Horst WickinghoffDo you dream of living in picturesque Italy, enjoying the Mediterranean lifestyle and rich cultural heritage, but worry about the high tax burden in your home country? If you have a high income and are looking for ways to minimize your tax liability, there is a legal and attractive solution available. By combining residence in Italy with a corporate structure in Malta, you can access significant tax benefits while enjoying the amenities of Italian life. Read on to discover how this works.
Why Choose the Italy-Malta Setup?
By establishing your company in Malta and relocating your personal residence to Italy, you can benefit from Malta's advantageous corporate tax system while utilizing Italy's special tax regime for foreigners. This unique combination allows you to reduce your overall effective tax rate on corporate profits to as low as 5%.
The Benefits at a Glance
- Significant Tax Reduction: Operate within the EU and drastically lower your corporate taxes.
- Enjoy La Dolce Vita: Experience the lifestyle, cuisine, and culture that only Italy can offer.
- Peace of Mind: Remain fully compliant with EU laws and regulations.
Who is This Solution For?
If you are an entrepreneur, freelancer, or High-Net-Worth Individual (HNWI) looking for a legal way to optimize your taxes while living in Italy, this solution is tailored for you.
Relocating to Italy
Italy attracts countless expats year after year—and for good reason. The country offers not only stunning scenery but also a high quality of life that is impressive in many respects.
Mediterranean Climate and Diverse Landscapes
Italy enjoys a pleasant Mediterranean climate with warm summers and mild winters. From the snow-capped Alps in the north to the rolling hills of Tuscany and the stunning beaches along the coast, Italy offers an impressive variety of landscapes to delight any nature lover.
Rich Cultural Heritage
Italy's cultural heritage is world-renowned. With historic cities like Rome, Florence, and Venice, countless museums and art galleries, and an abundance of UNESCO World Heritage Sites, the country offers a wealth of cultural treasures. Italian art, architecture, and history are palpable in every corner of the country, making life here particularly enriching.
Culinary Delights
Italian cuisine is famous worldwide and is a vital part of daily life. Whether you are enjoying pizza in Naples, pasta in Rome, or fresh fish by the sea, the culinary possibilities are nearly endless. Italians place great value on high-quality, fresh ingredients and the preparation of food, making every meal a pleasure.
Lifestyle and Community
Italians are known for their hospitality and zest for life. Community plays a central role in everyday Italian life, and spending time with family and friends—whether at a shared meal or festive occasions—is the norm. This strong social bond contributes significantly to the high quality of life in Italy.
Healthcare and Education
Italy has a well-established healthcare system that ensures high-quality medical care. The education system is also well-developed, with numerous schools and universities offering a wide range of educational programs.
Strategic Location in Europe
Located in the heart of Europe, Italy offers excellent connections to other European countries. This facilitates not only business travel but also access to a larger market and a variety of cultural and economic opportunities.
Taxes in Italy: A Challenge for the Wealthy
While Italy offers many attractive aspects for expats, there is a significant downside that deters many potential newcomers: the high tax burden. Italy has some of the highest tax rates in Europe, which can be a substantial financial burden for high-net-worth individuals and entrepreneurs.
High Income Tax
Income tax in Italy is progressive and can reach up to 43% for top earners. These high rates can significantly restrict financial freedom, making effective tax planning essential.
Corporate Taxation
Italian companies are also subject to high tax rates. Corporate tax (IRES) is 24%, plus a regional business tax (IRAP) of around 3.9%. These burdens add up quickly and can significantly impact a company's profitability.
Wealth and Capital Gains Tax
In addition to income tax, wealthy individuals must also pay wealth taxes and capital gains taxes. Capital gains in Italy are taxed at up to 26%, which is particularly relevant for investors and entrepreneurs.
Social Security Contributions
In addition to taxes, employees and employers in Italy must pay high social security contributions, which can also make up a significant portion of income. These contributions fund the social security system and further reduce net income.
The Solution: The Italian "Non-Dom" Status
What is the Non-Dom Status?
The term "Non-Dom" stands for "Non-Domiciled," meaning a person has their tax residence in a specific country but is not permanently domiciled there in the traditional sense. Many countries, including Italy, offer special tax rules for Non-Doms. These regimes aim to attract wealthy foreigners by offering them significant tax breaks on income generated outside the country of residence.
Since a change in the Italian tax system in 2017, the country offers a Non-Dom regime similar to those in Malta, Ireland, and the UK. This allows well-off expats to significantly reduce their tax burden by paying a flat lump-sum tax. While originally set at €100,000, the annual flat tax for new applicants was recently increased to €200,000 per year (valid for up to 15 years). The flat tax increases by €25,000 for each additional family member included in the scheme.
With the Italian flat tax system, no further Italian tax is due on foreign income from business activities, rents, interest, and dividends—even if these funds are transferred to Italy and spent there. Additionally, this regime exempts you from Italian gift and inheritance tax.
The Italy-Malta Solution: A Powerful Combination
Italy is known for its relaxed southern mentality, excellent wine, and rich cultural history, but it also offers substantial advantages from a tax perspective. Despite these attractive opportunities, many people do not yet have Italy on their radar as a tax haven. However, for High-Net-Worth Individuals, Italy has become a genuine low-tax jurisdiction within the EU.
The second component of this solution involves establishing a corporate structure in Malta. Malta offers an extremely favorable corporate tax regime: While Malta Limited companies are subject to a standard corporate tax rate of 35%, foreign shareholders are entitled to a refund of 6/7ths of the tax paid upon distributing dividends. This results in an effective tax rate of just 5%.
Requirements for the Italy-Malta Solution
For this dual solution to work, certain conditions must be met:
- Operational Company in Malta: The company in Malta must be an operational business with proper substance—not a shell company or "letterbox" firm.
- Residence in Italy: You must actually move your residence to Italy. A simple mailing address is not sufficient.
How the Italian System Differs from Others
Under this specific Italian regime, no tax is levied on foreign income (covered by the lump sum). This makes the Italian system particularly suitable for individuals and entrepreneurs who generate significant foreign income. Since the flat tax is relatively high (now €200,000 for new applicants), this combination is particularly interesting for entrepreneurs whose business generates substantial revenue, typically in the multi-million Euro range, to make the fixed cost worthwhile.
Who is Italy Right For?
As described, the Italy-Malta solution makes sense for high-earning individuals and companies. It is also crucial that you are genuinely resident in Italy and that your company does not derive its value creation from your previous home country (e.g., Germany or Austria) through physical shops or permanent establishments there. Naturally, both Malta and Italy must appeal to you personally, and you should enjoy the lifestyle of southern Europe.
Conclusion
For high-earning individuals who wish to live in Italy and minimize their tax burden, combining Italian residency with a Malta corporate structure offers significant advantages. This strategy allows for an effective tax rate of down to 5% on corporate profits. Italy offers a high quality of life, and the "Non-Dom" flat tax status provides tax relief on foreign income. This makes the Italy-Malta solution particularly attractive for entrepreneurs, freelancers, and High-Net-Worth Individuals.
