Budget Law 2020 – Tax Measures

Income Tax ReliefBudget Law 2020 – Tax Measures

In order to foster economic growth, art. 5 of, “Decreto Crescita” came into effect in December 2019.

Legislation provides for significant changes to the income tax system for anyone who transfers their tax residence to Italy from 2020.

The law is retrospectively applicable to anyone who transferred their tax residence to Italy from 30th April 2019.

Who can benefit from tax measures in the Italian budget law?

Legislation on income tax now extends to foreign football players and other professional sportsmen and women. The law establishes a 50% reduction on income tax. It applies for 5 years provided the sports professional maintains their tax residence in Italy for at least two years. For those not from the sports arena, tax relief of 70% is also available. If for example you generate an income in Italy through employment, self-employment or from business start-up activities.

Income tax relief of up to 90% is available for those who transfer their residence to one of the following regions: Abruzzo, Molise, Campania, Puglia, Basilicata, Calabria, Sardinia, Sicily.

In order to take advantage of tax benefits, certain conditions apply. You can transfer your tax residence so long as you were not resident in Italy for the previous 2 tax years. You must undertake to reside in Italy for at least 2 years and, your work-related activity should mainly be in Italy.

There is no requirement for Italian citizens returning to Italy as tax residents from 1st January 2020 to have previously been registered with AIRE (the Registry Office for Italian Citizens Residing Abroad).

Tax relief is applicable for 5 tax years. However, a 50% income tax reduction is available on income you generate in Italy for a further five tax years if you have at least one minor or dependent child. This also applies if the child is in pre-adoptive foster care.

In addition, you must become the owner of at least one residential property in Italy. Your property purchase can take place either following your transfer to Italy or in the twelve months preceding your transfer. You can purchase property in your name, a spouse or partner’s name, in your children’s name or in co-ownership.

High net worth individual tax system

The 2017 Stability Law remains in force regarding foreign income from real estate investments, dividends, capital gains and other income.

This high net worth individual tax regime  is available if you have not been a tax resident in Italy for the nine (out of ten) years prior to transferring to Italy. The advantage consists in paying a substitute tax of € 100,000 on all income derived from abroad. Sports professionals (football players, basketball players, etc.) can benefit from this tax system.

Flat Tax

The Stability Law of 2019 includes a flat tax regime. This regime is aimed at individuals with a pension or another source of income from outside Italy. You can transfer residence to certain municipalities in the south of Italy and, provided you were not resident in Italy in the five previous tax years, you can opt to pay a flat-rate tax of 7% on your income from abroad.

Building-related taxes

Deductions for energy re-qualification (65%), building renovation (50%) and furniture and household appliance bonuses (50%) concerning the purchase of new furniture for renovated buildings are available.

A new “Facade Bonus” allows for 90% deductions on documented expenses relating to refurbishing or restoring external facades of buildings. As any work to facades must comply with technical regulations, work needs prior assessment and permission.

Capital Gains

The budget law also introduces changes to real estate capital gains. A substitute tax is available if a principal residence or a second home sale meets certain conditions. The substitute tax starts at a rate of 20% on sales of properties that took place until 31 December 2019. It rises to 26% for property sales from 1 January 2020. The application of this regime is optional and should be requested by the notary on the date set for the completion of the sale.

Company shares

The budget law offers terms for recalculating the value of investments in unlisted companies up to January 1, 2020. The drafting and certification of the appraisal, as well as the payment of the substitute tax is due by 30 June 2020.

These terms only apply to private individuals with equity investments unrelated to business operations. In particular, the aforementioned legislation allows the revaluation of equity investments held in companies not listed on regulated markets. Individuals must hold investments at 1 January 2020 and require a sworn appraisal report by 30 June 2020 when the substitute tax of 11% is payable.

Company assets

The budget law allows the revaluation of company-owned assets. Based on 2019 financial statements, the law introduces reduced substitute tax rates:

– from 16 to 12 per cent for depreciable assets;

– from 12 to 10 percent for non-depreciable assets.

