ITALY: An Introduction to Private Wealth Law
Generational Transition of Family Businesses
In a European context of great economic and political uncertainty, the private clients sector in Italy is showing stable growth due to several factors that make the market particularly prosperous.
Domestically, the generation of entrepreneurs who built the large family businesses forming the backbone of the Italian economy are now deceased or old enough to require the urgent involvement of the next generation in the governance of these businesses. The deaths in the past 12 months of two great entrepreneurs, Del Vecchio (Luxottica) and Berlusconi (Finivest), are prime examples.
However, the latest findings of the Italian National Institute of Statistics show that, between 2013 and 2023, only 20.6% of family businesses addressed the issue of generational transition. In this situation, there is growing demand for legal and business advice concerning the preparation of succession plans and the reorganisation of corporate governance and structure for the entry of new generations.
Such systems should be capable of helping families express a clear vision of the future of their companies, while also helping them to empower their managers to implement that vision. At the same time, such systems should help families limit the possibility that egoistic individuals within the family are able to interfere with the realisation of this vision.
This needs to be done with a view to preserving and developing that capacity, typical of family businesses, to generate skills and professional experience over time, which contribute to building a competitive advantage in the market, as a result of the involvement of family members in business activities.
In this varied and complex economic context, unprecedented market scenarios and new opportunities are opening up for legal professionals operating in the private client sector. However, these professionals are also being called upon to face new challenges, involving broadening and combining their understanding of the needs of corporate organisations with their knowledge of legal and tax techniques.
Tax Regimes for New Residents
In recent times, Italy has attracted a flow of new private clients from abroad and the need for tax and legal services has increased proportionally. This influx is a result of the introduction by the Italian legislature of several special tax regimes to attract high net worth individuals to Italy, allowing them to take advantage of a beneficial tax regime for individuals with the chance to enjoy la dolce vita.
Among the most successful measures was certainly the provision, as of 2017, of a facilitated tax regime for “new resident” individuals transferring their tax residence to Italy.
This regime allows individuals transferring their tax residence to Italy to opt for a “flat tax” covering their foreign income. Such a tax amounts to EUR100,000 for each fiscal year. The relief can be extended to family members through payment on their foreign income of a substitute tax amounting to EUR25,000 per member.
This tax regime is available if the individual has not been resident in Italy for more than 12 months in the ten years preceding the year in which they exercised this option. This tax regime has a maximum duration of 15 years. It is not dependent on the remittance to Italy of the foreign income.
Under this regime, the foreign assets and income of the “new residents” do not need to be included in their tax return and no further tax is levied on them. No estate or gift tax is applied to foreign assets.
With the same aim of attracting foreign resources and human capital, the Italian legislature has also introduced a tax benefit for workers (employed and self-employed) or sole entrepreneurs who transfer their tax residence to Italy and reside there for at least two years. This advantage consists of a 70% (50% in the case of athletes) tax exemption on the employed or self-employed individual’s income in Italy, with this exemption increasing to 90% should the person move to southern Italy.
In order to access this benefit, the individual needs to have been resident outside Italy during the two tax periods preceding the transfer and, after this, to exercise their activity prevalently in Italy.
The benefit, which can last from a minimum of five to a maximum of ten years, is particularly appreciated by sports professionals and celebrities.
Lastly, the Italian legislature has provided for a flat tax at 7% for ten years for pensioners with foreign-source income who transfer their tax residence to small municipalities in southern Italy or other specific areas. This is an interesting option for all retired persons with a relevant pension income who, during their working life, accumulated income-producing capital.
Retirees may not have been tax resident in Italy for at least five tax years preceding the year in which the option is exercised.
These legislative innovations have strongly contributed, in recent years, to the growth of the Italian market for private client services and to the investment of financial resources by these new residents.
In fact, the arrival of many new residents who are high net worth individuals has contributed to the development of the real estate market, with a steady growth in purchases and sales, both in tourist locations and in large cities, as well as a gradual increase in the value of luxury properties. The demand for legal services to structure the purchase of these luxury properties by private clients is definitely growing.
As far as pleasure assets are concerned, a sector increasingly appreciated by foreign customers is pleasure yachting. The Mediterranean is an obvious attraction, offering a beautiful coastline and easy access to cities and towns steeped in history and culture. The demand for tax and legal services related to the purchase of pleasure yachts is therefore also increasing.
In the coming years, however, it is expected that high net worth individuals who move to Italy may start investing in more dynamic and strategic sectors, such as the industrial and financial sectors.