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Italy eyeing changes in tax code to woo foreign billionaires

by Carmine Fotina and Marco Mobili

Private savings and foreign capital: the 2017 budget currently being hashed out could try to combine these two elements in an effort to channel resources to Italy’s sluggish real economy. Alongside these two measures — individual savings plans and “sponsor companies” — meant to act directly on businesses, there’s also a possible move to attract foreign tycoons to Italy through a tweak to the tax code.

It’s going through one last review round by ministry experts before landing at Palazzo Chigi , the Prime Minister’s office, for a final decision on whether it will become part of the budget which should be unveiled on Saturday October 15.

The “Paperone” Measure

Already considered in the aftermath to Brexit, the possibility of introducing the so-called “resident but not domiciled” regime in Italy, which helped London attract billionaires, has returned to the top of the “to do” pile. In practice, it means turning on its head the guiding principal of our tax code, according to which a resident is taxed completely in accordance with Italian fiscal rules on income, including foreign income. The only exception has been income and goods in nations with which Italy has signed agreements against double taxation.

The change would apply to people who transfer their residence to Italy but maintain their home in the nation of origin: only income and gains produced or transferred within our borders would be taxed, the new resident would continue to pay the taxes and rates mandated by the country of reference.

It’s a reform based on making our tax system more attractive. Today, the regime’s parameters and its “maxi-tax rates” keep many potential “moneybags” away.

It’s an opportunity, given the possible capital flight from London post Brexit. The “resident but not domiciled” regime—or remittance basis in technical terms—was one of the elements that has attracted to London names like Roman Abramovich, the Russian magnate and main owner of Chelsea, and the billionaire Lakshmi Mittal, head of steel giant Arcelor Mittal. Even Valentino Rossi was seduced by it.

The plan for savings

PIR, or individual savings plans, are an attempt to reduce corporate dependence on bank financing. They are investment products specifically for small and mid-sized companies that come with a tax exemption of €30,000 a year, up to a combined €150,000, for investments maintained for at least three years.

The idea initially was to limit the measure to investment in companies that were under €300 million in revenue, but the ceiling will rise to include the pool of companies that aren’t part of the big-cap group traded on the FTSE MIB 40 index. The broader selection should guarantee a balance in investment options.

A tax break for “sponsor companies” was also confirmed, geared at investing in startups to enable them to absorb losses for their first four years. In the end, this will enhance the will to boost the benefit for those who invest in startups: a tax break on investment of up to €500,000 will rise from the current 19%, for investments of up to €500,000, to 30% for investments of up to €1 million.