A Q&A guide to private client law in Italy.
The Q&A gives a high level overview of tax; tax residence; inheritance tax; buying property; wills and estate management; succession regimes; intestacy; trusts; co-ownership; familial relationships; minority and capacity, and proposals for reform.
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This Q&A is part of the PLC multi-jurisdictional guide to private client law. For a full list of jurisdictional Q&As visit www.practicallaw.com/privateclient-mjg.
The tax year for individuals corresponds to the calendar year (1 January to 31 December).
All resident and non-resident taxpayers must file an annual tax return for any income that is subject to individual income tax (Imposta sul Reddito delle Persone Fisiche) (IRPEF)). In some cases, individuals may not have to file an annual tax return if their income is:
Exempt income.
Subject to a final withholding tax.
Subject to some other marginal exclusion.
Taxpayers who are required to keep accounting books must file a tax return (even if they do not derive any taxable income).
Income tax returns must be filed by 30 September each year, for the amount of income cashed (or, in limited circumstances, accrued) during the previous tax year. Two advance payments of income tax must be made during each tax year by:
16 June.
30 November.
The final tax liability for the year concerned is shown in the annual return. The balance of the tax due must be paid by 16 June of the following year.
Tax payment dates may change each year.
Tax residents are subject to tax on their worldwide income. Individuals who are not tax resident in Italy are subject to tax on their Italian-source income only.
An individual is tax resident in Italy for income tax purposes if during the greater part of the tax period, he has one of the following:
Domicile in Italy.
Residence in Italy.
Registration in the resident population registry.
If one of the three conditions outlined below is fulfilled for most of the tax period (calendar year), the individual is deemed to be a resident of Italy for the whole tax period. However, if all three conditions are not met, the individual is regarded as a non-resident for the whole tax period (that is, there is no split-year concept for residence purposes under domestic law).
The domicile of an individual is the place where he has established his main seat of business and interest (Civil Code). Domicile is primarily a legal concept, irrespective of an individual's physical presence. Under the case law of the Italian Supreme Court, domicile refers to the place where the following are situated:
Personal, moral or family connections.
Economic relationships.
Residence is defined as the place where an individual has his habitual abode. Residence can be ascertained by the habitual and voluntary dwelling of an individual in a given place, depending on both the:
Factual habitualness.
Subjective intention to use the property habitually.
Habitualness is not to be interpreted as the duration of use or frequency of physical presence but rather what the individual perceives and intends to be habitual, even if the individual intends to come back to use it in the future and continues to regard it as his habitual abode.
This means that the property can also be used non-continuously or in separate periods of time (or can even be not used at all for a certain period of time) if it is understood that the individual intends to come back to use it in the future and continues to regard it as his habitual abode.
The criterion of the registration in the resident population registry is a purely formal requirement.
Conflicts between other jurisdictions on double residence issues can be resolved by applying the applicable tax treaty (see also Question 14).
There are no exit taxes or similar charges if an Italian resident moves to another jurisdiction.
If an Italian citizen removes himself from the residents' register and moves to a tax haven jurisdiction as defined in the Ministerial Decree of 21 November 2011 (including for instance Switzerland, Liechtenstein, Monaco and Hong Kong) the individual is deemed resident in Italy unless proof to the contrary is provided.
Italy does not have a concept of temporary residence.
Non-resident individuals (who are not carrying on any business) are subject to income tax on capital gains on the sale of real estate property located in Italy if the property is purchased or built less than five years before the transfer. A sale of real property owned for more than five years is not subject to tax. Furthermore, a sale of inherited real estate is not subject to tax.
Capital gains are taxed at ordinary progressive rates (see Question 6, Progressive tax rates). However, instead of paying tax on capital gains on real estate, the taxpayer can pay a substitute tax of 20% by submitting a wish to do so to the Public Notary responsible for making the sale.
A non-resident individual's capital gain on the sale of non-substantial participations in Italian companies or partnerships is subject to a final substitute tax of 20%. However, capital gains realised by non-resident individuals on the sale of non-substantial participations in listed companies are not subject to tax.
