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ITALY: An Introduction to Tax

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With its boot-shaped peninsula in the middle of the Mediterranean sea, Italy has a strategic position at the crossroads of continental Europe, North Africa and the Middle East and, also thanks to its long-lasting participation to the European Union and the North Atlantic Treaty Organization (NATO) and its well-established relationships with China and Asiatic economies in general, Italy is the perfect gateway to almost any worldwide markets.

Largest European hub for luxury goods, second largest manufacturer in Europe and tenth largest exporter in the world, Italy is well-known for its innovative business economic sector, unique food and beverage market and high-quality manufactured products, which contribute to the strength of the international brand of the whole country. In addition, Italy is a top tourism destination and a gloriously old-fashioned paradise in which to live. Moreover, its private wealth per capita is one of the highest in the world.

A founding partner of the OECD, the G7, the G20, the Eurozone and the European Union, Italy enjoys an extensive double tax treaty network (close to 100 tax treaties on income and capital) as well as all EU-associated benefits: reference is made, for instance, to the “four freedoms” (of goods, capital, services and labour), the close-to-zero taxation of intragroup dividends, royalties and interest respectively under the EU Parent-Subsidiary Directive and EU Royalties and Interest Directive, as well as the neutrality of cross-border reorganisations of companies under the EU Merger Directive.

In recent years, several strategies have been enacted with the aim of fostering Italy’s attractiveness and improving its competitiveness. In this respect, the Italian government created “InviItalia”, an agency whose main task is to coordinate Italy’s promotion activities to attract foreign direct investments. In addition, a number of tax incentives for investors contributed to turn Italy into a business-friendly country and an extremely competitive destination of inward investors and businesspeople in general. Resident and non-resident investors in many cases are now also granted the possibility to achieve preliminary and binding certainty on the tax treatment of their intended investments (and any associated favourable tax regimes) by obtaining a preliminary ruling by the Italian Revenue Agency.

Furthermore, Italy has been (and keeps being) appointed as hosting partner of noteworthy international events, with the 2026 Winter Olympic Games representing a further opportunity to attract foreign capital and investments.

When it comes to corporate tax, the legislative network provides for a wide range of important tax incentives for companies wishing to invest in Italy. Corporate investors can for instance benefit from 50% tax breaks on IP-related income (patent box regime) and tax credits (of up to 50%) for costs incurred in connection with eligible R&D activities, job training and certain purchases of capital assets. In addition, resident companies are also entitled to deductions of notional yields on qualifying equity increases.

Italy also enjoys a comprehensive legislative framework aimed at facilitating the creation and the growth of new hi-tech companies and provides for one of the most favourable tax regimes worldwide for innovation and investments in the VC market and any start-up businesses. Moreover, from a non-tax perspective, fast-tracks procedures to Public Guaranteed Funds are available for eligible SMEs.

Worth mentioning, over the years all the above measures have constantly been confirmed and progressively broadened by different governments: this offers the idea of an investor-friendly country that is solid and reliable in outlining, consolidating and strengthening its tax attraction policies, as well as in step with the trends of international tax competition.

Turning to personal income taxation, Italy acknowledges one of the most advantageous legislative frameworks worldwide for HNWIs and skilled professionals.

As far as HNWIs are concerned, as from 2017 a special forfeit tax regime (probably the most favourable of its kind in Europe) is available to individuals who transfer their tax residence to Italy on the sole condition that they have not been Italian tax residents in at least 9 out of the previous 10 years. In a nutshell, the regime provides for the payment of a substitute tax of 100,000 euros per year in lieu of ordinary taxation on (almost) all foreign source assets and income, even if remitted to Italy. As a further benefit, residents under the regime are not required to comply with foreign assets reporting obligations and are exempted from wealth, gift and inheritance taxes on any foreign-held or located assets. The regime is applicable for a maximum period of 15 years.

The attraction policies aimed at individuals also include a special tax regime customised to the needs of inward expatriates (irrespective of nationality and including sportsmen) who have not been tax residents of Italy in the previous 2 years. For a maximum of 5 or 10 years (in certain cases), they can benefit from an up to 90% exemption from income taxes on any employment, self-employment and business income from activities carried out in Italy. Limited to self-employment and business income, the benefit cannot exceed EUR200,000 (in terms of tax savings) in any 3-year period. Special tax regimes also apply to inward professors and researchers, as well as to pensioners wishing to enjoy their retirement in sunny paradises of Southern Italy.

From an immigration standpoint, fast track procedures are also offered to investors from non-EU countries intending to engage in capital (redeemable) investments in Italian government bonds or equity shares issued by Italian (even listed) companies. These investors enjoy online visa procedures and are granted a fully valid EU-compliant residence permit allowing free movement within the Schengen Area.

Finally, although greatly affected by the COVID-19 pandemic, the negative shock of the virus to the Italian GDP has been much less severe than it was feared. In addition, with potential access to up to EUR209 billion in transfers and loans, Italy is the top beneficiary of the Next Generation EU plan. According to economists, this will trigger a huge multiplier effect on the whole economy and will therefore represent a further extraordinary business opportunity for foreign investors.