General Principles

An individual’s liability for Italian taxation is based on their tax residence and source of income: if the individual qualifies as an Italian tax resident, they are subject to taxation in Italy on their worldwide-sourced income; otherwise, they are subject to Italian taxation only on the income produced in Italy during the tax year.

The tax year in Italy is from January 1st to December 31st each year.

Personal Income Tax

Individuals considered to be Italian tax residents are liable to taxation in Italy on their worldwide-sourced income, unless exempted under a particular provision of a treaty ratified by Italy against double imposition.

As a general principle, according to Article 2 of the Italian Tax Code (TUIR), an individual is deemed to be an Italian tax resident if they meet at least one of the following conditions:

• the individual is enrolled in the Register of the Resident Population (Anagrafe della Popolazione Italiana) for more than 183 days during the fiscal year (184 days during a leap year);
• the individual has their “residence” in Italy as defined in the Italian Civil Code; and
• the individual has their “domicile” in Italy, as defined in the Italian Civil Code.

A “residence”, according to the Italian Civil Code, is deemed to be the place of habitual abode, while a “domicile” is the place where the individual establishes their centre of vital and economic interests giving a relevant role to their family’s location.

It is worth mentioning that a tax reform is under discussion in the Italian Parliament with the aim (among others) of reviewing the tax residence rules for individuals and companies, in order to align domestic provisions with international best practices and the double tax treaties signed by Italy.

Also, considering the huge increase in remote working over the last few years, the “permanent establishment” has become a relevant issue, especially for companies based abroad that allow employees to work physically from Italy.

Therefore, the 2023 Italian Budget Law introduced a relevant discipline regarding a “permanent establishment exemption” for investment management activities, with the aim of ensuring that foreign investment funds (and controlled entities) will not trigger a “permanent establishment” due to activities in Italy of a fund’s (senior) asset managers.

This means that an asset manager, defined as the person in whose name and/or on whose behalf a foreign investment vehicle operates (or its direct or indirect subsidiaries), who habitually concludes contracts and/or negotiations, is not considered a “dependent agent” if specific conditions are met.

Generally speaking, the TUIR (Article 51, paragraph 8 bis) provides a favourable tax regime for employment income produced abroad by resident individuals. Indeed, employment income related to activity performed abroad is not taxed on an actual basis but on a notional basis. The notional income (retribuzione convenzionale) is a lump sum amount determined annually by the Italian Revenue Agency in accordance with the qualification(s) of the employee, the sector of their activity and their received base salary, excluding any additional remuneration, benefit and/or bonus they may receive.

In order to qualify for said tax regime, all the following requirements have to be met for more than 183 days (or 184 days) in a 12-month period:

• the employee qualifies as an Italian resident;
• the services are performed abroad in a continuous way (ie, the work activity is performed exclusively abroad, and no work activity has to be performed in Italy); and
• the services are performed abroad as the sole object of the employment relationship (ie, on the basis of a specific contract).

Double Taxation and Foreign Tax Credit

According to Article 165, paragraph 1 of the TUIR, the individual will be entitled to claim foreign tax credit for foreign taxes paid abroad on the same income.

Foreign tax credit is generally claimed through the filing of the Italian income tax return; however, it could also be recovered through the Italian wage statement, in the case of an employee, at the end of the fiscal year. Indeed, the employer may pay back the taxes withheld during the fiscal year directly to the employee through the payroll. This last solution is not recommended, because the exact amount of tax credit recoverable (which must respect certain limits and is often not equal to the exact amount of taxes effectively paid abroad) frequently needs to be recalculated through the Italian tax return.

In any case, Italian tax law allows foreign tax credit only for foreign taxes which are considered as definitively paid in the relevant foreign country and according to the relevant international treaty provisions ratified by Italy for avoiding double taxation.

Tax Rates and Special Tax Regimes

Taxable income in Italy is subject to imposta sul reddito delle persone fisiche (IRPEF).

The IRPEF tax rates go from 23% to 43%, in relation to different bands:

• 23% from EUR1 to EUR15,000;
• 25% from EUR15,001 to EUR28,000;
• 35% from EUR28,001 to EUR50,000; and
• 43% over EUR50,001.

In addition, if the income is subject to taxation with progressive tax rates, regional and municipal taxes are also levied, and they are calculated with the tax rates issued annually by the regional and municipal authorities, according to the place of residence.

The tax rates can vary from 1.23% to 3.33% for the regional tax and from 0% to 0.9% for municipal tax.

Taxation of Interest and Capital Gains

Income deriving from interest is generally subject to taxation, depending on the source of the income, in the following ways:

• interest income deriving from bonds issued by the government or similar entities, both Italian and foreign, is subject to a withholding tax rate equal to 12.5%; and
• interest income deriving from other securities issued by private banks or companies listed in the stock exchange, and interest income deriving from bank or postal accounts, are subject to withholding taxation with a current tax rate of 26%.

The current taxation of dividends received by private individuals assimilates non-qualifying shareholding with qualifying shareholding. As such:

• for both non-qualifying shareholdings and qualifying shareholdings, dividends are subject to a withholding tax equal to 26% on 100% of the dividend;
• a taxable base of 58.14% on the amount (therefore an exemption of 41.86%) applies to dividends deriving from partnerships and natural persons who act as sole traders (on the taxable base of the dividend, progressive IRPEF tax rates are applicable); and
• a reduced taxable base of 5% (therefore an exemption of 95%) applies to capital companies.

If the dividend is distributed by a foreign company, in the case of non-qualifying shareholdings, a final tax equal to 26% is due on 100% of the dividend net of the tax paid in the foreign country. Otherwise, in the case of qualifying shareholdings, the 26% tax is due on the amount of the dividend only if it is distributed by a company located in a co-operative jurisdiction.