Exemptions are available for investors resident in countries allowing adequate exchange of information. Treaty exemptions may apply.
Non-resident individuals' capital gains on substantial participations are included in their taxable income for 49.72% of their amount and subject to income tax at progressive rates (see Question 6, Progressive tax rates), unless a treaty exemption applies. Substantial participations are participations that represent either:
More than 2% of the voting rights or 5% of the capital, in the case of participations in listed companies.
20% of the voting rights or 25% of the capital, in all other cases.
The sale of other financial assets and securities deposited in Italy may also give rise to a capital gain, subject to the 20% substitute tax in the hands of non-resident taxpayers. However, such gains are exempt if realised by residents of countries allowing adequate exchange of information. Furthermore, treaty exemptions may apply.
Individuals who are not tax resident in Italy are subject to tax on their Italian-source income only. Some items of income are subject to tax at progressive rates while other items of income (mostly financial income) are subject to a final withholding tax.
The following sources of income are taxed at progressive rates (up to 43% plus a 3% surcharge applicable to individuals earning more than EUR300,000:
Income from land and buildings. A non-resident individual holding real property situated in Italy is subject to income tax on:
the rental fees received (less a 5% forfeiture reduction, as from 1 January 2013) if the property is rented out; or
if the property is not rented out (with no possibility to deduct the expenses related to the property), cadastral income (that is, a presumptive amount based on the cadastral value of the property, for cadastral value see Question 11, Purchase and gift taxes).
Employment income, if the work is performed in Italy.
Business income derived from activities conducted in Italy through a permanent establishment.
The following sources of income are generally subject to a final withholding tax when paid to non-resident individuals (subject to certain exceptions):
Dividends: 20%.
Interest income: 20% (many exceptions are provided for residents in white-listed states. Moreover, interests derived from bank deposits paid to non-residents are exempt).
Royalties: 30%.
Directors' fees: 30%.
Tax treaties may provide for exemptions or lower rates.
Inheritance and gift tax applies to transfers of assets and rights by way of succession or gift (Legislative Decree 31 October 1990, No. 346) (Inheritance and Gift Tax Act). Taxable inter vivos transfers include:
Formal donations.
Gratuitous transfers other than formal donations.
Liens on property for a specific purpose or for the benefit of donees/beneficiaries (vincoli di destinazione) (including, according to the tax authorities, transfers into a trust).
Inheritance and gift tax applies to:
All assets and rights (on a worldwide basis), if the deceased/donor was resident in Italy at the time of death or gift.
Assets and rights located in Italy, if the deceased was resident abroad at the time of death or gift.
The residence or nationality of the donee/beneficiary is not relevant (although it has been argued for the application of tax for inter vivos gifts if the deed is made abroad to Italian resident donees/beneficiaries).
The taxable basis is constituted by the value of the assets and rights transferred, after the deduction of burdens and charges which the heir or the donee may be subject to (Inheritance and Gift Tax Act).
Special rules govern the determination of the value of some assets and rights.
Certain liabilities are deductible if proved by officially dated documents such as:
Debts of the deceased.
Funeral expenses.
Medical expenses.
The following allowances apply to:
Spouses and direct descendants/ancestors of deceased/donor. Transfers are free from inheritance tax and from gift tax up to EUR1 million (the allowance applies to each beneficiary and taking into account any previous gift made by the deceased/donor to the beneficiary).
Brothers and sisters of deceased/donor. Transfers are free from inheritance tax and from gift tax up to EUR100,000 (the allowance applies to each beneficiary and taking into account any previous gift made by the deceased/donor to the beneficiary).
If the transfer is made in favour of a person with severe disabilities, the tax applies on the value exceeding EUR1.5 million (the allowance applies to each beneficiary and taking into account any previous gift made by the deceased/donor to the beneficiary).
The following rates are applicable:
Spouses and direct descendants/ancestors. The rate is 4%.
Brothers and sisters of deceased. The rate is 6%.
Relatives up to the fourth degree or persons related by direct affinity/collateral affinity up to the third degree. The rate is 6%.
