LOCONTE & PARTNERS WEALTH MANAGEMENT *** International estates in the Italian legal and tax system Loconte & Partners – Studio Legale e Tributario 1
CROSS-BORDER ESTATES According to Italian international private law an estate is regarded as cross-border when one of the key elements is not Italian, i.e. when: � The deceased person is resident abroad, the heirs are resident in Italy and the assets are located abroad; � The deceased person is resident in Italy , the heirs are resident abroad and the assets are located in Italy; � The deceased person and the heirs are resident abroad and the assets are located in Italy ; � The deceased person and the heirs are resident in Italy and the assets are located abroad. Loconte & Partners – Studio Legale e Tributario 2
THE ITALIAN DOMESTIC LAW The inheritance and gift tax – Legislative Decree n. 346/1990 � Each State must legislate on tax matters in its own Country -> in Italy the Legislative Decree n. 346 of 31 October 1990 regulates inheritance and gift tax; � In Italy the inheritance and gift tax is proportional to the value of the inherited or received assets, with different tax rates and different no-tax allowances according to the relationship between the deceased and the heirs. Loconte & Partners – Studio Legale e Tributario 3
THE ITALIAN INHERITANCE AND GIFT TAX � The current tax rates Relationship No-tax allowances Tax rate Spouse, ascendants 1,000,000 eur 4% and descendants Brothers and sisters 100,000 eur 6% Relatives up to 4 ° Not applicable 6% degree of relationship All other people Not applicable 8% People with a 1,500,000 eur See above severe disability – Recognised by the law n.104/1992 Loconte & Partners – Studio Legale e Tributario 4
TERRITORIALITY The connecting criteria, provided by the article 2 of Legislative Decree n. 346/1990 are the following: � Worldwide taxation principle – If the deceased or donator qualified as an Italian tax resident: «The inheritance or gift tax is due on the worldwide inherited assets»; � The territoriality principle (lex rei sitae) – If the deceased or donator qualified as non tax resident in Italy: «If the deceased or donator qualified as non tax resident at the demise or at the date of the transfer of wealth, the inheritance or gift tax is due only on the asset located in Italy»; � Some assets (e.g. real estate located in Italy, shares in Italian companies) are irrefutably deemed to be located in Italy Loconte & Partners – Studio Legale e Tributario 5
CASH, JEWELERY AND FURNITURE According to article 9 of the Legislative Decree n. 346/1990 « inherited asset is deemed to include also cash, jewelery and furnitures for a value of 10% of the total value of the estate, even if they are declared for a lower value, unless there is an analytical inventory, drawn up according to the articles 769 and following of the Italian Civil Code, stating a different value ». � the assumption does not apply if there is an analytical inventory; � The increase of 10% is calculated on the value of the asset less deductible allowances; � The assumption does not apply if the deceased qualified as non tax resident in Italy at the demise. Loconte & Partners – Studio Legale e Tributario 6
THE VALUE OF DOMESTIC REAL ESTATE The value of property located in Italy, according to art. 14 of TUS (Italian IH and Gift Tax Act), must be determined as follows: � Full ownership: market value as of the demise; � Usufruct: difference between the market value of full ownership and the value of bare ownership as determined according to a specific schedule; � If the stated value is at least equal to the cadastral value, no further claims can be raised by the Italian Tax Revenue (art. 34, co. 5 TUS). Loconte & Partners – Studio Legale e Tributario 7
THE VALUE OF FOREIGN REAL ESTATE In case of property located abroad, the Italian Tax Authority, according to the Circ. 5/E of 10 January 1973, follows the criteria of: � The value stated by the taxpayer; � In special circumstances, the Value agreed by the Italian Tax Authority with the foreign Tax Authority. In any case International Tax Agreements in respect of exchange of information are applicable. Loconte & Partners – Studio Legale e Tributario 8
DOUBLE TAXATION ISSUES Each Country can choose its own connecting criteria, as: � Residence, domicile and/or nationality of the taxpayer, regardless the location of assets (worldwide taxation principle); � Principle of the location of assets. In case of cross-border estates, double taxation issues may arise. Loconte & Partners – Studio Legale e Tributario 9