If the company is located in a tax haven, progressive IRPEF tax rates are applicable on 100% of the dividend, unless it be proven that the company carries on an effective activity in that country. In the latter case, the taxable basis is reduced to 50% of the dividend.

Capital gains

Regarding capital gains, the taxable base is calculated on the difference between the selling price of the asset and its purchase cost, which may include some legal and administrative expenses. The substitutive tax rate due on capital gains is equal to 26%.

The 2018 Italian Budget Law modified the previous regulation on taxation of capital gains deriving from disposal of shares, assimilating the taxation of non-qualifying shareholdings with taxation of qualifying shareholdings and applying the same tax rate of 26%.

However, the previous regulation is still applicable on capital gains realised before 31 December 2018, and therefore:

• capital gains from disposal of qualifying shares are taxed on 58.14% of the amount with a progressive IRPEF tax rate; and
• capital gains from disposal of non-qualifying shares are taxed with the substitutive tax rate of 26%.

Wealth Tax and Tax Monitoring Obligations

Individuals who qualify as tax-resident in Italy must also do the following:

• submit the so-called “RW Form”, which is filed as a part of the Italian tax return and is related to monitoring obligations – with the RW Form, taxpayers who qualify as resident in Italy should declare their assets held abroad, such as real estate, financial investments, bank accounts, precious metals, artwork, luxury automobiles and yachts; and
• pay the Italian wealth tax on real estate and financial assets held abroad (IVIE and IVAFE) – wealth taxes on assets held abroad were introduced in Italy in 2012, and they are payable by resident Italian taxpayers who hold properties and financial assets abroad.

The tax rate for the IVIE is equal to 0.76% of the purchase cost of the property and is calculated in proportion to the percentage of the ownership and to the holding period (the whole year or a few months). The taxpayer is entitled to a credit for wealth tax paid abroad on the properties. The IVAFE is, instead, equal to the fixed amount of EUR34.20 for each account in the case of a cash account or savings account. In the case of financial instruments, this should be calculated in proportion to the value of the financial asset and to the holding period, and is equal to 0.2% of the market value of the financial instruments recorded at the end of each calendar year. In the case of double taxation, it is possible to deduct the wealth tax paid in the country where the financial asset is held. For pension funds, reporting obligations are due, while wealth tax is not.

Inheritance and Gift Tax

In Italy, inheritance tax and gift tax are proportional to the value of the inherited or donated assets, with different tax rates and different no-tax allowances according to the relationship between the deceased and the heirs – more precisely, as follows:

• 4% for the beneficiaries directly related to the deceased or the donor (eg, spouses, ascendants and descendants) with a no-tax allowance equal to EUR1 million of assets transferred to each beneficiary;
• 6% for siblings of the deceased or the donor, with a no-tax allowance equal to EUR100,000 of assets transferred to each beneficiary;
• 8% for beneficiaries not related to the deceased or the donor on the full value of the assets transferred, without tax allowances; and
• a special no-tax allowance of EUR1.5 million is granted to beneficiaries with a severe disability (recognised by Law No 104/1992), and the tax rate is 4%, 6% or 8%, depending on the degree of relationship.

The connecting criteria, which establish when the inheritance or gift tax is due and are provided by Article 2 of Legislative Decree No 346/1990 (which is the domestic law on inheritance and gift tax), are as follows:

• worldwide taxation principle – if the deceased qualified as an Italian tax resident, the inheritance tax is due on the worldwide inherited assets; and
• the territoriality principle (lex rei sitae) – if the deceased qualified as non-tax-resident in Italy at the time of death, the inheritance tax is due only on assets located in Italy.

Some assets (eg, real estate located in Italy or shares in Italian companies) are irrefutably deemed to be located in Italy.

Also, the following transfers are not subject to inheritance and gift tax: child support, education and medical expenses, as well as clothing or wedding expenses, and indemnities due by insurance companies to insurance policies’ beneficiaries/heirs.

Corporate Tax

The standard tax rate for corporation tax (IRES) is currently equal to 24% of the taxable income, while the IRAP (regional tax on productive activities) rate is generally equal to 3.9%, though each region can increase or decrease the standard rate by up to 0.92%.

The taxable base of IRES and IRAP are different. Both are based on profit and loss accounts, though with different adjustments.

Taxation of Trusts

Italy does not have a proper regulation for trusts; however, the institution of the trust has been recognised in Italy through the ratification of the Hague Convention of 1 July 1985.

The tax liability of trusts has been regularised by the Italian tax system, which has included trusts for the first time among the taxable entities provided by Article 73 of the TUIR, (see 3.1 Types of Trusts, Foundations or Similar Entities).

Generally, to define the taxation of a resident taxpayer who qualifies as beneficiary of the income of a trust, it is necessary to analyse the three types of trust regulated by the Italian tax system.

• Trusts where beneficiaries of income have been appointed (so-called transparent trusts) – the trust’s income is attributed to the beneficiaries regardless of its distribution and the beneficiaries are taxed directly on their share of the trust’s income.
• Trusts where beneficiaries of income have not been appointed (so-called opaque trusts) – the trust will be liable to the income taxation.
• Mixed trusts (both transparent and opaque) – the trust deed provides that a part of the trust income be allocated as capital and another part distributed to the beneficiaries. In this case, beneficiaries are liable to taxation only on the income distributed.

The inheritance and gift taxation of trusts has not been a straightforward matter over the years. A key dispute was related to the nature of the tax event when the inheritance or gift tax is due and is effectively caused by a regulatory lacuna.