All other cases. The rate is 8%.
The following transfers are exempt from inheritance and gift tax (Inheritance and Gift Tax Act):
Transfers in favour of the Italian state or related local government.
Transfers in favour of foundations or other associations that have the purpose of assistance, scientific research, education or other public benefit.
Transfers of bonds issued by the Italian state (only in case of transfers on death).
Transfers of controlling participations in favour of spouses or direct descendants (other conditions are required).
Transfer of bare ownership. Inheritance and gift tax can be reduced by transferring bare ownership with retention of usufruct (that is, right to use and enjoy the property). Under this method the:
Taxable basis on transfer is reduced.
Future consolidation of bare ownership with usufruct on death of the usufruct holder does not represent a taxable event.
Life insurance. Life insurance policies can also be used to reduce the impact of inheritance and gift tax. This is because payments received by beneficiaries of life insurance policies on the deceased of the insured person are not subject to gift and inheritance tax.
Inheritance tax paid in another jurisdiction in relation to property located in that jurisdiction is deducted from the Italian inheritance tax due, up to the amount of the Italian inheritance tax attributable to the value of such property (see Question 13).
Italy has concluded treaties which prevent double taxation of inheritances and gift taxes (see Question 14).
Under the territoriality rules, inheritance and gift tax applies to assets and rights located in Italy if the deceased/donor was resident abroad at the time of death or gift (see Question 7).
Assets that are deemed to be located in Italy include:
Assets and rights enrolled at public registers (such as real estate located in Italy and trade marks registered in Italy).
Shares or other participations in companies or other entities that have Italy as its legal seat, place of administration or main object.
Bonds and other securities issued by the Italian state or by companies that have Italy as its legal seat, place of administration or main object.
Debts if the debtor is resident in Italy.
Debts guaranteed by assets located in Italy, irrespective of the residence of the debtor.
Transfers of immovable assets (and other proprietary-like rights, such as usufruct) located in Italy are subject to mortgage and cadastral taxes at an aggregated rate of 3%.
The acquisition of real estate property in Italy is subject to transfer taxes (that is, a combination of either VAT or registration tax, or mortgage (even if no mortgage is undertaken) and cadastral taxes).
If real estate property is acquired by an individual, transfer taxes apply differently depending on the nature of the transferor. If the transferor is an:
Individual not carrying on a business or professional activity. Transfer taxes are due at a proportional rate of 10% on the cadastral value (that is, a rated value of the property provided by the tax authorities of the property). A reduced rate of 4% plus a fixed EUR168 tax is applicable if the immovable property transferred is the primary abode of the transferee.
Individual or company carrying on a business or professional activity. If the immovable property has a residential nature and the transferor is not the builder of the transferred property, transfer taxes are due at a proportional rate of 10% on the cadastral value of the property (as above). However, if the transferor is the builder:
10% value added tax (VAT) must be paid on of the purchase price of the real estate property; and
a fixed amount of EUR168 in transfer taxes is due.
A reduced rate of 4% plus a fixed EUR168 tax is applicable if the immovable property transferred is the principal abode of the transferee.
Specific provisions apply if the real estate property is acquired via a corporate structure or trust. For taxation of recurring income and capital gains, see Questions 5 and 6. For taxation in the case of gifts or mortis causa transfers, see Questions 7and 8.
Italy does not levy a catch-all wealth tax. Different taxes on specific assets held by Italian resident individuals are applied (see Question 13). The most important are those regarding financial assets held in Italy, financial assets held abroad and real estate located abroad (other taxes apply on Italian real estate, as well as aircrafts, boats and other motor vehicles).
A non-resident individual is subject to the tax on financial assets held in Italy (this tax applies also to resident individuals). Article 19(1), Law Decree of 6 December 2011, No. 201 introduced starting from 2012, a proportional tax that applies to financial products or instruments (including, unit-linked insurance policies). This tax applies at the rate of 0.15% (0.10% only from 2012) on the market value of the securities or, in the absence of this, the nominal value or on the redemption amount of the financial instrument. Specific provisions are applicable on deposits and current accounts.
