Welcome to Taxbytes for Expats, the top tax tips you

want to know as an expat. The podcast is here to help

answer the common queries and concerns expats have when moving to

or from Ireland. Complex taxes explained

simply. We'll focus on the Irish and international

tax issues to be aware of to ensure you save time,

money and stress. Hi everyone.

Welcome to today's episode of Tax Bites for Expats.

We are joined by Mario Tenora.

Mario is an Italian tax specialist. He

specializes in individual taxation and he particularly

focuses on high net worth individuals, family wealth

management, succession planning and tax matters that come

up for individuals in the sports industry. He has an interesting career

history and has provided advisory services to sports clubs,

professional athletes, footballers, race car drivers and

everyone in the middle on tax issues related to international

transfers, sponsorship agreements and image rights. He has

particular interest in the flat rate tax regime in Italy. He's going to speak to

us about that today and he also has a lot of experience in international

tax generally double tax treaties and EU tax

law. You've a very illustrious career history

Mario. Thank you so much for joining us and to speak with us

today. We're really glad to have you. Thank you for inviting me.

Pleasure. I don't think that my intro really did you justice.

Tell us a little bit more about your background and particularly how

you came to work in tax. Well,

originally an academic, I completed my

PhD study in Italy and

after a period in academia I switched into

private practice and I'm focusing

on private clients, high net worth

individuals, sports people and entertainers. It's

quite fascinating today because Italy is a

very attractive jurisdiction. Contrary to

the common perception of the Italian state,

Italy offers nowadays a number of

DAX regimes that are favorable

for individuals and are aimed at

attracting foreign individuals into into

Italy. So as a matter of fact, because of the

boost of the tax system, we are

experiencing more and more individuals,

high net worth individuals, engineers

who are moving the residents into Italy

from foreign jurisdictions, including also

Ireland and particularly the UK

after the repeal of the UK RESNA

that recently occurred. We are pretty

active in helping people to

relocate into Italy. We

offer as a matter of fact tax advisory

services, but we also help out

people on ancillary matters that some sometimes,

as you know, when you settle into in huge jurisdictions are

rather important. So we try to make the

relocation into Italy as smoother as

possible. Such an important thing for people to do when they decide

they'd like a lifestyle in a beautiful country like Italy is to

consider the opportunities and I suppose the pitfalls that might come from

it. From a tax perspective, Talk me through high

level what tax residency means

from a Italian tax perspective. When do the majority of your

clients have to start thinking about being within the Italian tax

net? Well, in Italy, the rules have been recently

amended. We have four

criteria to assess the

residency of natural persons. Contrary to

the uk, for example, we do not have a split

tier system. So in Italy, a person

who satisfies either of the four

criteria or most part of the

tax period is considered Italian resident

for the full tax period, which means from 1st

January to 31st December of the year

concerned. The four criteria are

respectively the registration with the local

municipality, which is an administrative obligation

for a person living on the Italian territory

exceeding a certain amount of days. Alternatively,

the habitual abode on the Italian

territory is also considered a valid criterion

to assess the residence of an individual.

Or third criterion, the domicile of the person

that in Italy is declined as

the center of personal and family

interest of the person. As such, last but not

least this year, last year, sorry, the Italian

legislator introduced also the fourth

criterion, which is physical presence. So if

the individual is physically present on the Italian territory

for a period exceeding 183 days, the

individual is considered Italian tax residence

despite of any intention, a

contrary intention, to be physically present. In Italy,

the individual is considered tax resident. As I

said, what is important is that in Italy we do not have a split tier

system. So if a person arrives in the first

parts of the year, for example in March or April,

the person is taking up Italian

tax residence for the full tax period, which means

from the 1st of January, so period prior

to the move

into Italy, that person is nonetheless considered

Italian tax resident and taxed in Italy on

the worldwide income and

also on assets located abroad.

So take for example, somebody relocates, using

what you said there, from Ireland to Italy in April, and they

remain in Italy from April to the end of the year, under which of

the criteria that you listed are they going to become tax

resident? Is it? You meet one test, you're satisfied?

