Are you a High Net Worth (HNW) American or UK Non-Dom looking for a low-tax destination for yourself and your family? If so, would you also be interested in a country that offers “a culture is steeped in the arts, family, architecture, music and food”? If you answered YES to both questions, Italy should definitely be on your list of potential countries in which to set up residence.
In addition to its wonderful lifestyle and other important factors such as healthcare and EU membership, as a result of a special tax regime for foreign nationals that was introduced in 2017, you can pay a low annual flat tax of €100K…and add family members for a mere €25K. With a taxation opportunity like this, and along with all the other benefits, clearly Italy has a lot to offer. Indeed, in 2021 the number of HNW individuals who grabbed this opportunity increased by 143% compared to 2020.
In this blog, we’ll introduce why Italy should be considered as a destination for HNW Americans and UK Non-Doms, and identify the benefits…and a few reasonable requirements…that come along with it.
Why relocate to Italy?
High-net-worth (HNW) individuals and families carefully research and analyze their decision to establish residence in a new country. Trusted advisors assist in this process, and inputs from business advisors and family members are considered. The goal is to ensure that the new country offers optimal benefits in terms of taxation, lifestyle, healthcare, and education for everyone involved. Italy has become a favored destination for many HNW individuals and families and is worth considering as a backup plan.
Firstly, we all know that Italy has a lot to offer in terms of culture, cuisine, history, and natural beauty. The country boasts world-famous landmarks, amazing and diverse regional cuisines, and a thriving art scene. From the Roman Colosseum to the vineyards of Tuscany, there’s something for everyone.
Italy’s location is highly advantageous for those who travel frequently. The country is situated in the heart of Europe, making it easy to travel to other countries. Its position on the Mediterranean Sea also makes it a great place to enjoy the beach and soak up the sun. And for year-round mountain activities, the Italian Alps and Dolomites are hard to beat.
Cost of Living
The cost of living in Italy is significantly lower than in United States – driven largely by lower costs for healthcare (that is very good) and housing. A quick survey of online sources reveals COL can be between 17 and 70% lower…depending where one wants to live.
One feature of Italy that is under-reported is that its healthcare system ranks among the best in the world. Indeed, the WHO ranks the Italian healthcare system second in the world. Indeed, Italy ranks among the highest in the world for high life expectancy and low infant mortality. Cost is not a barrier as the public medical infrastructure is extensive and well-funded, allowing individuals to supplement their care with private plans if desired.
Those seeking quality university education as well as an “immersive cultural experience” often choose Italy, a popular country. Italy has seven major cities with topflight universities known for their art, history, business schools, and science and engineering faculties.
Now let’s talk about Taxation, Residency and Citizenship
Apart from the well-known cultural and lifestyle benefits, Italy offers significant advantages in terms of taxation, residency, and citizenship. These factors enhance Italy’s appeal as a highly attractive destination to relocate.
Taxation Opportunity in Italy
Earlier we noted that in 2017 a special tax regime for foreign nationals was introduced whereby one can pay a low annual flat tax of €100K…and add family members for a mere €25K. Let us elaborate.
The Italian Lump Sum Tax Regime
It is a tax option available to individuals who acquire Italian tax residence for Italian income tax purposes. To be eligible for this regime, the individual must have been a non-resident of Italy for Italian income tax purposes for at least 9 out of the 10 years prior to the first year of application.
For Italian income tax purposes, an individual meets the criteria to be considered a resident of Italy in a given tax period (usually a calendar year) if they fulfill one of the following conditions for most of the tax period:
- They register with the Italian Register of the resident population (“Anagrafe della popolazione residente”).
- They establish their residence in Italy for civil law purposes, which means having their habitual abode in the country.
- They establish their domicile in Italy for civil law purposes, which means having the main seat of their business and interests in Italy.
If any of these conditions are met for the majority of the calendar year, the individual is considered an Italian resident for the entire calendar year. Conversely, if none of these conditions are met for the majority of the calendar year, the individual is classified as a non-resident for the entire calendar year.
The main features of the Lump Sum Tax Regime are as follows:
- Foreign-source income and foreign-source gains are subject to a substitute tax of €100,000 per year instead of being subject to income tax according to the general rules. Foreign taxes paid on income and gains are not creditable against this €100,000 tax.
- Foreign-held assets are not subject to wealth taxes.
- Foreign-situs assets are not subject to inheritance and gift tax.
There is an exception for foreign-source gains on substantial participations. If you realize such gains within the first five years of your Italian tax residence, they are excluded from the Lump Sum Tax Regime and subject to income tax based on the general rules. If uncertain about included gains, you can seek an advance ruling for their inclusion. However, the Italian Revenue Agency, the Agenzia delle Entrate, usually grants this exclusion if you commit to remaining an Italian resident for income tax purposes for the five years after the gain is realized.
