16 July, 2024

The Elimination of the Non-Dom Tax Regime in the UK: A Potential Opportunity for Italy to Increase Indirect Taxation

In recent decades, the “Res Non Dom” tax regime, short for “Resident Non-Domiciled,” has been one of the main attractions for high-net-worth individuals to settle in the United Kingdom. This tax regime allows residents who have their permanent domicile elsewhere to pay taxes only on income earned or declared in the UK. This means that income generated abroad, including from real estate investments, is not taxed in the country of residence unless transferred and/or declared there (e.g., by moving it to a UK bank account).

Undoubtedly, this tax policy has attracted numerous investors, entrepreneurs, and professionals, making London one of the global capitals for business and finance. However, recent news about the intention to abolish this privileged regime could represent a significant opportunity to make Italy more competitive on the international stage by attracting entrepreneurs, skilled workers, and high-net-worth individuals “fleeing” from the UK.

Favorable Tax Regimes in Italy

The “Res Non Dom” tax regime is not directly applicable in Italy as it is known in the UK. However, the 2017 Budget Law introduced several measures aimed at increasing the attractiveness of our country for international flows of human and financial capital. This legislative framework offers a series of tax incentives, including a regime similar to the British one – known as the “new residents” regime under Article 24-bis of the TUIR – aimed at attracting foreign investments to Italy.

Individuals who wish to choose this regime – whose option exercise is subject to obtaining a response from the competent Revenue Agency – can benefit from:

• A fixed substitute tax on income produced abroad of only €100,000 per year, to be paid by June 30 of each year, regardless of the amount of income generated abroad. This means that for high incomes, the Italian tax could be significantly lower than the ordinary one.
• An extension of the favorable tax regime to family members, who can benefit from a substitute tax of €25,000 each. This can increase the attractiveness of relocating entire families.
• A considerable duration of the tax benefit, which is actually applicable for a period of 15 years, except for automatic termination in case of omitted or partial payment of the substitute tax, providing significant tax certainty for long-term investments, including those in the real estate sector.

For the reasons outlined above, the announcement of the elimination of the “Res Non Dom” regime in the United Kingdom could represent an excellent opportunity for Italy to offer a competitive solution on the international stage. Given that many beneficiaries of this tax relief are considering relocating elsewhere to maintain their fiscal advantages, Italy has the potential to attract these high-net-worth individuals.

Opportunities for the Italian Real Estate Market

The potential impacts for Italy from the elimination of the “Res Non Dom” tax regime in the UK are not limited to new tax revenues but also involve investment opportunities in the real estate sector. Indeed, high-income new residents who wish to purchase real estate in Italy can benefit from tax incentives, especially if the property is purchased as a primary residence (“prima casa” benefit).

For example, new residents purchasing a primary residence can benefit from (i) a reduction of the registration tax rate to 2%, under certain conditions; (ii) exemption from mortgage and cadastral taxes, reduced to a fixed rate of €50 each.

With the increasing demand from foreigners choosing Italy as their new tax residence, the real estate sector, with its vast offering of properties, from historic villas in the Tuscan countryside to luxury apartments in urban centers and metropolitan cities, is poised to prosper.

Conclusion

The elimination of the Non-Dom regime in the UK could be a great opportunity for Italy to position itself as a competitive choice in the international tax landscape for “resident non-domiciled” individuals who do not want to give up their tax advantages. Additionally, it offers Italy a chance to benefit from the influx of new capital and investments that can help revitalize the real estate market and boost the national economy.