Do you have to check all four criteria to be

confident? What would be the determining factor there? The

criteria are alternative, so it's sufficient that only

one of them is satisfied for the person to qualify

as Italian tax resident, in this case, I repeat,

from the 1st of January of that year until the

31st of December 2022. And habitual

residence, practically speaking, does that extend to include a holiday

home? Well, holiday home, not really,

because an habitual boat means that the person

should be habitually present at a

specific place on the Italian territory

habitually means that he should show,

in addition to the actual stay at that place, also the

intention to live at that place on

a rather continuous basis, although it's not

required according to this

criterion, a continuous presence. So the person

may be present there on an intermittent basis, if we

may say so. So to come to your

question, having an holiday home in Italy where the person is only

present for a specific period of

the years, during the summertime or in

limited amount of time over the year, would not

qualify as a habitual abode according to this

criteria. Is this a self assessment system? So for

anybody listening to this who perhaps has holidayed in

Italy, is considering spending a longer period of time, at what

point do they notify the Italian authorities that they have become a tax

resident or are they required to do so? Well, there is

no tax notification from the

taxpayer to the Italian tax authorities. The

taxpayer, as I said, is

obliged to register with the local

municipality at a certain point if

the stay in Italy exceeds a certain amount of time over

the year, but is not due to notify to the

Italian tax authorities that the person is

taking up Italian taxes. Clearly, as you said, it's a

self assessment exercise. So if

the person considers himself or herself

Italian tax resident, that person should be aware

of the tax filing obligations that normally

take place the year after the year of arrival.

So let's say a person that arrives in

January this year will file the first Italian tax

return in likely November next

year. Of course, the date of submission may

change. So that's only, let's say, a general

prediction. Interestingly, taxes in Italy

are paid before the filing of the Italian tax

return, generally in June. And

we have also advanced payments that may be

due during the year. As I said again, there

is no need to notify to the Italian

tax authorities the taking up of the Italian tax residency. It's a self

assessment exercise. So I think the interesting thing about self

assessment is the words from the interest

perspective infer that you can self assess. That's a bit

misleading because sometimes it makes people think that it's easy to do it themselves.

From an Irish perspective, I would generally say to Clyde that our self assessment

system as it applies to income taxes is actually little bit more complicated

than it might initially look. And you know, it's routine. The clients,

when they try to do a diy, particularly in a complicated international

situation, get things wrong. That's completely understandable. This is

complex. How easy is it for people to navigate this

themselves? And if it's not when do you want to hear from them if

they are making a move or have made a move and have an Italian tax

bill to consider? It's a very good question

actually. I think it's even important

to have first contact with the client

before the year in which the client

takes up Italian tax residence. Because what

I call the pre relocation planning may

be fundamental to avoid adverse

consequences in the year of the relocation

and particularly in the year in which the Italian, sorry,

the taxpayer is considered tax residence as

a first tax period. So it's

recommendable to have a contact with the

client before to

possibly do some planning to optimize

the tax position in view of the

acquisition of the Italian tax register. Generally speaking,

it always happens that a person comes to

me when he or she is already in Italy.

And so then it's a matter of

conducting the self assessment. We spoke before

to understand how to consider that person for the

specific touch period concerned. Okay,

that's really helpful, thank you. So what I

take from that is to summarise what we've said so far is residency. There's a

few tests. If you meet one, you're a

resident and you also are resident from the start of that year. So that is

a reason at the very start of the discussion to contact an

advisor before you become resident so you can plan for that. And then the second

point to take is, you know, it's a self assessment system. That doesn't mean it's

simple and you'd like to hear from clients ideally as soon as

possible because they may need help navigating it. In terms

of the good news then, because that's all a little bit about, you know, liability.

And I suppose the kind of thrust of this discussion is going to be around

the flat right rate tax regime. Tell somebody who knows nothing

about taxes initially how the flat rate tax regime works and then

maybe we might talk about, you know, the cohorts of people that we see

benefiting from it most. Based on your experience. Well, in

Italy we have two special tax regimes

for foreigners relocating into Italy. We actually have a

third one as well for inward

expatriates. The two regimes

respectively, the flat tax regime and

the tax regime for foreign pensioners

relocating it. The flat tax regime is a regime

introduced in 2017. So it's been there

already for a while. Recently

the government amended the regime

and actually increased the flat tax

from €100,000 to €200,000.