In addition, a new provision allows companies to release credit balances recorded in their accounts against the recognition of higher values ​​at a rate equal to 10%.

This option does not concern IRPEF entities with simplified accounts.

New IMU

The budget law introduces a new version of IMU. It sees the merger of former property tax IMU (Imposta Municipale Propria) and the municipal service tax  TASI (Tributo Servizi Indivisibili) to create a new IMU (Imposta Municipale Unica) tax.

Finally …

With over 55 years experience of cross border and Italian property transactions, we understand that Italian property-related tax matters can be confusing. If you would therefore like further clarifications or want to discuss your situation, please contact us for a free consultation. We are here to help. 

 

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Inheritance Law And Tax in Italy

The Italian Succession process can be labyrinthine

At an extremely difficult time, those left behind find they need to navigate their way through a maze of bureaucratic procedures, red tape and paperwork. It is easy to get lost in Italian inheritance law without help.

The Italian succession process involves a series of steps that allow legitimate heirs to obtain possession of a decedent’s movable and immovable assets and bank accounts.

Firstly, heirs will need to gather all the required documentation (death certificate, residence certificate, will, bank statements and others). In order to proceed, having all the paperwork together is crucial.

Declaration of succession

Secondly, heirs will need to prepare a declaration of succession. This comprises all the assets in the deceased’s estate. Heirs must submit their declaration of succession to the Italian tax authorities.

Italian Civil Code regulates succession. It consists of transferring assets, bank accounts and properties to heirs, who are also responsible for managing any liabilities, debts and back taxes.

The Italian tax authorities should receive the declaration of succession within one year from the deceased’s date of death. Where the value of an estate is below €100.000 and does not comprise property, a declaration is not necessary.

What is taxable?

The third step is paying inheritance tax. In accordance with 2019 inheritance tax law, heirs who inherit Italian assets are liable for tax based on the assets in their declaration of succession.

Italian inheritance law stipulates that the following assets are liable for tax:

Immovable property (houses, shops, buildings), agricultural or building land.

Movable property, including boats, jewellery, works of art, bank and post office current accounts, money, investments such as shares, bonds, trust funds, etc.

Companies and shareholdings, with the exception of cases provided for by law which exempt heirs from the inheritance tax.

How is Italian inheritance tax calculated?

Once the Italian tax authorities receive a declaration of succession, they calculates applicable inheritance tax. The calculation considers any deductibles (franchigie). That is to say, the calaculation takes into account any thresholds for exemption from applicable tax[1].

The law governing taxation of inheritances and gifts is the “Consolidated Tax Registration Law” (Legislative Decree No. 346 of October 31, 1990).

For tax purposes, three bands have been created, based on the degree of kinship, for each of which a different rate of tax is applicable. Tax rates are determined on the overall value of the assets and rights – net of any charges borne by the beneficiary[2].

Band 1 inheritance law tax:

Spouse, registered partner and relatives in a direct line (parents and children, children and parents, grandparents and grandchildren)

Tax: 4% with an excess of €1,000,000 for each beneficiary

Band 2 inheritance law tax:

Other relatives up to the fourth degree (brothers and sisters, uncles and nephews, cousins).

Tax: 6% with a franchise of €100,000 for each beneficiary;

Band 3 inheritance law tax:

Others (relatives beyond the fourth degree and unrelated people such as friends).

Tax: 8% without any deductibles.

Finally …

As you can see, Italian Inheritance law and tax is complex. In addition, it may differ from case to case. Because of this, it is worth seeking expert support. For a more comprehensive clarification of Italian inheritance law and tax, you might find our free guide useful.

At De Tullio Law Firm, we have over 55 years of experience managing Italian inheritance matters. If you are feeling unsure about anything to do with inheritance law and tax and need advice, please get in touch with us. We are here to help.