A non-resident individual is also subject to the municipal real estate tax (imposta municipale unica) (IMU) concerning immovable property located in Italy (this tax applies also to resident individuals). IMU (that replaces imposta comunale sugli immobili) (ICI) applies at the rate of 0.76% (possibly increased or decreased up to a maximum of 0.3 percentage points on a municipal basis) in case of ownership or other rights in rem on Italian real estate assets. The tax base is equal to the cadastral rent increased by 5% and multiplied by a factor ranging from 160 (for residential properties) to 60 (for most types of commercial properties). Specific provisions and a reduced tax rate of 0.40% (possibly increased or decreased up to a maximum of 0.2 percentage points on a municipal basis) are applicable if the real estate is regarded as primary abode.
Real estate taxation varies considerably depending on the holding structure which is used (for example, whether the real estate is held by direct ownership, a resident or non-resident company, through a foreign trust and so on).
Whether a holding structure is tax advantageous depends on the circumstances of the specific case. Such factors include, for example:
The residence of the parties involved.
Whether the real estate is used for residential or commercial purposes.
The presence of interest on a loan.
Resident individuals are taxed on their worldwide income if this falls within one of the categories of taxable income provided in the Italian Tax Code.
Immovable property located in another jurisdiction only yields taxable income in Italy if the property:
Is rented out.
Accrues deemed rental income, according to the tax provisions of the jurisdiction in which the asset is located, if the property is kept available to the Italian resident owner.
Taxable income is determined by the amount of rental income that the property accrues in the foreign country. If the foreign jurisdiction does not tax the rental income, for the purposes of Italian taxation, the taxable income is the same as any income which derives from leasing the property in the foreign jurisdiction (with a reduction of 15% as a forfeit for costs).
A tax credit is available for taxes paid abroad, up to the amount of the equivalent Italian tax paid on the taxable income (see also Question 14).
A disposal of immovable property (wherever situated) for consideration is only subject to tax on capital gains if the disposal is made less than five years from when the asset is acquired (see Question 5). In any event, the capital gains from property acquired by inheritance are not taxable.
Italy levies different taxes on specific assets held abroad by Italian resident individuals:
Tax on real estate property located abroad. Starting from 2012, real estate held abroad by Italian resident individuals is subject to a tax of 0.76% (Imposta sul valore degli immobili situati all’estero) (IVIE). Specific provisions and a reduced tax rate of 0.40% (possibly increased or decreased up to a maximum of 0.2 percentage points on a municipal basis) are applicable if the real estate is regarded as primary abode. If the real estate is owned for part of the year, IVIE is calculated in proportion to the number of days of ownership. The taxable value differs for the following:
purchased real estate: the purchase cost, as noted in the purchase contract, or, in the absence of this, the fair market value of the property;
real estate acquired by way of inheritance or gift: the value subject to inheritance tax or the value resulting from the registered deed of gift or, lacking such values, the purchase cost for the deceased/donor or, lacking the documentation of the purchase cost for the deceased/donor, the fair market value of the property;
real estate located in EU states or EEA states providing adequate exchange of information (irrespective of whether the real estate was purchased or received by way of inheritance or gift): the cadastral value in the foreign state if relevant for wealth or income foreign taxes or, lacking such a cadastral value, the purchase cost, as noted in the purchase contract, or, in the absence of this, the fair market value of the property.
Taxpayers will be granted a tax credit for the wealth tax paid in the country where the property is located, if any (Circular letter No. 28/E of 2012 provides for guidance on which foreign wealth taxes may reduce the Italian tax).
Tax on financial assets held abroad. Article 19(18), Law Decree of 6 December 2011, No. 201 has introduced starting from 2012, a tax that applies on financial assets held abroad by Italian resident individuals (tax on the value of the financial assets held abroad) (Imposta sul valore delle attività finanziarie detenute all’estero) (IVAFE). IVAFE applies on a pro rata temporis basis at the rate of 0.15% (0.10% only for 2012) on the market value of the financial instruments or, in the absence of this, on the nominal value or on the redemption amount. Specific provisions are applicable on deposits and current accounts. Foreign financial assets which are deposited with an Italian financial intermediary are to be regarded as assets held under deposit in Italy, and not held abroad for the purpose of the application of the tax on foreign financial assets (see Question 11).