How does this regime work? It's a

regime that is particularly favorable

for high net worth individuals and

particularly Passive income earners.

According to such a regime, the

foreign income of the

taxpayer is not subject to

personal income tax, but foreign income

is actually benefiting of the flat

tax. Today, the flat tax, as I said, is equal to

€200,000, and the flat tax

absorbs personal income tax. So in

lieu of the personal income tax otherwise applicable at

progressive rates, the taxpayer is only

liable to pay the flat tax in the amount of

€200,000. And the flat tax is flat.

So whatever amount the foreign income

is, the taxpayer will ultimately pay to the

Italian revenue the amount of €200,000,

which is an annual amount. One question

I would have is at a high level, when is

that advantageous? So my point is, how much income do you

need to have to benefit from that flat tax rate as opposed to the

progressive rates that would otherwise apply? Well, that's

also a good question. It's however,

a question to which I would reply

in saying it depends, because often

does. In addition to the tax

benefit, from the point of view of personal

income tax, the regime also

entails other benefits in terms of,

in terms of tax liability. For example,

the regime excludes from the application

of inheritance and gift tax foreign

assets, so assets located outside the

Italian territory. So it depends on the

ultimate objective of the person that

is looking at the flat tax regime. Because clearly,

if, if the benefit is solely a personal income

tax benefit, then roughly

speaking, a person that has an income

of €600,000 might be

probably interested in the flat tax regime. Generally

speaking, however, the target of persons

interesting in the tax in the flat tax

regime do have much higher income

streams and much, much and

generally big, big wealth.

So. But as I said, the regime may also be

attractive for those who want to come to Italy toward the

ends of, you know, their life, because also,

in case of death, the flat tax regime would avoid

the application of inheritance tax

on the foreign assets. That's also, I think, a

major advantage that this regime is entailing.

The duration of the regime I've not mentioned is 15 years.

That's also an important point in the planning.

Okay, that's really interesting. So is that

the only regime that attracts people to move to

Italy, the flat tax regime? Is there other regimes that perhaps

our listeners might be even at a high level, interested in?

No, it's not the only regime, as I said.

So in addition to the flat tax regime, we have also

a regime for foreign pensioners relocating into

Italy. So those who are foreign residents

and who do have pension income may relocate

into Italy and opt for the application of

such regime that, contrary to the

flat tax regime, entails still a substitute

tax, which however, is not flat,

but is equal to 7% of

the income, including the pension and

other foreign income. So

it's a different regime that is meant to attract

pensioners, particularly in the area of the south

of Italy and in the small

municipalities with the number of

inhabitants not exceeding

20,000 inhabitants. It's a

regime that entails different conditions. For

example, in the case of the flat tax regime, to

apply for the regime you must qualify as a foreign

resident in at least nine of the past 10 tax

periods. With respect to the regime for

pensioners, period of observation is

shorter, is five tax periods. And also the

duration is different because while the flat tax regime

has a maximum duration of 15 years, in the

case of the pensioner tax regime, the duration is

nine years. Well, when you say tax periods, what do you mean? Do you

mean tax year? Tax period in Italy coincides

with the calendar year. Okay, so

tax periods goes from the 1st of January to the

31st of December. Okay, that's really interesting.

So I suppose the pensioner regime is in

addition to the flat tax regime and is probably more

attractive to somebody who doesn't, who isn't necessarily in

receipt of income that is, I suppose,

substantial. Yeah, I mean, and the definition of that can

vary. But you know, somebody who maybe is drawing on an

occupational pension, a social insurance

pension, you know, is there differences or

difficulties around what qualifies as a pension under the

terms of the domestic legislation for the pensioner

regime? No, of course, an analysis should

be conducted on, on the type of pension

the person receives. As I said, one of the

requirements of the regime is that the person receives pension

income and whether specific income

qualifies as pension income should be assessed according to

the criteria elucidated by the Italian

tax authorities in a number of tax rulings

indicating when an income qualifies to be

considered pension income. So this is an important

element of the preliminary

assessment. So on top of the

assessment of the foreign residency with respect

to the pensioner tax regime, an important

element to be assessed is also the type of

pension income that the person receives.

