Succession planning in the new EU environment

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1 Succession planning in the new EU environment 13 April 2018 Nicola Saccardo Partner, Maisto e Associati n.saccardo@maisto.it

2 1) The Italian regime to attract HNWIs (the forfait tax regime) 2) EU succession regulation 3) New Italian reporting obligations on foreign-held assets settled in trust

3 The Italian regime to attract HNWIs (the forfait tax regime)

4 Progressive income tax rates up to approx. 45 per cent Flat income tax rate of 26 per cent for most income and gains on financial assets (a few exclusions such as non-eu funds) Wealth tax on financial products (0.2 per cent per year) and real estate (0.76 per cent per year) Inheritance and gift tax at rates ranging from 4 per cent (spouse and direct descendants) to 8 per cent Reporting obligations (RW) on foreign-held assets 4

5 Meant to attract high net worth individuals to Italy New entry visa provisions (including investor visa) 5

6 Acquisition of residence for Italian tax purposes No minimum number of days in terms of physical presence Need of effective connection with Italy Non-residence for Italian tax purposes for at least 9 out of last 10 years Also Italian citizens Option for forfait tax regime 6

7 100,000 Euro annual forfait tax on foreign-source income (including capital gains) No foreign tax credit No taxation of remittances Ordinary taxation of Italian-source income 7

8 No annual wealth taxes on foreign-held assets No inheritance and gift tax on foreign-situs assets No reporting obligations (RW) on foreign-held assets 8

9 Exclusion: capital gains on substantial shareholdings realized in the first 5 tax years 20% or 2% threshold Reporting obligations (RW) on substantial shareholdings during the 5-year period Specific anti-avoidance rule, so that, depending on the specific facts and circumstances, it might be possible to have it disapplied through a ruling 9

10 Effects of the option can be extended to one or more qualifying family members E.g. spouse and children moving to Italy Annual fixed charge is 25,000 Euro (per family member) 10

11 The option is effective for up to 15 tax years The option can be revoked If revoked, the option is no more available 11

12 Ruling may be used to obtain confirmation of e.g.: The non-resident status for the previous years The nature of foreign-source income Whether a foreign holding company or trust is to be disregarded or not (and confirmation that the regime applies to the underlying income/gains/assets) Ruling can be filed prior to the transfer of residence to Italy Ruling to be filed with new tax office for HNWIs 12

13 Option for forfait (in relation to a given year) can be revoked upon filing of the annual tax return for that year (usually September of the following year) If demise, option can be revoked by heirs Effect of revoking option: worldwide tax liability on effective income and gains for the year of demise + Italian inheritance tax on ww assets (4% for spouse and direct descendants) Inheritance tax treaties protection in other jurisdictions E.g.: individual with French resident heirs; UK domiciled or deemed domiciled individual 13

14 EU succession regulation The EU Regulation 650/2012 (Brusselles IV)

15 Applicable if demise after 17 August 2015 It applies to all EU countries, except the UK, Ireland and Denmark The regulation applies to all civil aspects of the succession to the estates of deceased people (also forced heirship and succession agreements) It does not apply to tax matters 15

16 Uniform test for determination of jurisdiction General rule: Member State of habitual residence Uniform test for determination of applicable law Mutual recognition and enforcement of decisions It ensures that decisions given in an EU country are recognized throughout the EU without the need for any special procedure 16

17 Default law State of habitual residence upon demise Exception: deceased manifestly more closely connected with other State («exceptional cases») Renvoi if habitual residence in «Third State». What about States that opted out, e.g. UK? Electio juris State of nationality upon either option or demise If multiple nationality, any of the States of nationality No renvoi 17

18 Deceased: British national, habitually resident in Italy Professio iuris for law of England and Wales Jurisdiction under EU succession regulation Italian courts (habitual residence) Applicable law under EU succession regulation England and Wales (nationality) 18

19 The new Italian reporting obligations on foreign-held assets settled in trust

20 Italian reporting obligations of resident individuals on foreign held-assets 2013: extended to cover assets owned by companies, trusts, foundations, etc. but beneficially owned by resident individuals AML notion of beneficial owner 2017: broadening of AML notion of beneficial owner (and of scope of reporting obligations on foreign-held assets)

21 AML notion of beneficial owner of trusts under Italian legislation implementing the Directive 2005/60/EC: where the future beneficiaries have already been determined, the natural person(s) who is the beneficiary of 25 % or more of the property of a legal arrangement or entity; where the individuals that benefit from the legal arrangement or entity have yet to be determined, the class of persons in whose main interest the legal arrangement or entity is set up or operates; the natural person(s) who exercises control over 25 % or more of the property of a legal arrangement or entity

22 AML notion of beneficial owner of trusts under Directive (EU) 2015/849: the settlor the trustee(s) the protector, if any the beneficiaries, or where the individuals benefiting from the legal arrangement or entity have yet to be determined, the class of persons in whose main interest the legal arrangement or entity is set up or operates any other natural person exercising ultimate control over the trust by means of direct or indirect ownership or by other means

23 trustees must obtain and keep adequate, accurate and updated information regarding the beneficial ownership of the trust, meaning such information regarding the identity of the settlor, of the trustee or trustees, of the protector or of any other person acting on behalf of the trustee, if any, of the beneficiaries or class of beneficiaries and of those other individuals controlling the trust or of any other individual that ultimately has control over the trust assets through direct or indirect ownership or through other means

Nicola obtained a Degree in Business Administration from the Bocconi University in Milan, a Degree in Law from the State University, as well as a Master of Laws (LL.M.) in International Taxation from the University of Leiden (The Netherlands).

He is a member of the International Academy of Estate and Trust Law, as well as a member of its Executive Council and chair of its Tax Committee.

24 Nicola obtained a Degree in Business Administration from the Bocconi University in Milan, a Degree in Law from the State University, as well as a Master of Laws (LL.M.) in International Taxation from the University of Leiden (The Netherlands). He is admitted to the Italian Bar and the Italian Association of Chartered Accountants. He is a member of the International Academy of Estate and Trust Law, as well as a member of its Executive Council and chair of its Tax Committee. He is a member of STEP Italy and a member of the International Client Global SIG Steering Committee of STEP and of the International Client London UK Satellite SIG Committee of STEP. Nicola Saccardo n.saccardo@maisto.it He is ranked as leading expert in several legal directories, including Chambers High Net Worth 2017, Legal Week Private Clients Global Elite and Citywealth Leaders list. He is author of many publications on Italian tax matters and is frequent speaker at conferences.

25 Piazza F. Meda Milano t f milano@maisto.it Piazza D Aracoeli, Roma T F roma@maisto.it 2, Throgmorton Avenue London EC2N 2DG T. +44 (0) F. +44 (0) london@maisto.it This presentation has been prepared solely for informational purposes and is not to be construed nor considered as an opinion or any other piece of advice. The recipient should not construe the contents of this presentation as legal, tax, accounting or investment advice or a personal recommendation. The recipient should consult its own counsel, tax and financial advisers as to legal and related matters concerning any transaction described herein. This presentation does not purport to be all-inclusive or to contain all of the information that the recipient may require. No investment, disinvestment or other financial decisions or actions should be based solely on the information in this presentation.

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