powered by FlippingBook