Finally, in October 2022, the Italian Revenue Agency issued Circular Letter No 34/E/2022 laying down a set of guidelines on the tax treatment of trusts and similar entities for tax purposes. In particular, the new provisions regulate a change of interpretation regarding the moment when inheritance and gift tax is due. Thus, generally, the transfer of assets into the trust will not be subject to inheritance and gift tax, but only to a EUR200 registration tax, plus EUR50 cadastral and mortgage tax each in the case of real estate transfer.

Consequently, inheritance and gift tax, calculated with regard to the degree of the relationship between the settlor and the beneficiary, will be applied upon distribution of the capital to the beneficiaries or earlier in the case of beneficiaries acquiring a vested interest over the trust’s assets. Furthermore, Circular Letter No 34/E/2022 regulates effects of change regarding:

• the new interpretation on existing trusts;
• taxation of income distributions from low-tax trusts;
• tax reporting of foreign financial assets; and
• the treatment of trusts in relation to taxes on foreign financial assets (IVAFE) and real estate (IVIE).

Special Tax Regimes

In order to attract foreign people to Italy, the Italian government recently introduced some special tax regimes aimed at incentivising foreigners to move their tax residence to Italy and, thus, to invest in the country.

Impatriates regime (expat tax breaks)

The impatriates regime provides relevant tax incentives for inbound employees and self-employed individuals who transfer their tax residence to Italy.

The favourable regime was introduced in 2017 and significantly reinforced in 2020. In fact, Italy has worked very hard to keep and improve the special tax regimes so as to entice more people to transfer their tax residency to the country. Thanks to this approach, the last few years have seen an exponential increase in the number of people opting for the special tax regimes.

Under the current version of the regime, a new resident individual will be subject to Italian personal income tax (IRPEF) only for the 30% of their income deriving from activities performed in Italy (eg, 70% of the Italian income will be tax-exempt). A cap of EUR200,000 on tax savings applies to self-employment and business income only.

Also, for individuals moving their tax residence to the southern Italian regions (eg, Abruzzo, Basilicata, Campania, Calabria, Sardinia, Sicily, Puglia), the taxable income is reduced to 10% of the earnings (eg, 90% is tax-exempt in Italy).

The new resident individual can benefit from the above regime provided that they:

• enrol with the Italian Register of the Resident Population and spend the greater part of the tax year in Italy;
• have not been tax-resident in Italy for the previous two years before transferring their tax residence to Italy;
• remain in Italy as a tax resident for the following two years; and
• mainly work or perform their activity in Italy.

The impatriates regime is applicable for a period of five tax years; however, an extension for a further five years with taxable income reduced to 50% is applicable if, alternatively:

• the individual has at least one child; and
• the individual (or their spouse, partner or children) purchases a residential property in Italy.

If the individual has at least three children, the five-year extension will grant a taxable income reduction of 10%.

Also, upon written request, the exemption can be directly applied by the employer, who will apply withholdings on the reduced taxable basis. Alternatively, and for the self-employed, the exemption can be made through the individual annual income tax return.

Professional sportspersons

The impatriates regime also applies to sportspersons, but with the following limitations:

• the duration is limited to five tax periods;
• the taxable basis is 50% and cannot be reduced; and
• a 0.5% additional tax is due on the gross income.

“New resident” tax regime

The 2017 Italian Budget Law introduced a favourable and optional regime for individuals wishing to move their tax residence to Italy. The new tax regime represents a more convenient regime than the ordinary one applicable to Italian resident high net worth individuals, who are normally subject to taxation on their worldwide income.

The tax incentive for the “new resident” consists of the possibility of paying an annual flat tax of EUR100,000 on the foreign-sourced income, irrespective of the nature and amount of the income and of its remittance in Italy. The flat tax absorbs and replaces any tax (income and wealth tax) on non-Italian-sourced income and assets (eg, financial, real estate and working activity income). An anti-avoidance rule is applicable only to gains deriving from sales of significant holdings in foreign companies within the first five years of the exercising of that option. Italian-sourced income is taxable under ordinary rules. Furthermore, individuals (both Italians and foreigners) can opt for the regime if they have been resident outside Italy for tax purposes for nine out of the previous ten calendar years. This regime is applicable for a period of 15 tax years.

It is worth mentioning that non-EU citizens who apply for the “new resident” regime also have the opportunity of benefitting from an easier immigration procedure.

Additionally, individuals applying for the regime can extend it, on a voluntary basis, to some or all family members. In this event, an additional flat tax of EUR25,000 is due for each additional family member opting for the benefit.

To apply for the regime, individuals can file a specific ruling with the Italian tax authorities or, alternatively, the election can be made through the Italian tax return. The ruling can be filed before becoming an Italian tax resident and, although it is not mandatory, it is strongly advisable (tax authorities then provide an answer within 120 days).

If opting for the regime, inheritance and gift taxes on foreign assets will not be due, and the new resident can also cherry-pick countries and assets that they wish to exclude from the flat tax and include them in the Italian tax return instead. These items will be subject to the ordinary Italian rules on tax payments, and foreign tax credits will be applicable.

Tax Incentives for Retirees

The 2019 Italian Budget Law introduced a favourable regime for retired individuals wishing to move their tax residency to the southern regions of Italy. The tax incentive for the retirees regime provides for the application of a substitutive tax of 7% on all income from non-Italian sources. The 7% substitutive tax does not cover Italian sources of income, which will be liable to ordinary progressive tax rates.

Also, individuals moving to Italy qualify for this tax regime if they:

• are entitled to a foreign pension;
• have not been tax-resident in Italy for at least the previous five years; and
• relocate to a municipality (Comune) of a southern region of Italy (eg, Abruzzo, Molise, Campania, Apulia, Calabria, Sicily, Sardinia, Basilicata) that has a population of no more than 20,000 inhabitants.