DOUBLE TAXATION MITIGATION Generally speaking, Italy allows a foreing tax credit for inheritance and gift taxes paid in another Country (art. 26 or 55, par.1-bis, of the Legislative Decree n. 346/90) when the same assets are taxed in both countries; The amount of the tax credit cannot exceed the amount of taxes the taxpayer would have paid in Italy on the same assets. Some Countries have signed International Tax Agreements against the Double Taxation also covering inheritance tax matters. Loconte & Partners – Studio Legale e Tributario 10
DOUBLE TAXATION TREATIES The international Tax Agreements on inheritance and gift matters signed by Italy are seven, of which: � Six are based on the first OECD Model (Denmark, Israel, Greece, Sweden, United States and United Kingdom); � One is based on the new OECD Model (France) According to above Agreements the general criteria to avoid the double taxation are the following: � International information exchange; � Principle of tax domicile (habitual abode, center of vital interests, nationality or mutual agreement between competent Auhtorities). Loconte & Partners – Studio Legale e Tributario 11
DOUBLE TAXATION TREATIES The mechanism provided by International Tax Agreements in order to avoid double taxation are: � Tax exemption : assets are only taxed in the State where they are located (Sweden, Greece, Israel and Denmark); � Foreign tax credit (United States and France): a tax credit is granted in the Country of residence for taxes paid in the Country where the assets are located. Loconte & Partners – Studio Legale e Tributario 12
THE INTERNATIONAL TAX AGREEMENT ON INHERITANCE TAX BETWEEN ITALY AND USA The International Tax Agreement between Italy and USA on inheritance tax has been signed in March 1955 and includes cases where the deceased is resident in a Country and the asset is located in the other Country. � Territoriality rules : art 3 of the International Tax Agreement determines where the asset is deemed to be located if an individual is citizen or domiciled in one of the contracting States; � Tax credit : art 5 of the International Tax Agreement provides that, if the same asset is taxed in both contracting States, a tax credit shall be granted by the State of residence or citizenship of the deceased; � Exchange of information : art 6 of the International Tax Agreement provides that Italy and US must exchange information on the international estates. Loconte & Partners – Studio Legale e Tributario 13
EXAMPLE � The deceased is resident in Italy at the demise, heirs are US residents and the inherited asset is composed by a property in New York and some shares in a US company. � According to the Legislative Decree n. 346/1990, if the deceased had his last tax residence in Italy, the inheritance tax is due on his worldwide transferred rights ans asset ( worldwide taxation principle ) � In case of double imposition a tax credit shall be granted by the State of the residence of the deceased Loconte & Partners – Studio Legale e Tributario 14
TAX ISSUES – ITALY/USA Whether the deceased was resident in Italy or the asset was located in Italy, the heirs, within 12 months from the opening of the succession and regardless of their tax residence, must file with the competent Office of the Italian Revenue a declaration of succession. � If the deceased was resident in Italy: the declaration should be filed to the competent Office in relation to his last residence. � If the deceased was resident in USA: the declaration should be filed to the Rome Revenue Office. Loconte & Partners – Studio Legale e Tributario 15
Avv. Angela Cordasco angela.cordasco@studioloconte.it BARI PADOVA ROMA LONDON MILANO NEW YORK C.so della Carboneria, 15 Galleria Porte Contarine, 4 G.Battista Martini 16 42 Barkeley Square Via Fratelli Gabba, 3 350 Park Avenue 70123 35100 00198 W1J5AW 20121 NY 10022 Tel +390805722880 Tel +39.02.45476250 Tel +39.06.45682450 Tel +44(0)207409501 Tel +1.9174384351 Tel +39.02.45476250 Fax +390805759312 Fax +39.02.45476251 Fax +39.06.45682452 Fax +39.02.45476251 bari@studioloconte.it padova@studioloconte.it roma@studioloconte.it london@studioloconte.it milano@studioloconte.it newyork@studioloconte.it
LOCONTE & PARTNERS WEALTH MANAGEMENT *** Wealth management in Italy: new opportunities for foreign investors 1 Loconte & Partners – Studio Legale e Tributario
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