Italy has concluded the following tax treaties:
91 income tax treaties.
Seven inheritance tax treaties (one of which covers gift tax).
The general method for avoiding double taxation is the credit method. Under this method, a tax credit is provided under domestic legislation which corresponds to the amount of tax already paid in respect of other jurisdictions. To obtain such relief, the Italian resident must show to the Italian tax authorities that the taxes to be covered by the credit have been definitively paid in the other jurisdiction(s).
The Civil Code provides specific rules covering intestate successions (see Question 28). If an individual dies without making a valid will, and to the extent the succession is regulated by Italian law, these rules apply. Foreign wills may be valid (see Question 18).
Italian law provides for the following types of will:
Holograph will. This is a private deed. The formalities for a holograph will require it to be:
handwritten;
dated; and
signed personally by the testator.
A holograph will can be drawn up at any time using any kind of sheet, without any cost. It can be kept by the testator, but it is more convenient for the testator to deliver the will to a public notary to avoid destruction before or after death.
Public will. The formalities for a public will require it to be:
delivered to a public notary in the presence of two witnesses; and
signed by the testator.
The advantage of a public will is that the notary personally collects the will in the presence of witnesses and the will immediately provides compliance with Italian law in respecting the wishes of the testator.
Secret will. To be executed, a secret will must be delivered to a public notary in the presence of two witnesses. Other formalities are provided by Article 605 of the Italian Civil Code. This form of will is rarely used.
Italy entered into the Convention providing a Uniform Law on the Form of an International Will (Washington DC, 26 October 1973).
An heir can renounce his claims to the estate. In this case, the heir:
Has no liability for the deceased's debts.
Receives no benefit from the estate.
Acceptance can also be made with reservation, meaning that the heir is liable for the debts of the estate only up to the value of the inherited estate.
To be recognised under Italian law, a will must comply with the formal requirements laid down by either of the following laws:
The law of the state in which the will is executed.
The law of the state of which the testator is, on the execution of the will or at death, a citizen.
The law of the state in which the testator has, on the execution of the will or at death, its domicile or residence.
No practical issues arise from the mere fact that a foreign individual dies in Italy.
As a general rule, the power of administration reverts to the heir if he accepts the estate.
The court can appoint a hereditary administrator if the person entitled to inherit:
Has not yet accepted the status of heir.
Is not in possession of the estate property.
With the prior authority of the judge, the hereditary administrator can deal with payment of the estate's debts and the legacies.
The testator may also appoint in his will one or more executors responsible for ensuring that the wishes are followed through, whether in relation to the entire will or part of it.
Generally the executor has the power of administration over the property, within the limits set out in the terms of appointment. To that end, the executor takes possession of the property and carries out all necessary management. On termination of their duties, the executors must submit a report to the heirs.
The estate vests in the heirs on acceptance of the estate with a retroactive effect as from the date of death of the deceased.
Establishing title and gathering in assets (including any particular considerations for non-resident executors)?
Paying taxes?
Distributing?
The heirs must file a declaration with the competent Registry Office within 12 months of either the date of death or date of presumed death. The declaration must:
Be completed and signed on official forms provided for such purpose.
Contain both:
information about the heirs and the degree of relationship; and
a detailed description of the assets and liabilities.
On the basis of the declaration, the competent office computes and assesses the amount of inheritance tax due.
Under specific legal provisions provided for by the Succession Tax Code, debtors (such as banks) can be prevented from releasing the assets to the heirs if they are not satisfied that a declaration of succession has duly been filed.
The same rules apply whether the estate is purely domestic or has foreign elements.
A will can be challenged on the following grounds:
Incapacity of the testator.
Forgery.
Nullity (for example, where a notary has signed the will without witnesses or where a holographic will has been typed instead of handwritten).
Violation of forced heirship rights.