The regime is applicable for a period of nine tax years and the election must be performed through the individual Italian tax return.

Furthermore, individuals eligible for the regime are exempted from Italian disclosure of foreign assets, and are not subject to the payment of Italian wealth taxes on foreign assets.

Besides the favourable tax regimes recently introduced (see 1.2 Exemptions), good income tax planning is necessary if an individual is tax-resident in Italy or is the beneficiary of Italian-sourced income.

As stated, if an individual qualifies as an Italian tax resident, they are subject to tax on their worldwide-sourced income in Italy, as well as on the income taxed in the country of source. In order to avoid double taxation, Italy has signed tax treaties with many countries against double taxation of income, as well as some treaties against double taxation for inheritance and gift tax purposes.

Therefore, it is necessary to identify when a tax treaty is applicable and which mechanisms are provided by domestic law for avoiding double taxation (eg, the mechanism of tax credit provided by Article 165 of the TUIR).

For the use of trusts or similar entities, it is also necessary to be careful with the taxation of a trust’s income. Since the instrument of the trust has become more common in Italy during recent years, the Italian Revenue Agency is inevitably paying more attention to the correct taxation of the income produced by trusts and of the income distributed to beneficiaries.

Non-resident owners are obliged to pay property tax (IMU) on the property from the date of its registration with the Registry of Italians Living Abroad (AIRE). If the property is not leased, the IMU’s substitution effect on the IRPEF shall occur. This ensures that the owner does not have to pay the IRPEF on the property available. The annual IMU rate is established by each individual municipality annually.

In addition, there is a reduction of 50% of the IMU due on a single housing unit owned in Italy by non-residents in the territory of Italy if they are holders of a foreign pension under an international convention with Italy.

Also, non-residents and non-citizens may decide to set up a trust or a limited liability company in order to make property purchases rather than buy properties as individuals.

Estate planning represents an interesting focus for high net worth individuals, and many aspects need to be considered when there is an investment in real estate, with particular attention being paid to the fiscal effects that will follow the investment. In fact, these effects will be different based on the type of the property and the seller (ie, whether it is a company or an individual who runs a business activity), particularly regarding the VAT regime.

It is worth mentioning that a favourable fiscal regime would apply where a residential property is bought by an individual with the aim of that property being their primary residence. For inheritance and gift tax and immovable properties, the taxable base is the fair market value. However, the Italian Revenue Agency cannot give a value higher than the one declared in the donation deed or in the inheritance tax return, if it is at least equal to the cadastral value of the real estate. Furthermore, the mortgage and cadastral taxes are levied on any transfer of Italian-situs immovable property with a 3% rate, which applies even when the transfer is exempt from inheritance and gift tax.

The Italian tax regime (in relation to inheritance and gift tax at least) is an attractive one, since the tax rates are still very low compared to those in force in other EU states, and the tax-free allowances are notably favourable to the taxpayer.

For the above reasons, in 2015 the Italian legislature drafted a bill which provided an increase of the applicable tax rates in combination with a significant reduction of the no-tax allowances available.

The proposal has not yet been definitively approved by the Italian Parliament, but it is reasonable to assume that a tax reform will be approved in the future.

Furthermore, it is currently a matter of considerable debate whether it would be appropriate to introduce a “wealth tax” on large estates owned by individuals in Italy, though nothing has been implemented yet.

In the past, due to the lack of exchange of information between countries, many Italians moved their assets abroad to escape high taxation in Italy and to hide their taxable income.

For this reason, the Italian government launched a voluntary disclosure programme in 2015 and, in 2017, gave Italian tax residents a final opportunity for regularising assets held abroad, in terms of financial monitoring obligations and income taxation.

Moreover, Italy has implemented both the Foreign Account Tax Compliance Act (FATCA) and the OECD Common Reporting Standard (CRS). Due to the application of the CRS, the Italian Revenue Agency has started to exchange information with other countries, collecting information on Italian residents with assets abroad – in particular:

• the actual residence status of people who moved their tax residence from Italy to another country;
• the accuracy of the data reported in the monitoring obligation form (RW) by the Italian residents; and
• all structures set up virtually only to reduce the tax liability in Italy.

Regarding the recent EU DAC6, Italy enacted Legislative Decree No 100/2020 in July 2020, which contains the criteria based on which, in the presence of certain distinctive elements or hallmarks (and precisely, in the presence of those risky cases referred to in Annex 1, letters A, B, C and E), the cross-border mechanism’s reporting obligations to the Italian Revenue Agency are activated.

The obligation of communication is placed on intermediaries and taxpayers who are considered as having a strong “connection” with the Italian territory.

Additionally, in May 2022, Ministerial Decree No 55/2022 of the Ministry of Economy and Finance became official, which adopts the regulation on reporting, accessing and consulting on data and information about the beneficial ownership of enterprises with legal personality, private legal persons, trusts producing legal effects relevant for tax purposes and legal institutions similar to trusts. The measure represents the key piece in operationalising the functioning of the Beneficial Owner Register considered to be of great importance in the anti-money laundering system. In any case, the Register is still not fully operational: in April 2023, the first of three implementing measures provided for in Decree No 55/2022 was issued so as to provide guidelines on technical specifications of the digital template for the submission of the beneficial owner communication to the Register. The other measures are expected to be issued in the coming months.

Tax Avoidance

The Italian Revenue Agency makes great effort to identify and discourage the development of interposed entities created only to hide assets and produced income. In this sense, Italian law provides for a specific administrative offence called “tax avoidance”, punishable by law.

