Flat Tax Regime in Italy for foreign income: how to pay less than 5% tax?

Italy, with its unique culture, lifestyle and rich heritage, attracts many people from all over the world. Moving to this country, among other things, implies certain tax issues. Flat Tax Regime is one of the solutions proposed by the Italian government to simplify taxation of foreign income.

What is Flat Tax Regime?

Flat Tax Regime, or as it is also known, “replacement tax”, provides the option of paying a flat tax on foreign income. This means that individuals are exempt from the complex calculations of standard tax on personal income earned abroad and instead pay a fixed amount. This is a particularly interesting option for paying tax if you plan to become resident in Italy by having companies abroad. 

What can be the consequences of transferring residency to Italy if you are a controller of foreign companies – you can read our article on the link.

Basic conditions of Flat Tax Regime

The basic conditions of this tax regime are established by Presidential Decree No. 917 of 22 December 1986. According to this Decree, individuals transferring their residence to Italy may opt for this tax regime, provided that they have not been Italian tax residents for 9 of the 10 preceding tax periods.

Who can benefit from this regime?

As follows from the above, a person can benefit from the tax regime if he/she transfers his/her tax residence to Italy (i.e. a person who was not tax resident in Italy for previous tax periods).

In addition to the main applicant, his/her family members are also eligible for the flat tax, provided that they fulfil certain requirements.

How long does this regime last?

Flat Tax Regime is valid for 15 years from the date of its application.

What are the amounts of tax to be paid?

According to the Decree, the tax is 100,000 euros for each tax period. However, this amount is reduced to €25,000 for each family member.

Therefore, if your foreign income in aggregate exceeds €2,000,000, your tax rate on such income will be only 5%.

How do I make an option to pay the flat tax?

To do so, you must submit an application to the Tax Agency. It is worth noting that the application must be submitted within the deadline for filing the tax return for the tax period in which the move to Italy took place.

Conclusion

Flat Tax Regime in Italy represents an interesting solution for those who move to this country and have foreign income. This tax regime simplifies the taxation process, making it more predictable and transparent. This regime looks particularly interesting if you have foreign companies (CFCs). 

If you are planning a move to Italy and are interested in this tax regime, you can contact us!