In addition, the judge, subject to the request of the heirs, can dismiss the executor.
Italian succession law regulates:
Testate successions, regulated by a valid will. Italian law provides for forced heirship rules (see Question 25).
Intestate succession, lacking a will.
Succession agreements are generally not allowed under Italian law.
Under forced heirship rules, a person cannot freely dispose of all his assets by will or gift, since a quota of the estate must be transferred to forced heirs (including the spouse, the legitimate, natural and adopted children, and, under certain conditions, the ascendants).
The reserved quota of the estate (that is, the quota of the estate that must be transferred to the forced heirs) varies according to the number and nature of the heirs.
If, for example, the forced heirs are the spouse and two or more children, 50% of the entire estate of the deceased is reserved to the descendants (to be equally divided among them) and one fourth of such estate is reserved to the spouse.
For the purpose of calculating the reserved quota, the items to be considered for the purposes of determining the estate of the deceased will be equal to both:
All the assets owned by the deceased at the time of his death (net of any debts).
All the assets which have been gifted by the deceased during his life.
The contribution of assets into a trust is to be considered as a gift and therefore it will be included in the calculation of the estate for the purpose of computing the reserved portion.
If the reserved quota is not respected, the forced heirs can use a specific legal action called a claw-back action (azione di riduzione) which enables them to restore the reserved quota.
If the assets are added to a foreign trust which infringes forced heirship rules, the trust is not considered void. However, the claw-back action is available to the aggrieved parties to restore the shares of the estate that cannot be disposed of.
Italian international private law provides that succession is governed by the national law (at death) of the individual whose succession is concerned. Italian international private law further provides that, when a foreign law is considered applicable, even the conflict law rules of this foreign law must apply (other than in relation to the formal requirements of deeds, such as wills). In particular, if these provisions make a renvoi to the law of another state, the latter state’s law will apply, provided that either:
The law of this state accepts to regulate the matter.
This state is Italy.
The individual whose heritage is concerned may choose that his succession is governed by the law of the state where he is resident on the exercise of the option (if the choice is effective, then the renvoi would not apply). The choice is effective only if at the time of death the individual is still resident in such state. However, if the testator is an Italian national, his choice of applicable law does not affect the rights granted by Italian law to the heirs resident in Italy on the testator's death. Therefore, if the testator chooses a different governing jurisdiction to Italy, the application of the forced heirship rules for Italian nationals are protected.
The international private law rules applicable to successions will be affected by the Regulation (EU) No 650/2012 on jurisdiction, applicable law, recognition and enforcement of decisions and acceptance and enforcement of authentic instruments in matters of succession and on the creation of a European Certificate of Succession (Succession Regulation). The Succession Regulation provides, among other things, that the succession law applicable to demises occurring after 17 August 2015 will be the succession law of the state of nationality, unless an option for the law of the state of residence is exercised.
See Question 26.
Inheritance may devolve to the spouse, descendants, ascendants, other relatives and, in their absence, to the Italian state if:
There is no will.
The will is invalid.
The Civil Code provides detailed rules for the various situations that may occur. For instance, under an intestate succession, the estate is transferred as follows:
If the heirs are the spouse and only one (legitimate/natural/adopted) child, half of the estate is inherited each.
If the heirs are the spouse and more than one child, the children inherit two thirds and the spouse one third.
If the spouse survives but there are no children, the spouse succeeds the deceased together with the ascendants and siblings.
Lacking a spouse and children, the ascendants and siblings inherit the estate.
It is not possible for beneficiaries to challenge the adequacy of their provision under the intestacy rules.
The Italian Civil Code does not provide for the trust institution. However, trusts regulated by foreign law may be recognised in Italy under the 1985 Hague Convention on the Law Applicable to Trusts and on their Recognition (Hague Trusts Convention) (see Question 31).
Specific rules on the taxation of trusts have been introduced in Italy by Law 27 December 2006, No. 296. Among the others, these rules have clarified that a trust may be a taxable person for corporate income tax purposes.