They have to consider that. What advice do you give

to somebody who is considering Italy as a

place to relocate to? What are the things or

issues or mistakes you see people making and what advice would you give

somebody who's planning to make a move? Well,

of course, as I said, the pre

relocation planning is very important

irrespective of the flat tax regime. In particular,

there is a possibility for the taxpayer

to obtain Through a preliminary

ruling procedure, confirmation by the

Italian tax authorities about the eligibility

for the flat tax. So we always

recommend our clients to

pass through the rolling

procedure in order to obtain confirmation of

their eligibility to the regime. And

interestingly, in the ruling, the taxpayer has

the possibility to obtain confirmation

of the foreign source of the income.

Remember, the regime is only meant to cover

foreign income, so the definition of source is

fundamental for the application of the regime.

And in addition, I have not mentioned

earlier, through the ruling procedure, the taxpayer has

also the possibility to avoid adverse

tax consequences in case the taxpayer is

considering to sell qualified

shareholding. So a substantial shareholding,

meaning for example for non listed entity, a

shareholding higher than 25% of the capital

or shareholding that entitles the taxpayer to

exercise more than 20% the voting rights.

So according to the rules of the flat tax regime,

this sale of the substantial shareholding and

the capital gain arising therefrom

is not covered by the regime in the first

five years of tax residence. But through the ruling

application, the taxpayer may obtain this application

of this rule that has a clear anti avoidance

function. With respect to the pensioner income,

there is no specific ruling procedure

that the taxpayer can activate in advance.

However, the ruling could be considered in cases

where the qualification of the foreign income, whether the

foreign income qualifies as a pension or not, is not as

straightforward. So in that case we recommend

to go through the ruling procedure to obtain

clarity on the nature of the income.

As I said, the fundamental requirement is that the foreign

income qualifies as a pension according to the Italian

standards. That's really helpful, I suppose a few

non tax kind of housekeeping questions. And I

completely appreciate this may not be your area of expertise in working

with the clients that you support, particularly those who might be moving for the

pensioner regime. How difficult is it for a non Italian

citizen or resident to purchase a property in Italy? Is the

process a complicated one? No, it's not

definitely a complicated one. It's a process

that can be easily handled for

EU citizens in particular.

So it's a process we are of course

quite familiar with and we are able to

also assist our clients, our firmness,

tax and also legal

departments. So we often assist in this case

foreigners in the purchase of Italian real estates.

So for EU citizens is definitely

not. Not the complex, not the complex.

In some cases we have experienced

issues in obtaining mortgages from Italian

banks when a person moves from a foreign country,

clearly with all the wealth located outside of Italy.

But this is also, let's say, a surmountable

issue that in many cases can easily be

all account. Okay, yeah, the practical issues

warrant consideration does as well as the tax benefits.

Mario, I suspect people listening to this and anyone who might be dreaming

of a retirement or relocation to sunnier

climates will have more questions whether they're in receipt

of passive income or pensioner income. How can

people contact you if they want to discuss their

possibility of a relocation? They can reach me

on my LinkedIn page or on my

email. Professional email is Mario

Tenorestudiopirola.com

I'll be happy to respond to

questions of those who might be interested to relocate

to a country that is a sunny one,

not in all the regions, but in many regions.

A sandy country with lots of history,

lots of architectural beauties, and

definitely a great quality of life. I

agree, I agree. And for any of our clients who we've worked with

who've made a move, generally it tends to be one that they very

happy about. So getting the tax piece in order is

definitely wise. Thank you so much Mario for taking the time

to speak with us. I think we covered a lot. Again, you know, I think

anybody making a move always benefits from bespoke tax advice, but this

has been really useful as giving an overview of the issues and I'm sure many

people will reach out to you. Your email will be in the show Notes thank

you so much for taking the time to join us today. It's been a great,

great pleasure and again, many thanks to you for inviting me.

Stefan. Thanks for listening

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circumstances before acting or refraining from action in

connection with the matters dealt with in this series. The material in

this podcast is intended to give general guidance only.