Residency in Italy
If one of the adults in the family is an national of an EU member state, they have a right to immediately move to Italy. This right is extended to their non-EU national spouse and children. If an EU nation is not involved then , we will consider two paths , the Elective Residence Visa and the Investor Visa.
Elective Residence Visa
For non-EU citizens who are looking to relocate to Italy, the Elective Residence Visa may be an option to consider. This visa allows individuals who do not intend to work in Italy to reside in the country for an extended period of time. In order to qualify for this visa, there are certain requirements that must be met.
First and foremost, applicants must have a stable and regular income of at least €30,000 per year. This income can come from sources such as bank statements, financial securities, and real estate properties. It’s important to note that income from work does not qualify for this calculation.
In addition to income, applicants must also have a place to live in Italy. This can be either a purchased or rented property, but third-party offers of hospitality or hotel stays are not acceptable. A tenancy agreement would be sufficient to prove the availability of a lodging.
If these requirements are met, individuals can apply for the Elective Residence Visa and potentially live in Italy for up to a year. This visa can be renewed for additional one-year periods as long as the requirements continue to be met.
The Investor Visa is an attractive option for those planning to relocate to Italy and invest in the country’s economy. To obtain it, applicants must invest at least €2,000,000 in government-issued securities or €500,000 in an Italian company’s equity instruments. If the company is an innovative start-up, the requirement is reduced to €250,000. Alternatively, applicants can donate at least €1,000,000 to a public interest project.
By investing in Italy, applicants can enjoy living in a beautiful and culturally rich country while potentially gaining financial benefits. It’s essential to evaluate the costs and risks of each option, possibly with the guidance of trusted advisors, before making a final decision.
Lets discuss two paths…citizenship by lineage and citizenship by residency
Citizenship by Birth, Lineage and Marriage
First and most obvious, if you were born in Italy, you may be eligible for citizenship through birthright. In this case you must have been born in Italy to foreign parents or born to at least one Italian parent who registered your birth at the Italian embassy.
Second, if you can prove that you have an Italian ancestor you may be eligible for citizenship through lineage. In such cases you must provide historical family documentation that proves a clear lineage from your Italian ancestor(s) to you, such as birth certificates and marriage certificates…often going back multiple generations. If you do not have such documentation at your fingertips, don’t despair. There are highly trained and skilled genealogists and researchers who know where and how to find historical family documents. It is remarkable what they can locate.
Finally, if you are married to an Italian citizen, you may be eligible for citizenship through marriage. In this case, you must have been married to an Italian citizen for a minimum of two years and have lived in Italy for at least 12 months.
Italian Citizenship by Residency
Securing Italian citizenship through residency can be an appealing option…if one is willing to establishing long term residence. Not only does this route offer a pathway to EU citizenship, but it also opens up a range of benefits that come with Italian citizenship. Indeed, obtaining Italian Citizenship by Residency can offer significant tax advantages. Once you are a legal resident of Italy, you may be eligible for a number of tax exemptions and reductions. This can be particularly beneficial for those looking to minimise their tax liability in both the US and the UK.
To qualify for Italian citizenship by residency, you must establish legal residency in Italy and spend over 6 months per year in the country. You must also meet specific time requirements, which can vary depending on your individual circumstances. In some cases, this may require living in Italy for at least 10 years.
Though the process can be lengthy and demanding, it is a worthwhile option for those seeking long-term residency in Italy. For individuals with Italian heritage, a reduced waiting period may be possible, as short as four years.
The Process of Applying for Italian Citizenship
If you are a Non-EU citizen considering Italy as a destination to relocate, obtaining Italian citizenship can be an attractive and viable option depending on your goals and circumstances. Moreover, the process of obtaining Italian citizenship is relatively straightforward and has become increasingly popular among US and UK citizens.
To obtain Italian citizenship, start by applying for an entry visa if your stay exceeds 90 days. A Decree has simplified visa issuance for those opting for the Lump Sum Tax Regime.
For those uninterested in studying or working in Italy, the Elective Residence Visa or Investor Visa are ideal options. These visas have no yearly numerical limitations, making the process more convenient.
Once you have entered Italy and established residency, you can begin the process of qualifying for citizenship.
In conclusion, there are numerous reasons to consider relocating to Italy, including its wonderful culture, lifestyle, excellent healthcare, education systems, and beneficial tax system. The streamlined process of applying for Italian citizenship is also an advantage worth exploring with your advisors and family. Residency in Italy can be an attractive proposition, particularly for US and UK Non-Doms.