Tax avoidance includes any legal strategy or interpretation of tax law and its omissions aimed only at reducing tax charges.

Unlike in other European countries, good succession planning is uncommon among entrepreneurs and high net worth individuals in Italy. The reasons for this include the favourable estate taxation conditions, which cause no worries to the deceased regarding the tax consequences of a generational transfer. In addition, forced heirship guarantees that heirs will receive their due quota of the estate without the necessity of opting for a will.

Although Italy is characterised by the high value of an individual’s estate (despite the lower average income), the culture of succession planning has only shown an increase in the last few years.

In recent years, Italy has undoubtedly assisted the emigration of young people due to the general phenomenon of globalisation and the lack of job opportunities in Italy. It is, for instance, always common for high net worth individuals to buy properties abroad for the benefit of their children, so that they may live and work abroad. Moreover, it is common for retirees to move abroad in their later years.

Thus, it is necessary to look at the other jurisdiction’s private succession law when approaching the matter of succession, and most importantly at whether the deceased is tax-resident in another country or whether the assets are abroad.

According to the provisions of Article 21 of EU Regulation No 650/2012, as a general rule, the law applicable to the succession as a whole shall be the law of the state of habitual residence of the deceased at the time of death.

Italian succession law provides for forced heirship rules through Articles 536 et seq of the Italian Civil Code. According to this regulation, forced heirs include the following:

• the surviving spouse;
• the children of the deceased, and if they die before the deceased or do not accept the heritage, the grandchildren shall succeed in the same position as the children; and
• in the absence of children, the ascendants of the deceased shall succeed.

The forced heirship rules provide that the reserved quota of the estate shall be necessarily transferred to the heirs and cannot be freely disposed of. The quota reserved to each forced heir depends on the composition of the family of the deceased upon their death. For instance, if a family is composed of a spouse and two children, the quota reserved to the children is 50% of the estate (25% per child) and the quota reserved to the spouse is 25%. In this case, the remaining 25% of the estate can be freely disposed of.

It is worth underlining that lifetime gifts shall be considered – and must be added to the estate received – in order to calculate the quota reserved to the forced heir, even if at the time of the gift there was no connection with Italy. When the lifetime gifts prejudice the reserved quota of the heirs, they can apply for a “reduction”, which is a remedy provided by Italian civil law aimed at making transfers in excess of the disposable quota partially or totally ineffective (see 5. Wealth Disputes).

Finally, same-sex civil unions were recognised by Italian civil law in 2016. Therefore, same-sex civil couples are now subject to the same succession law and the same tax regime as apply to marriages (see 9.2 Same-Sex Marriage).

Italian law provides for two types of conventional marital property regimes: separation of property and conventional community of property, either of which can be chosen by the parties upon marriage.

The conventional community of property regime provides that, as of the date of marriage, all property belongs to both spouses in equal shares.

The separation of property regime instead provides that, upon marriage, each spouse maintains exclusive ownership and the right to use and administer property acquired before and after the marriage without exception, and shall meet their own debts with their own property.

Prenuptial and Postnuptial Agreements

Prenuptial agreements and postnuptial agreements, unlike in some other jurisdictions, are null and void in Italy because they are not recognised by the Italian jurisdiction. Therefore, even where the parties have entered into a prenuptial agreement, an Italian court would not enforce it. However, in 2019, the Italian Council of Ministers approved a draft of a law relating to the introduction of prenuptial agreements, to allow spouses to regulate their personal and economic relationships, though no further actions have been taken.

Generally speaking, the transfer of a property is a taxable event for personal income tax purposes. The capital gain obtained, which is the difference between the sale cost and the purchase cost, is subject to personal income tax or corporate tax if the property was held by a company. However, capital gains realised upon disposal of properties are not subject to tax in Italy when the property has been held for at least five years prior to disposal or has been used as the owner’s habitual abode.

If the property is received by gift, the five-year holding period is determined in relation to the date on which the immovable property was acquired by the donor. If the property is inherited, the inheritance tax is due by the heir. For the determination of the inheritance tax, the value of properties located in Italy is their market value as of the date of the demise.

However, since it is sometimes difficult to find out the market value, which is quite often higher than the cadastral value, the law provides that if the stated value is at least equal to the cadastral value, no further claims can be raised by the Italian Revenue Agency (Article 34, Chapter 5 of the Italian Code on Successions).

Concerning the effects on the value of an asset that is donated or inherited, a gratuitous transfer of assets, both for donation or succession, does not trigger capital gains tax or exit taxes; therefore, no step-up occurs.

In Italy, there is an exception from the ban on succession agreements, as noted in Article 768 of the Italian Civil Code, regulating the so-called family pact.

Under a family pact, a business or a qualifying participation in a family business company can be transferred, under an agreement shown by a public deed, to the living forced heirs. The pact is valid under the condition whereby the other forced heirs, not receiving the company’s shares, are either granted cash or some other asset by the transferees or renounce, totally or partially, their reserved quota.

Life insurance policies are also widely used in Italy, as they grant more benefits to the policyholder. From an income tax perspective, income is not taxed until the policyholder decides to redeem the policy, and the beneficiary (if the insured person dies) is exempt from the tax on the portion related to the life-risk component.

No specific instrument or provision for the purposes of regulating the succession of digital assets exists in Italy. Consequently, it is recommended to always include such assets (eg, cryptocurrencies) in the will, in order to give specific provisions to the heirs so that they can easily access the fund and handle the inheritance left from the de cuius. In the future, a statement by the legislature on this topic would be helpful.

However, the 2023 Italian Budget Law introduced a special tax regime for cryptocurrencies and other crypto-assets, as well as a capital gains tax on gains from crypto trading.

