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  • Cédric Zaidan

Update on Italian taxation in an international context


1.       Introduction


In early 2024, Italy implemented substantial revisions to its international taxation framework. Specifically, on December 28, 2023, Legislative Decree No. 209 was officially gazetted, marking significant changes.


Among these changes, the alteration of the definition of tax residency for individuals stands out as a pivotal theme.


Additionally, the 2024 budget legislation has increased the rates for two existing wealth taxes in Italy that target assets held abroad, known as IVIE and IVAFE.


2.       Tax Residence in Italy


Article 2 of the Consolidated Text on Income Tax, which deals with the tax residency of individuals, underwent modifications by a Legislative Decree No. 209 of 2023 (Decree on International Taxation), which reads as follows:


For the purpose of income tax, individuals are regarded as residents if, for the majority of the tax period, including fractions of a day :


  • they maintain their residence in accordance with the civil code,

  • have their domicile within the State's territory,

  • are physically present there.


Under this provision, domicile refers to the location where the individual's primary personal and familial relationships occur. Unless proven otherwise, individuals listed in the resident population registers for the majority of the tax period are also presumed residents.


This new article introduces significant amendments on 4 main points:


  • the importance of fractions of days spent in Italy

  • the introduction of a new concept of tax domicile

  • the condition of mere presence on the territory of the State

  • the elimination of the absolute presumption of residence in Italy for individuals not registered in the register of the resident population abroad.


The criteria established in this way are alternative.


3.       Increase in Italian Wealth Tax on real estate properties owned outside of Italy (Imposta sul Valore degli Immobili situati all’Estero or IVIE)


The applicable tax rate, starting from FY 2024 is equal to 1.06% (vs 0,76% up to FY 2023)


Moreover, the valuation of properties varies based on their location:


  • in EU countries or EEA members with sufficient information exchange, the cadastral value is primarily used;

  • in the absence of this, the purchase deed's cost or market price is considered,

  • while for other countries, property value relies on purchase deed or contract details, or market prices if not available.


4.       Increase in Italian Wealth Tax on financial investments owned outside of Italy (Imposta sul valore delle Attività Finanziarie detenute all’ Estero or IVAFE)


The applicable tax rate, starting from FY 2024 is equal to 0.4% under certain conditions (vs 0,2% up to FY 2023)

Individuals, non-commercial entities, and simple partnerships (società semplici) residing in Italy holding financial products, current accounts, and savings accounts abroad are required to pay a tax on the value of these assets.


The tax is calculated based on the value of the financial products and is due proportionally to the ownership share and holding period.


Excluded from the scope of IVAFE but still required to be reported in the RW section of the taxpayer's declaration are associate current accounts, interests in partnerships, foreign currencies, precious metals, and stocks or bonds not held with a banking institution, such as shares in foreign limited liability companies.

 

 

 

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