Italian Income Tax Relief
In order to foster economic growth, as part of the Italian budget law, art. 5 of, “Decreto Crescita” came into effect in December 2019. Legislation provides for significant changes to the Italian 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 Italian income tax measures introduced in the 2020 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 Italian income 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.
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.
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.
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.
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.
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.
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.
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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