Firstly, a new definition of “crypto-assets” has been provided: they are considered a digital representation of value or rights that can be transferred and stored electronically using distributed ledger or similar technology.

Also, from a tax point of view, a 26% capital gains tax will be levied on gains derived from crypto trading where the gains exceed EUR2,000 in a tax period. As an incentive to encourage taxpayers to declare the value of their crypto-assets held on 1 January 2023, taxpayers can pay a substitute tax of 14% in lieu of the 26% capital gains tax on the purchase cost. The valuation of crypto-assets is not considered for purposes of the corporate income tax and the tax on productive activities.

It is also worth mentioning that, in June 2023, the Italian Revenue Agency published a draft Circular Letter on tax treatment of crypto-assets so as to receive contributions and suggestions from the public, and to possibly incorporate these suggestions into the final version of the Circular to be issued in the future.

The settlement of trusts has increased in the last few years due to the growing interest in this instrument. Trusts in Italy include the following.

• Purpose trusts and trusts with beneficiaries – when the trust fund is managed to achieve a goal, it is a “purpose trust”. When the trust fund is managed for the interests of one or more beneficiaries, it is a “trust with beneficiaries”.
• Trusts of public interest purpose (charitable trust) – when the purpose of the trust falls within certain categories that have been characterised over time at the jurisprudential level as charitable (the use of this type of trust was less prevalent in Italy than in common law countries, but has become increasingly more prevalent).
• Fixed trusts and discretionary trusts – a trust with beneficiaries is called a fixed trust if the trust deed grants the beneficiaries rights on the income of the trust and on the trust fund. In the discretionary trust, the trustee will identify the beneficiaries, and indicate whether or not to assign benefits and how much should be distributed.
• Protective trusts – these are types of trust that are used if the beneficiary is prevented from having access to their own interests, or by the creditors from executing acts of execution on those assets.
• Self-declared trusts – when the settlor appoints themselves as a trustee. The validity of this type of trust has been the subject of extensive discussion between trust experts and the Italian Supreme Court, but is nowadays listed among the trusts recognised by the Italian jurisdiction.

Use of Trusts in Italy

A wide range of different uses of trust instruments has been developed in Italy. Family trusts are the most common type of trust used, above trusts for disabled people and trusts set up for inheritance planning and for asset protection regarding family needs.

Besides trusts, fiduciary companies are much more common in Italy, given their many advantages and fewer restrictions.

Foundations have also become more common in Italy during recent years. The use of foundations is mainly related to philanthropic and charitable purposes.

Also, Legislative Decree No 117/2017 approved a reform of non-profit entities (ETS), which changed the previous regulation and provided all obligations and tax advantages to all non-profit qualified entities when they qualify as non-commercial. In particular, in November 2021 the Legislative Decree introduced the Single National Register of the Third Sector (RUNTS), which contains the list of newly established and existing entities, as well as the voluntary organisations and social promotion associations. However, the trust is still not included in the entities that can be registered in the RUNTS, since the trust, while having subjectivity from a tax point of view, nevertheless lacks legal subjectivity.

Italy does not have proper trust regulation; however, the institution of the trust has been recognised in Italy through the ratification of the Hague Convention of 1 July 1985. The Convention aimed at harmonising the private international legal rules related to trusts, in order to allow civil law countries to borrow the trust instrument from foreign jurisdictions whose legislation regulates the trust instrument properly.

The Italian Revenue Agency always pays more attention to foreign trusts, analysing whether they have been set up in order to pursue the scope as indicated in the trust deed, or whether they have been created to hide assets from the Italian Revenue Agency or for a tax saving. Thus, great care is taken when a citizen or an Italian resident serves as a fiduciary or is a beneficiary of a foreign trust, foundation or similar entity.

Trusts are considered interposed when the settlor did not intend to dispose of the asset and retains complete control of it, even if it is formally transferred to the trustee. An individual cannot be appointed as trustee and beneficiary of a trust at the same time, though it is possible for the settlor and beneficiary to be the same person (even if this kind of trust is frowned upon by the Italian Revenue Agency).

Black-List Trusts

A Tax Decree issued in October 2019 (Legislative Decree No 124/2019) changed the tax treatment of income generated by opaque foreign black-list trusts received by Italian residents. In particular, while distributions made out of capital will generally continue to be considered non-taxable, any distributions out of income generated by a foreign black-list trust will be taxed in the hands of the Italian residents who receive said income. The new provisions entered into force on 27 October 2019. In summary, distributions of income from trusts established in black-list countries will be subject to tax in the hands of the Italian tax residents who receive said income, disregarding the qualification of the trust as “opaque” or “transparent”.

Furthermore, if it is not possible to establish whether the distribution is made out of income or out of capital, the whole amount will be considered as income. Moreover, with regard to the distinction between the capital and income component of the distribution, Circular Letter No 34/E/2022 clarifies that capital is represented (only) by the initial or subsequent additions by the settlor (or third parties), while income is represented by any proceed realised by the trust, including capitalised income and gains. The (taxable) income needs to be re-determined following Italian tax rules, and both accounting and non-accounting documents (eg, bank or financial statements) can constitute evidence that the trust has distributed capital rather than income.

As a general principle, a trust, when it is created, is irrevocable, although the trust deed can expressly provide for its own revocation.

Except for a few situations in which the revocation of the trust is peacefully accepted, in most cases it appears quite evident that, if the settlor has the power of revocation of a trust, this has direct implications on the typical effects of the trust, since the main purpose of segregation would be jeopardised.

However, it is also true that, during the “life” of the trust, the need or opportunity to diverge (temporarily or permanently) from what was initially agreed upon when the trust was set up can occur.