For Italian tax purposes, the following forms of trust are relevant from a tax point of view:
Opaque trusts. These are irrevocable and discretionary trusts. The trust income is taxed at trust level according to Italian tax rules applicable to commercial or non-commercial bodies (as the case may be).
Trusts which are resident in Italy for tax purposes are taxed on their worldwide income, while non-resident trusts (assuming they do not carry on a commercial activity in Italy) are subject to Italian taxation on Italian-source income only.
Transparent trusts. These are fixed-interest trusts or other trusts where the beneficiaries have a current entitlement to the trust income. The income is determined at trust level, but taxed at beneficiary level at progressive rates. The tax authorities have recently stated that income from non-Italian resident transparent trusts attributable to Italian resident beneficiaries must be taxed in Italy at beneficiary level.
Interposed trusts. These trusts are disregarded for tax purposes and the underlying assets are considered to belong directly to either the:
settlor (for example, in case of revocable trusts); or
beneficiaries (for example, when the deed assigns these persons extensive powers or rights).
If a trust is considered to be interposed, income generated by the trust assets is taxed directly in the hands of either the settlor or the beneficiaries (depending on the circumstances). Determination of whether a trust is interposed is based on:
documents and factual background. This includes, for example, the degree of actual control held by the settlor/beneficiary over the trust assets, even if a trust is formally discretionary and irrevocable;
a case-specific analysis.
The tax authorities have provided a non-exhaustive list of cases that are considered examples of interposed trusts.
Since trusts are now subject to corporate taxation, the tax residence of a trust can be ascertained from the rules which govern the residence status of companies and other entities. Therefore, a foreign trust is generally regarded as resident in Italy for tax purposes if it has any of the following in Italy:
Its legal seat.
Its place of management.
The location of its main object for the greatest part of the tax period.
In addition, Italian legislation has a presumptive rule under which trusts established in jurisdictions not exchanging information are deemed to be resident in Italy for tax purposes when either:
They are set up by an Italian-resident settlor for at least one Italian-resident beneficiary.
An Italian-resident person adds Italian real estate assets to the trust fund.
The presumption can be rebutted if it can be proved that the trust is effectively non-resident in Italy.
Italy entered into the Hague Trusts Convention through the enactment of Law 16 October 1989, No. 364. As a result, trusts regulated by a foreign law, including trusts created for foreign persons, may be recognised in Italy pursuant to the provisions of this Convention.
A trustee's change of residence can affect the tax residence of a trust (see Question 30, Residence of trusts). Since trusts are now subject to corporate taxation, the tax residence of a trust can be ascertained from the rules which govern the residence status of companies and other entities. However, when considering whether a trust has its seat of administration in Italy (see Question 30, Residence of trusts), the tax authorities have indicated that the trust's place of administration must coincide with "the place of the fiscal domicile of the trustee". Therefore, the default residence of a trust will be presumed by the tax authorities to be in the trustee's country of residence.
Under these rules, a foreign trustee taking up residence in Italy or an Italian trustee leaving the Italian jurisdiction may result in a change of tax status of the trust for Italian tax purposes (depending on the circumstances).
Does the law provide specifically for the creation of non-charitable purpose trusts?
Does the law restrict the perpetuity period within which gifts in trusts must vest, or the period during which income may be accumulated?
Can the trust document restrict the beneficiaries' rights to information about the trust?
Since Italian law does not provide for the trust institution, this is not applicable (although foreign trusts are recognised under the Hague Trusts Convention).
Although, in certain circumstances, foreign trusts may be recognised in Italy under the Hague Trusts Convention (see Question 35) the existence of a trust may not be effective to segregate the assets belonging to the trust fund and therefore may not prevent successful claims by, for example, former spouses.
Generally, a trust is not invalid if the trust is genuinely discretionary and control of the trust assets is lost by the settlor/beneficiaries. However, typically, Italian courts have rejected the existence of a trust if satisfied by proper evidence that the trust was created with the sole aim of sheltering assets from creditors. Specific case law on this issue has tended to reflect this direction. For example, in a recent case, the criminal chamber of the Italian Supreme Court allowed a seizure of assets held in trust, and found (decision 30 March 2011, No. 13276):
That the settlor was still considered the owner of the assets.
