Expatriate tax ebook - Italy

What taxes?

Capital gains tax
Inheritance, estate and gift taxes
Investment income
Local taxes
Real estate taxes
Social security taxes
Stock options
Wealth taxes
Other specific taxes

Capital gains tax
Capital gains deriving from the sale of non-qualified participations (i.e. under 20% of the share capital) are taxed at a 12.5% substitute tax rate.

Capital gains deriving from qualified participations are ordinarily included in IRPEF personal tax taxable base for the forty percent of their amount (i.e. they are 60% exempt). This percentage has been recently increased to 49,72% starting from 01/01/2008 (i.e. they are 51.28% exempt).

Capital gains originating from black-list countries are taxed 100%.

Allowable capital losses (forty percent of the net loss) can only be applied against taxable capital gains and cannot be deducted against other sources of income in the relevant year. These losses, however, may be carried forward for 5 years to be applied against net capital gains arising in those years, if any.

Inheritance, estate & gift taxes
Inheritance Tax has been reintroduced starting from 3 October 2006 as follows:

• if the heir is the spouse or a direct relative in law: tax rate 4% (no tax area up to € 1,000,000 for each heir);
• if the heir is (i) a relative in law within the fourth degree, (ii) a direct collateral relative in law or (iii) a collateral relative in law within the third degree: tax rate 6% (no tax area does not apply);
• in the other cases: tax rate: 8% (no tax area does not apply).
  
  

Gift Tax has been reintroduced starting from 29 November 2006. The tax rates applicable are the same provided for the Inheritance Tax (i.e. 4-6-8%), depending on the degree of relativity of the beneficial.

Furthermore, a more limited no tax area is provided for where the beneficial is a brother or a sister.

Both for Inheritance & Gift Tax the evaluation of the business to be transferred must not consider the goodwill.

The Inheritance & Gift Tax does not apply in case of (i) “family pacts” (art. 768-bis of the Italian Civil Law Code) and (ii) transfers of businesses where the counterparts are members of the same family, including the transfers of participations implying the acquisition of a controlling interest in the company. The exemption applies only if the business’ activity is carried on during the five years following the transfer.

Investment income
Dividends and interest income are taxable in Italy on a cash basis (i.e. when received).

Dividends deriving from non-qualified participations (i.e. under 20% of the share capital or 25% of the voting rights) are taxed at a 12.5% substitute tax rate.

Dividends deriving from qualified participations are ordinarily included in IRPEF individual tax taxable base for the forty percent of their amount (i.e. they are 60% exempt). This percentage has been recently increased to 49,72% (i.e. they are 51.28% exempt) for dividends related to profits generated by the paying company from 2008 on.

Dividends from companies resident in Tax Havens are generally 100% taxable.

Interest received are taxable upon realization at a 27% substitute tax on a cash basis.

Local taxes
Additional Regional and Municipal Income Tax
Tax rates vary depending on where the individual is resident at 31 December. The additional Regional Tax rates range from 0.9 % up to 1.4%. The additional Municipal Tax rates range from 0 % up to 0.8%

Real estate tax
The main real estate tax applying in Italy is ICI, Municipal Tax on properties. The taxable base is the cadastral value of the property. The rate is usually lower than 7 per thousand.

Social security taxes
Individuals employed in Italy are required to contribute to the Italian Compulsory Social Contributions Plan (INPS) or to other compulsory schemes provided for specific sectors.

Contributions are calculated on the gross salary of the employee: the applicable rate is generally 38/40% (of which 8/10% is paid by the employee at source).

Different rates are applicable for social contributions due from executives and self employed.

The maximum annual ceiling for FY 2008 is € 88.669,00, amount over which nothing more is due.

The employee contribution is fully creditable, if compulsory, against income taxes.

Expatriates may qualify for exemption from social security contributions if they are eligible to opt for social security contributions in their State with which Italy has a social security agreement. Usually, this requires the filing of the E101 form with the Italian Authorities.

Stock options
Italy levies tax on stock options in two possible ways, depending on whether the employer grants them (a) to all its employees (or to entire categories of them) or (b) to some of them (basically Executives).

Under type (a) plans stocks granted to all the employees are tax exempt up to the amount of € 2,065.87, on the condition that they are held by the employees for at least three years and not purchased back by the employer.

Under type (b) plans, a stock option is recognized as such only on the condition that the stock value at granting date is no lower than the amount paid by the employee at vesting date. Further, specific and restrictive conditions (i.e. listed shares, vesting period of three years, 5- year minimum holding period) have been introduced for plans exercised after 4 July 2006.

As the latter regime (type b) was abolished on 24 June 2008, options exercised after this date are fully taxable. However, they are not subject to social contributions.

Outside types (a) and (b) the benefit are fully taxable and subject to social security contributions.

Theoretically there are no exceptions for foreign plans or options granted prior to becoming a resident. In this case reference should be eventually made to the relevant Tax Treaty in force with the Country of origin.

Wealth tax
There is no wealth tax in Italy.

Other specific taxes
Individuals tax resident in Italy are required to indicate in a specific return (so called “quadro RW)” the investments held abroad and the transfers of cash and financial assets to/from foreign countries, should the cumulative amount exceed € 10,000 per year.

Information about Italy:

• introduction
• facts and figures
• basis of taxation
• what taxes?
• tax planning opportunities