Italy As An Offshore Tax Haven?

Is Italy an Offshore Tax Haven?

This article is a basic guide to the tax rules in Italy.

We look at whether the concept of Italy Offshore exists and how one can limit their taxation burden in Italy.

Does ‘Italy Offshore’ exist?

Well, unfortunately tax rules in Italy are tight and all encompassing!

If you are resident in Italy then you are taxable on your world-wide income and gains and subject to inheritance and gift taxes as well.

You will be deemed tax resident if you are in the country for more than 183 days in a given tax year or if Italy is the centre of your business or economic interests.

A company is deemed resident if they have their legal address, administrative headquarters or their principal operational base in Italy.

If you are an Italian resident then tax will be due on your world-wide earned and investment income and on any capital gains you make.  If you are not an Italian resident for taxation purposes, you will be liable to Italian tax on income or capital gains where they result from Italy.

There are certain types of capital gain which remain free from capital gains tax for non-residents - these would be gains made from ‘non-qualified’ holdings in securities - but this doesn’t constitute Italy offshore in the true offshore tax haven jurisdiction sense.

If you are thinking about moving to Italy or are already a resident there for taxation purposes, it may very well be worthwhile speaking to an offshore investment or taxation specialist to find out whether or not you can limit your tax burden. 

Can an Italian escape Italy’s taxation?

If an Italian resident wishes to establish non-residence and satisfy the taxation authorities that he is no longer liable for Italian taxation, he has to prove that he has established residence in another high-tax jurisdiction!  There is a provision in Italian law which presumes an individual is still an Italian resident if the said resident moves to a ‘low-tax’ jurisdiction - ‘unless it can be proved otherwise’ - which it generally can’t be!  How unfair! So Italy is not an offshore tax haven, but what about the reduction of Italian tax burden?

Success in moving from Italy, offshore, to a tax haven or low-tax jurisdiction and freeing yourself from the shackles of Italian taxation will generally require a complete separation from any Italian property and business assets.

There is some good news though - anti-avoidance legislation has not progressed far in Italy, therefore any holdings in offshore or foreign assets created during residence will probably ‘only’ suffer an income taxation burden.

Clearly then, it may be wise to switch income-generating assets into capital appreciation assets where possible.  Or to ensure that gains are not made during the period of Italian residence - as these gains will incur capital gains tax.

If Italian residence is then successfully discarded, the gains created from such assets will escape Italian taxation.

If an Italian resident definitely decides to move offshore from Italy then careful planning should go into the treatment of existing Italian capital assets - including pension assets.

• Will it be possible to move them from Italy offshore to a tax haven without incurring a capital gains taxation liability?
• If not, would it make sense to move them offshore from Italy to a tax haven early and pay the tax liability generated at that time anyway?

Obviously these are just sample questions, and their very complexity makes it clear that any answers will depend on individual circumstances.

But simply put, if an Italian resident wishes to move offshore to a tax haven and lose his Italian residency there are some interesting tax planning possibilities.

Italy and Offshore Trusts

As Italian law recognises the validity of trusts, Italy offshore trusts can be a useful planning tool in many situations - whether for asset protection, inheritance tax avoidance or for tax reduction purposes.

An Italian resident planning departure from Italy can use trusts to establish offshore investments in a protected and tax-free environment while residence continues.

Then when Italian residence has been dropped, the ‘ex-Italian’ can continue to invest offshore in a tax haven to get the chance of best returns on his investments.

Further Offshore Tax Havens Articles

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