Asset protection planning is always specifically determined and based on the particular circumstances of the family. In fact, there is no valid solution for every family since many elements need to be considered before giving any recommendation. For example, the key element for family business planning is the essential communication between family members in order to avoid any disruption or fragmentation in the business and to avoid claims between forced heirs.

There is often no elaboration of the will, and the succession then becomes more complex. In fact, family planning is essential, especially for family enterprises that need to elaborate on an efficient plan in order to survive to the next generation. For family asset protection, probably the most popular instrument used is an agreement between the spouses to give properties or other registered assets in a separate family fund for the purpose of satisfying the needs of the family.

The use of the “family pact” represents one of the most popular and efficient solutions for the generational transfer of a family business. In particular, the use of the family pact represents a good solution for the continuity of a company’s governance. The use of this instrument can ensure protection of the business and the satisfaction of the forced heirs. One or more of them will receive the company’s shares, and the others will receive cash or some other assets from the transferees or renounce their reserved quota. After the signing of the agreement, the clauses cannot be changed.

Furthermore, a good tax result is granted by Article 3 paragraph 4 of Legislative Decree No 346/1990, which specifies that, as long as certain conditions are met, the transfer of a company (as well as a unit of a company), its participations or shares, if made in favour of the entrepreneur’s spouse or their descendants, is fully exempt from inheritance and gift tax. Another method used in family planning is “usufruct”. In general terms, usufruct grants the right to enjoy the asset by using and receiving its fruits as if the person holding the right (usufruttuario) were the owner. Therefore, the usufruct holder is obliged to take care of the administration of the asset. This right is not transferable to the heirs.

What is left to the owner is the bare ownership (nuda proprietà). The usufruct right may last no longer than the life of the usufruct holder.

If the full owner donates the bare ownership, it is subject to gift tax; however, the taxable base is lower that it would have been if full ownership had been donated. Upon the death of the usufruct holder, the bare owner becomes the full owner, without paying any inheritance tax.

Another method for asset protection involves setting up a trust. Trusts are very useful for preventing conflicts and other disagreements and, in addition, ensure a unitary management without any disintegration. The trust, in this case, can be regulated by specific rules aimed at ensuring that all the needs of the family members are met and that the trustee will act in the interest of the beneficiaries with the aim of preserving the business and their wills.

The transfer of partial interest in an entity represents a method of transfer of property. Here the Italian legal system provides rules for considering the protection of all the people involved. The business owner obtains capital gains that will be taxed with reference to all the values realised after the operation, according to the TUIR.

Wealth disputes are mainly related to inheritance issues and rights of succession. The problems and conflicts between heirs usually arise because of the lack of succession planning. The co-ownership between the heirs of the assets can only end after division, which may attribute to each heir an exclusive portion of the estate.

Often, in the absence of an agreement or a will, the only way to solve the problem is to pursue an action before a court.

In the case of a disagreement, there are two types of legal actions available to the heirs in order to reduce the part of the estate received by the other heirs or legatees, and to obtain an equal redistribution in compliance with their forced heirship quota.

Since 2013, any legal action against the co-heirs must be preceded by the attempt to solve the issue through compulsory alternative dispute resolution (arbitration), which should reach an agreement in a shorter time.

Italian law provides that the aggrieved parties can generally obtain financial compensation for their loss or for the damage caused by the other party. Many remedies are offered to the parties involved in these kinds of disputes, although the main source of compensation is the reimbursement of the economic loss.

In Italy, fiduciary companies are one of the strongest instruments for wealth planning and for the protection of the personal and fiscal information that the client wants kept confidential. Fiduciary companies are mainly used by banks in order to offer investment solutions aimed at satisfying (constantly and with complete confidentiality) the needs of the client as relate to risks beyond the direct control of financial instruments. The qualifying element of the relationship is strict confidentiality before third parties; this means that protection is guaranteed, and in particular the real identity of the owner of the assets will always be hidden by a bond of confidentiality that cannot be broken – otherwise, the right of compensation for damage can be claimed by the client.

As a professional operator, the fiduciary company is responsible for all the possible losses and damages arising from bad or negligent management of the client’s assets. The liability for the non-fulfilment of the duties declared in the fiduciary agreement follows the Italian rules applicable to the “diligence of the agent”.

A particular type of fiduciary company plays the role of “portfolio manager” through a kind of fiduciary agreement regulated under Italian law. This kind of agreement is aimed at increasing the value of the client’s financial assets. At the same time, the fiduciary is required to transfer to the client the assets invested. The main characteristic of this form of management is operating dynamically to obtain profits from the investment.

Modern portfolio theory is based on the diversification of the investments made by the agent. To avoid high risks for the investor, it is always recommended to invest in different kinds of assets. According to this theory, the characteristic of security investment is based on the correlation among security returns.

The fiduciary agent should try to build a portfolio of investments based on the optimisation and minimisation of market risk through a reasonable selection of investments (or asset allocation). Of course, the selected combination strictly depends on the purposes that the client wishes to achieve, and the financial activity will be organised based on those wishes. Fiduciary companies hold the client’s assets, but these remain separate from their own assets. The activities of a fiduciary company include making investments through the sale or acquisition of movable and immovable assets.

Obtaining Italian citizenship is automatic in some circumstances:

• by birth, if at least one of the parents is an Italian citizen or if the parents are unknown or stateless;
• through adoption by Italian parents, if the child is a foreign minor; or
• by a judge’s decision that stipulates a parent-child relationship.