The trust to be a sham transaction.
The impact of Italian bankruptcy law must also be considered. Under these rules:
Gratuitous transfers made during the two years before a declaration of bankruptcy are void.
Creditors are granted a general claw back action (azione revocatoria) for transactions which jeopardise their rights as creditors within five years from the date of the transaction.
The rights of forced heirs cannot be affected through the settlement of a trust (see Question 25).
Italian law recognises co-ownership of assets. Co-ownership can derive from either:
Law (for example, spouses under a communion of assets regime or heirs of an undivided estate).
Free choice of the parties.
If co-ownership occurs:
Each party is considered the owner of his undivided share of the assets.
Tax and succession law applies accordingly (and therefore every co-owner is only liable for tax on his own share).
In relation to successions of assets that are owned by two or more co-owners, ownership of the estate is made up of the undivided share of each co-owner.
Italian succession law does not provide for the right of survivorship (other than in case of the co-owners of usufruct right only and provided that such right of survivorship is expressly provided for on the creation of the usufruct right).
The Italian co-ownership regime is the regime normally applicable to all property acquired during marriage. It is the default regime, unless the spouses have elected for the separation of assets regime. Under a co-ownership regime the assets are held in communion by the spouses, so that each of them as a undivided share of the whole. Under a separation of assets regime, each spouse possesses its own assets.
Assets which fall within the co-ownership regime can only be disposed of with the consent of both spouses. Failing this, the contract may be declared void on application of the non-consenting spouse.
The co-ownership regime includes all assets (and related income) received or purchased during the marriage (separately or together) with a few significant exceptions, which include:
Inheritance and gifts to only one of the spouses.
Goods dedicated to personal use.
A family fund is used to allocate assets to meet family needs and can be created by either both spouses or a third party before or during marriage, by either:
Inter vivos formal deed.
Testamentary act.
A family fund is defined in relation to the use of the assets rather than the ownership of them. In the absence of other dispositions, ownership is vested in both spouses and can only be disposed of with either:
The consent of both spouses.
Authorisation from the court (if there are minor children).
Civil partnerships are not recognised in Italy. In principle, cohabiters are also given no protection, though recent case law has developed whether certain rights exist for cohabiters more uxorio (that is, live together as a married couple).
There is no form of recognised relationship for same-sex couples. Same-sex couples cannot enter into a registered civil partnership or marriage.
Married?
Divorced?
Adopted?
Legitimate?
Civil partnership?
Marriage is the legal union of one man and one woman as husband and wife.
Divorce is the dissolution of a marriage by decree. A marriage is dissolved on the day the decree obtains legal force.
Adoption is the legal process under which a child's legal rights and duties toward his natural parents are terminated and similar rights and duties towards his adoptive parents are substituted.
A child is legitimate if he was born to married parents. There is a procedure for legitimising the status of an illegitimate child.
Civil partnerships are not yet recognised in Italy.
A minor can own assets. Legal administration is attributed to either:
Parents.
A legal guardian (in certain circumstances).
Certain acts require the authorisation of the minor tribunal (child court).
Minors can only accept the inheritance with reservation (that is, subject to limitation of liability for debts of the estate up to the amount of the net assets actually received).
When a person loses capacity, his protection is organised by law and, depending on the degree of incapacity, different regimes apply. For example, if the person is of totally unsound mind, he must be represented by another person. In other cases, he will only be advised or controlled.
Italy recognises the capacity status of persons governed by the laws of other jurisdictions. Therefore, Italy would accept a power of attorney which is valid under the laws of other jurisdictions (if the deceased is resident in such jurisdiction).
There is a proposal to partially reform the forced heirship rule to allow greater freedom for the testator.
Website of the Italian Minister of Finance. It includes up-to-date official legislation, case law and administrative Ruling and Circulars (in Italian), as well as the text of the Italian income tax treaties.
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Areas of practice. National and international tax law; taxation of financial transactions; VAT; transfer pricing; company restructuring; estate planning and trusts.
