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The Italian Revenue Agency - Ruling no. 178/2020

19 June 2020
The Italian Revenue Agency, with the Ruling no.178/2020 (the "Ruling") clarifies the relationship between the tax regime for new resident ("flat tax") and the withholding tax on on the income generated by the unit linked policies distributed by Insurance Companies operating in Freedom of Services (FoS). 

The Italian Revenue Agency with the Ruling no. 178/2020 clarifies its interpretation as regards:

i) the relationship between the "flat tax" regime of EUR 100,000, which covers the foreign income of new residents individuals, provided by article 24 bis of Presidential Decree no. 917/86 (Tuir), and the application of the withholding tax provided by article 26 ter of the Presidential Decree no. 600/73, which applies on the income derived from unit linked insurance policies stipulated with a Luxembourg's Insurance company operating in Italy in Freedom of Services regime (FoS),

ii) the possibility to exclude the policy, stipulated by a policyholder who has opted for the "flat tax" regime, from the calculation of the IRM during the period of validity of the contract, and 

iii) the application of the stamp duty (Imposta di Bollo).

The "flat tax" optional regime, by way of derogation from the general world taxation principle, allows persons who obtain Italian tax residence to do not include in the overall tax base incomes produced abroad.

Therefore, as regards the foreign income, they may pay a flat-amount substitutive tax determined in EUR 100,000. 

Regarding the relationship between this regime and the withholding tax provided by article 26 ter of the Presidential Decree no. 600/73, the Italian Revenue Agency has clarified that the Insurance Company may disapply the withholding tax only if the new resident policyholder has exercised the flat tax option on the individual income tax return.

In fact, the exercise of this option in the income tax return represents an essential requirement for the access to the "flat tax" regime. Therefore, the disapplication of withholding on new resident's income is not related to the mere payment of the substitutive tax, if the option in the income tax return has not been exercised still. This interpretation is grounded on the fact that payment by itself is a mere declaration of intent, subject to the formality of exercise the option in the income tax return. 

The second clarification rendered in the Ruling regards the possibility to exclude the policy underwritten by a new resident from the IRM calculation (i.e., 0.45% of the mathematical reserves related to policies stipulated by Italian residents) during the validity period of the "flat tax" regime.

According to the Tax Authority's view, the IRM is not due from the tax period in which the option is exercised. From this moment, in fact, new residents will no longer be subject to the substitute tax on policy income from which the IRM can be deducted, being it "absorbed" into the substitutive tax of EUR 100,000. 

Finally, as regard the application of the stamp duty, the Authority clarifies that while IVAFE is not due, Stamp duty (Imposta di Bollo) applies since the policy is considered to be held in Italy. 

Capital income accrued during the period of validity of the "flat tax" option and subsequently collected will be taxed with ordinary modalities and standards (26%), as they are not subject to substitute taxation. 

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