In any case, upon their birth it is always mandatory to declare a child’s personal details in the civil register of the municipality of their residence. Also, in Italy, there is no application of the right of jus soli. Italian citizenship is also given, if requested, by marriage to an Italian citizen, after two years from the date of the marriage if the married couple live in Italy, or after three years if they live abroad.

“Residence”, according to the Italian Civil Code, is deemed to be the place of habitual abode, while “domicile” is the place where the individual establishes their centre of vital economic interests. Also, in general, to obtain Italian residency, a person has to be enrolled in the Register of the Resident Population (AIRE).

In some cases, a person may obtain Italian citizenship by a decree of the President of the Italian Republic – ie, when a foreigner is recognised as having performed “eminent services to Italy” or when there is “an exceptional interest for the State”. In any case, this represents a special procedure and is not common.

The Italian legislature introduced Law No 112/2016 with the aim of facilitating disbursements from private individuals, the subscription of insurance policies and the institution of trusts, and other juridical instruments regarding life-time assistance for people with a severe disability, which results in the need for continual and global assistance.

In particular, trusts permit the transfer of the settlor’s assets into a fund, in order for them to be used to ensure long-lasting health assistance to the beneficiary (ie, the person with the disability). In fact, the trust will end when the beneficiary dies. During the existence of the trust, the roles of the trustee and of the guardian will be crucial: they will always have to act for the beneficiary in accordance with their needs, and to realise the best life possible for the beneficiary. In any case, some de residuo beneficiaries can be nominated in the constitution of the trust by the settlor.

The law provides for the possibility of nominating, through a judicial decree, a legal guardian for children or for people with a specific level of disability (elderly people, etc). The role of this guardian/tutor must result from a written document duly signed and dated by a judge. Guardians can be also chosen in the will of a parent. This guardian takes care of the individual’s education, is responsible for the personal and financial representation of the individual in the case of need, and must report their activities to the judge who made the decree.

Law 104/1992 is aimed at providing assistance, social integration and other rights to people with serious illnesses. The recipients are disabled people (and their families). There are special provisions for these “caregivers”, in order to ensure their rights to assist people with illness.

Specific tax deductions are provided for the caregivers of relatives who are at least 80: in this case, a deduction of 19% from the costs incurred for health assistance (until a maximum of EUR10,000 spent in total) is guaranteed.

Also, the Italian Budget Law 2022 introduced a new benefit, valid only for expenses incurred in 2022, for the implementation of interventions aimed at overcoming and eliminating architectural barriers in existing buildings. It consists of a tax deduction of 75% of documented expenses incurred in the period between 1 January and 31 December 2022. The deduction is calculated on a total amount not exceeding specific amounts.

The Superbonus 110 is also in force, which provides a tax deduction of 110% for structural changes to the houses and buildings where elderly people live to help them to be self-sufficient (eg, installation of ramps or elevators).

All these provisions must be confirmed by an official certificate that declares the level, and the gravity, of the illness or the handicap of the patient; otherwise, the aforementioned special rules cannot be applied.

Since 2012, children born out of wedlock and adopted children are recognised as forced heirs by law. There is no discrimination between them and the other heirs, as they have the exact same rights. Italian jurisdiction does not permit surrogate pregnancy arrangements.

Since 2016, Italy has recognised civil partnerships between two people of the same sex.

According to this union, the couple can benefit from most of the rights applicable to a heterosexual married couple (eg, the inheritance and gift rules, and other rights). The major difference between the two legal institutions is that there is no recognition of step-child adoption for civil partnerships, meaning that one partner cannot adopt the child of their partner.

In addition to these provisions, since January 2019, in the case of marriage between two people from different EU countries, the couple may choose the law applicable to the marriage.

Philanthropy represents a good opportunity to invest money, and new forms of community charities have recently emerged.

Italian tax law provides that if a donor is an Italian tax resident and the gift is made in favour of non-profit entities, they can benefit from a deduction of 30% on the costs incurred by the taxpayer (or of 35% if the gift is made in favour of a volunteer organisation – a particular type of entity that includes recognised and non-recognised associations) up to a maximum donation of EUR30,000 for each tax year.

Alternatively, donations made by cash or in-kind contributions are deductible for individual, philanthropic entities and business enterprises for up to 10% of total declared income. In addition, inheritance and gift tax is not due on donations to “non-profit entities”. Generally, the tax law of an EU member state does not permit the deductibility of donations made to charities not based in the same member state as the donor; however, in 2009 the EU Court of Justice (see C318/07 Hein Persche v Finanzamt Lüdenscheid) recognised the principle of free movement (Article 56 of the Treaty on the Functioning of the European Union) and affirmed that, in such cases, the donor should benefit from the same tax law as applies in the state of the non-profit organisation.

The reform on “non-profit entities”, first introduced in 2016, aims to build an organic discipline in this field.

The introduction of the Single National Register of the Third Sector (RUNTS) in late 2021 represents another key step, and others are expected to be introduced by the legislature in the near future.

In order to satisfy the needs of the donors, many instruments can be used for charitable planning, such as charitable trusts and private foundations.

Such type of trust represents a good instrument for devolving all the assets to a specific cause, as previously mentioned in the trust deed. By placing assets into this structure, many fiscal advantages are ensured.

Private foundations are usually founded by high net worth individuals and their families, and they have a deep social impact on the community. The foundation is set up through a public deed or through a will that gives wealth to the pursuit of a specific aim. In Italy, there are operating and grant-making foundations, depending on how the gifts are managed. Foundations can have shareholdings, though this cannot represent the main activity pursued by the foundation. The family foundation is also an excellent method for managing family wealth, potentially without being bound by time restrictions.

Of course, both charitable trusts and private foundations are often aimed at providing concrete help to many local and weak sectors of society.