Less than 24 hours before the New Year's Eve, the 2019 Budget Law for Italy was published in the Official Journal after a troubled parliamentary itinerary. Among the various news, the introduction of the new art. 24-ter in the D.P.R. December 22, 1986, n. 917 ("TUIR") which provides the option - starting from the 2019 tax period - for the substitute taxation of IRPEF (ed. tax on personal income) for pension holders provided by foreign bodies that transfer their tax residence in Municipalities of certain Regions of the Southern Italy, deserves to be analysed.
This provision arises in the wake of the one approved during the previous parliamentary legislature with the Budget Law for 2017, which introduced the well-known Res Non Dom regime. The provision of a facilitated tax regime for new residents has made good results and the Italian government has decided to provide a similar scheme for pensioners.
On a European level, similar regimes in Portugal, United Kingdom, Malta, Romania, Canary Islands and Cyprus have been already set up, but also outside the European Union there are examples of countries that have launched tax measures aimed at attracting foreign assets: Panama and Tunisia.
The conditions for the scheme application:
Holders of foreign pensions, regardless of their age and citizenship, can access to the flat tax regime if:
- transfer their tax residence to a municipality belonging to the Regions of Sicily, Calabria, Sardinia, Campania, Basilicata, Abruzzo, Molise and Puglia with a population not exceeding 20,000 inhabitants; and
- have not been tax residents in Italy for at least five tax periods prior to the first period of effectiveness of the scheme.
The option must be exercised within the tax declaration related to the tax period in which the tax residence is transferred and is valid for such tax period and for the next five.
Expected benefits for applicants:
Those who opt for such scheme will have to pay a substitute tax at a fixed rate of 7% to be applied to all foreign incomes received in the tax period. Incomes received from an Italian source will instead be subject to the ordinary income tax regime.
The taxpayer has the right - similar to what has been provided for the new residents regime - to exclude certain countries from the option scope of application. In this case, any income deriving from an excluded country will be subject to the ordinary tax regime and will benefit of the tax credit for taxes paid abroad.
Furthermore, the exemption from monitoring on assets held abroad is provided, as well as the exemption from relevant taxes on foreign assets (ed. IVAFE and IVIE).
Differences with respect to the Res Non Dom regime:
There are some excellent absences that differentiate the regime applicable to retirees from that provided for new residents:
- there is no exemption, for those who opt for the pension scheme, from tax on inheritance and donations with regard to foreign assets. Without a subsequent corrective action by the Government in order to align the provision with the new residents one, this absence could lead many applicants to consider the subscription of life insurance policies, which guarantee the exemption from the aforementioned tax.
- there is no provision pursuant to which the income received from the sale of qualified shareholdings occurring in the first five tax periods from the scheme effectiveness does not fall within the scope of the substitute tax.
- finally, it is not possible to extend the scheme to the family members of the applicant, whose will be able to apply only upon the requirements meeting.
Comparative table of schemes for retired persons in various European countries *
As for the Res Non Dom, also this particular regime for pensioners follows what has already been provided in other European Union countries where facilitated tax systems aimed to attract "wealthy" pensioners have already been put in place several years ago.
* Table provided as an indication, for more information please refer to your tax adviser or our experts
Preparing for life's milestones
There are all the premises for this new scheme for pensioners to improve the transfer of assets in Italy to support a revival of investments and consumptions also confirming the profitability of certain tax strategies addressed to individuals residing abroad.
Further to the success story with tax provisions scheme with the aim of attracting new residents, this new scheme for pensioners allows you to start to plan your retirement and to put in place a well-structured inheritance plan by using tools like a life insurance policy.
A life insurance policy under this scope will allow to put in place an asset and succession planning tools aimed at taking advantages of the new facilitated tax regime and allow tailor-made solutions for taxpayers concerned.
For instance, let's imagine that you are a retired policyholder holding a Belgium unit-linked policy and you intend to move to a more sunny and warm place like Italy. Italy is well known as being the country with the second highest average life expectancy in the EU.
In light of this, besides all the advantages of moving to Italy, Bâloise Vie Luxembourg S.A. offers you the possibility to carry your existing policy to Italy (under certain conditions).
In addition, one should highlight that the convenience of subscribing an equivalent policy in Italy in order to exclude the application of inheritance and donation tax should not be underestimated.
For further clarifications and details please do not hesitate to contact our team of experts who will be at your disposal to find wealth planning solutions through the unit-linked policies offered by Bâloise Vie Luxembourg S.A.