How the Flat Tax works
The Flat Tax can be defined as the substitute tax of the IRPEF one, on income produced abroad, applied to individuals who transfer their tax residence to Italy. It is established on a flat-rate basis, with a fixed rate, for each period of effectiveness of the scheme: for the single option it is € 100,000, while for family members, it is € 25,000.
The purpose of this tax model is to encourage the owners of large assets and income from foreign sources to move their tax residence to Italy.
The subsidized tax regime
The Stability Law n. 232 of 2016, introduced a particularly facilitated tax regime, regulated by paragraph 152 of art. 1, which establishes that: “Individuals who transfer their residence to Italy pursuant to article 2, paragraph 2, may opt for the substitution tax, referred to in paragraph 2 of this article, of their income products abroad identified according to the criteria referred to in Article 165, paragraph 2, provided that they have not been fiscally resident in Italy, pursuant to Article 2, paragraph 2, for at least nine tax periods during the ten preceding the start of the option’s validity period “.
The clear objective underlying the law is to encourage investments, consumption and the rooting of families and individuals with high potential (income or assets) who want to establish themselves in Italy on a lasting basis.
You can access the option, if the following requirements are provided:
- Transfer of tax residence pursuant to Article 2, paragraph 2, of Presidential Decree no. 917/86;
- The beneficiaries of the option must not have resided in Italy for a time equal to nine tax periods during the ten preceding the beginning of the validity period of the option itself.
If these two requirements are met, the subjects will be considered as “newly domiciled” in Italy, and the subsidized tax regime may therefore be applied.
However, this regime has a limited duration: the effects cease to exist fifteen years after the first tax period of validity of the option.
At the end of the period of operation (which can in any case always be subject to revocation), the subject and his family members lose the advantages and remain subject to the ordinary rules on income taxes.
The right of option: how to exercise it
With the provision n. 47060 of 8 March 2017, the Revenue Agency has issued the instructions necessary for exercising the Flat Tax option: this is completed with a declaration contained in the tax return referring to the tax period in which the individual has transferred residence in Italy, or the tax period subsequent to that in which the natural person has transferred his residence to Italy. This declaration does not imply the obligation to submit an application for an interpello which, in this case, is only optional (the interpello is a request that the taxpayer addresses to the Revenue Agency before implementing a tax-relevant behavior, e.d.).
In any case, the option can be exercised even if, despite having submitted an application for an interpello, the response from the Revenue Agency has not yet been received, which, by law, is obliged to provide feedback within one hundred and twenty days subsequent to the submission of the application. In the meantime, however, the Inland Revenue could also request additional documentation, with a related postponement of the deadline for responding; hence an important precaution: it would be advisable to submit the interpello within an adequate timeframe, considering that the option can be carried out by 30 September of the year following the tax period for which the residence was transferred and the Flat Tax.
More specifically, in this case it would be a so-called “interepello prbatorio” (evidential ruling, e.d.): it allows the taxpayer to ask the Revenue Agency for an opinion regarding the existence of the conditions or the suitability of the evidence required by law to access precisely said tax regime. On the basis of the foregoing, a specific check list must be attached to the application, to be completed in all its parts, and to be accompanied by the relevant supporting documentation, certifying the existence of the requirements of the legislation.
The check list helps to verify the existence of the elements necessary for access to the regime and can also be used for self-assessment by the taxpayer himself.
As for the methods of submitting the request for ruling to the Central Management of the Revenue Agency, this may take place, as required by Legislative Decree no. 156/2015 by:
- hand delivery;
- shipment by registered mail with acknowledgment of receipt;
- electronic submission through the use of the PEC box, to the box: firstname.lastname@example.org ;
- for non-residents without domicile in the territory of the State, the request for an interpello can be sent to the ordinary e-mail address email@example.com .
The application must be signed with a handwritten signature, or, in cases where the document is sent via certified e-mail, with a digital signature or attaching an unauthenticated photocopy of the identity document of the subscriber.
The Proof of the Tax Residence
As anticipated, the taxpayer must attach to the request forinterpello, where he deems it necessary, appropriate supporting documentation for the verification of the conditions for access to the regime; if they exist, the taxpayer must indicate the elements of connection with the territory of the Italian state that can be independently detected by the Revenue Agency through the information system of the Tax Registry; conversely, if this documentation is in the possession of another Italian administration, the taxpayer will indicate it in the request for interpello.
What the Inland Revenue will actually verify, for the purposes of accessing the tax relief in question, is the absence or otherwise of the taxpayer’s vital center of interests in Italy, both with reference to emotional and personal ties, and with reference to economic interests.
Hypothesis of forfeiture from the facilitated flat-rate tax regime
However, there are cases of forfeiture which, as for the revocation, preclude the exercise of a new option:
- omitted or partial payment of the substitute tax by the due date for the payment of the balance of income taxes, with effect from the period for which the payment was to be made;
- transfer of tax residence to another state or territory, with effect from the tax period in which the residence in Italy is lost for tax purposes.
The termination of the effects, the revocation of the option and the forfeiture of the regime of the person exercising the option, entail the termination of the effects of the option also with respect to the family members to whom it is extended.