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[1] The Italian Revenue Agency automatically applies the presumption of 10%. This assumes that the value of your inheritance is higher by at least 10%, since an inheritance would generally include items such as jewellery and movable assets not expressly declared. To avoid the presumption of 10%, attach a detailed inventory of assets to the declaration of succession.

[2] In addition to the above, even where no inheritance tax is due, Italian government fees to transfer Italian real estate holdings apply. Your inheritance will therefore be subject to mortgage and cadastral taxes in addition to inheritance tax, where applicable. These taxes are based on the value of property included in your inheritance. Tax is the same as you would pay for example, in case of a sale of property.

Mortgage Tax:2% of real estate property value as set by cadastral records, not the appraised value, for a minimum of €200.

Cadastral Tax:1% of real estate property value as set by cadastral records, not the appraised value, for a minimum of €200.

 

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Flat Tax Scheme in Italy

New Italian 7% Flat Tax Incentive for Retirees Moving To The Southern Regions of ItalyThe Italian Budget Law for 2019 introduced a flat tax regime

Set at 7%, the Italian flat tax scheme aims to attract foreign and Italian nationals living abroad.

Individuals with an income from a foreign pension, or other source from abroad, can benefit from the scheme. In order to take advantage of the flat tax rate, individuals must transfer their tax residence to certain  municipalities. The municipalities have fewer than 20, 000 inhabitants. They are located in the Italian regions of Abruzzo, Basilicata, Calabria, Campania, Molise, Puglia, Sardinia and Sicily.

In addition, certain municipalities with fewer than 3,000 inhabitants are part of the scheme. These municipalities are in Italian regions impacted by the earthquakes in 2016.

Individuals who opt for the flat tax regime will be exempt from tax on the value of both financial assets (Imposta sul valore delle attività finanziarie detenute all’estero (Ivafe)) and real estate property (Imposta sul valore degli immobili situati all’estero (Ivie)) which they own abroad.

They will also be exempt from completing annual, “Quadro RW” filings. The Italian tax authority uses Quadro RW filings to monitor individuals resident in Italy with foreign investments and financial assets abroad.

Who can benefit from flat tax rate scheme?

– Individuals from countries that have tax cooperation arrangements with Italy. Namely, Tax Information Exchange Agreements (TIES), Double Taxation Agreements (DTA) and Foreign Account Tax Compliance Agreements (FATCA).

– Individuals who have not been an Italian tax resident for 5 years prior to the period for which their option is valid.

Do you have to apply to be part of this tax regime?

If you meet the criteria outlined above, you can adopt the new flat tax regime when you file your tax return related to the fiscal period in which you moved your tax residency to Italy.

You will need to indicate the jurisdiction/s in which you had your previous tax residence. The Italian tax authority will then forward this information, through the appropriate administrative cooperation instruments, to the tax authorities of the indicated jurisdiction/s.

It is possible to carve out income produced in one or more foreign countries or territories. You may, for example, decide that for income in a certain country or territory, the ordinary Italian tax rules should be applied. In principle, this allows you to benefit from foreign tax credits based on applicable tax treaty protections and relief on taxes you have paid abroad. You must specifically indicate this intention when you exercise your option to take up the flat tax regime.

How long is the option valid?

The flat tax regime is effective for nine years from exercising your option to adopt it. You may withdraw from the regime at any time during the five year period. This will not prejudice the effect of previous fiscal years. However, withdrawal from the regime precludes you from exercising a new option to join the flat-rate tax regime.

The Italian tax authority may revoke your rights to the flat-rate regime by challenging your legal entitlement to it.

You must pay your 7% tax as a lump sum each year. The Italian tax authority sets the payment deadline for payments. Failure to pay in full ends your right to the flat tax regime.

Finally …

For more information, or to discuss what would best suit your personal situation, feel free to contact us.

Alternatively, seek advice from a qualified accountant registered with the ODCEC, the Italian professional accounting association of certified public accountants, auditors and advisors.

 

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