Offshore payout structure for Italian tax resident

[Hito]

Good day everyone,

What better solutions might a EU citizen with tax residence in Italy wholly owning a BVI Ltd banked in HK have for using company funds for daily expenses, instead of transferring funds directly to himself as dividends and paying 26% tax on it.

Possible factors that can be used
- Eligibility to apply for Italy’s 90% reduction on “employment income produced in Italy” -> opening Italian subsidiary and receiving high salary?
- Eligibility to apply for Italy’s 100K flat tax scheme (see below):

”Under the flat tax regime, the individual is subject to a substitutive tax of € 100,000 per year on non-Italian source income, including that held through interposed entities.
The Italian CFC regime does not apply to non-Italian participations held by the individual and no tax credit is granted for any tax paid abroad.
As an exception, for anti-avoidance purposes, capital gains realized upon the transfer of non-Italian "qualified" shareholdings in the first 5 years after the election remain subject to the ordinary Italian tax rate. Qualified shareholdings are those entitling to >20% of the voting rights or representing >25% of the share capital of a company (reduced to 2% and 5% for listed companies).
The individual can exclude from the flat tax regime determined Countries ("cherry picking mechanism"), the income derived therefrom is subject to Italian ordinary rules.
The Italian ordinary tax regime (i.e. effective taxation up to 45%) will remain applicable on Italian source income, capital gains on non-Italian "qualified" shareholdings in the first 5 years and on income sourced in Countries elected under the "cherry picking mechanism". Repatriation to Italy of foreign assets and income is possible at any time and does not trigger income taxation in Italy. Individuals electing for the Italian flat tax regime are subject to Italian inheritance and gift taxes solely with respect to assets physically located in the Italian territory. No tax will be due on the value of real estate and financial investments located abroad”

Thanks,
Hito

Could an admin please move this to the Tax section in the forum?

 

[JohnnyDoe]

If you already are resident in Italy, you can’t choose the flat tax scheme.
You should better receive cash or crypto from someone who can do the job for a fee.
Or leave Italy and enjoy a new place of residence.

 

[Hito]

Thanks for your feedback Johnny. Would it be feasible to get a credit card for the ltd and use it directly, instead of the funds ever being moved into a personal account? The current bank doesn’t issue cards.

 

[Konstanz]

Thanks for your feedback Johnny. Would it be feasible to get a credit card for the ltd and use it directly, instead of the funds ever being moved into a personal account? The current bank doesn’t issue cards.

Be careful. If you own BVI entity as Italy tax residet, you can be reported to Italy by the bank through CRS and you will have big problems with Italian tax authorities
I suggest you contact @Gediminas to get proper advice

 

[JohnnyDoe]

Be careful. If you own BVI entity as Italy tax residet, you can be reported to Italy by the bank through CRS and you will have big problems with Italian tax authorities
I suggest you contact @Gediminas to get proper advice

You should better contact an Italian tax advisor/lawyer. Meanwhile arrange for closing the company and emptying the account quickly.

 

[Hito]

Be careful. If you own BVI entity as Italy tax residet, you can be reported to Italy by the bank through CRS and you will have big problems with Italian tax authorities
I suggest you contact @Gediminas to get proper advice

Thanks for chipping in Konstanz. Could you give me a quick preview of the big problems you would be referring to? Are we talking about them jumping to the worst conclusion based on the origin of the ltd and thereby probing every cent of the company, trying to aggressively find fault?

You should better contact an Italian tax advisor/lawyer. Meanwhile arrange for closing the company and emptying the account quickly.

Quickly before they get to analyzing the company and “tearing” it down? (at least that’s the impression I get from the alertness in your post and that of Konstanz)

 

[Konstanz]

Thanks for chipping in Konstanz. Could you give me a quick preview of the big problems you would be referring to? Are we talking about them jumping to the worst conclusion based on the origin of the ltd and thereby probing every cent of the company, trying to aggressively find fault?

Quickly before they get to analyzing the company and “tearing” it down? (at least that’s the impression I get from the alertness in your post and that of Konstanz)

It's because BVI is offshore company and blacklisted in Italy. So, they can calculate and tax you as private individual for all company income as you private tax., because you as italian tax resident control BVI company.
BVI works perfectly but only IF you live in a tax free country like UAE, Bahamas etc. or you have "lump sum" taxation status in Switzerland whatever.

 

[Hito]

It's because BVI is offshore company and blacklisted in Italy. So, they can calculate and tax you as private individual for all company income as you private tax., because you as italian tax resident control BVI company.
BVI works perfectly but only IF you live in a tax free country like UAE, Bahamas etc. or you have "lump sum" taxation status in Switzerland whatever.

What if BVI isn’t actually on the blacklist? (the US virgin islands are) Apart from the risk of it being converted into a black list jurisdiction, do you see any other problems?

EU list of non-cooperative jurisdictions for tax purposes

The EU list of non-cooperative jurisdictions includes non-EU countries or territories that didn't make sufficient commitments to EU concerns on tax purposes.

www.consilium.europa.eu

 

[Konstanz]

What if BVI isn’t actually on the blacklist? (the US virgin islands are) Apart from the risk of it being converted into a black list jurisdiction, do you see any other problems?

EU list of non-cooperative jurisdictions for tax purposes

The EU list of non-cooperative jurisdictions includes non-EU countries or territories that didn't make sufficient commitments to EU concerns on tax purposes.

www.consilium.europa.eu

Most of countries have their own blacklists which are much more wider than EU generic list

 

[JohnnyDoe]

Thanks for chipping in Konstanz. Could you give me a quick preview of the big problems you would be referring to? Are we talking about them jumping to the worst conclusion based on the origin of the ltd and thereby probing every cent of the company, trying to aggressively find fault?

Quickly before they get to analyzing the company and “tearing” it down? (at least that’s the impression I get from the alertness in your post and that of Konstanz)

Quickly before s**t hits the fan. Dissolve the company, close the account, delete all traces, documents etc (for real! They might come in your house and confiscate your pc/phone/archive). Try at least to make their job difficult and to save what you can, whatever it costs. If you don’t act, you will lose everything and possibly more.

 

[marioIT]

Are you really registered in Italy as tax resident or are you only living there short-term?
e.g. you went to the local city hall, have the italian ID card and tax ID number etc?
Have you an italian passport too or only foreign one?
do you have family in italy, they're registered too(school etc)?
what documents you gave to the hk bank? have you filed any CRS forms? do they know you live in italy now?
I am not a tax lawyer, but these are all questions that can offset the initial picture and will have to provide the answers to a tax lawyer, especially in countries with thousands of crazy laws like Italy.

AFAIK BVI is on the italian black list only for individuals tax residency, not for companies.
e.g. italian citizen moves to BVI, Italy still continues to see him as tax resident, and if questioned (yearly compliance letters etc) he must prove he doesn't have any ties there.

Now for company accounts Italy has dropped the black-lists and follows pretty much the OECD definitions.
But they are very strict about the POEM(place of effective management). They can raid your house and if they find even a small email or paper you're fucked.

I agree with the above, it's a bad place tax/law wise and you really need expensive big4 for this stuff if you want to sleep somewhat safe.
Even then, there's still a risk to be questioned and fined without reason only because they woke up like that that day.
There is both a tax agency with his officers and also an economic (armed!) police.
There's a saying that when the guys show up, they aren't going away with empty pockets.
If they start a procedure it'll last years and it will hurt.
You know, they have priorities, so they pick the bigger/easier ones to catch, maybe you're not italian and they will not care, unless living there for years and evading millions.
But nowadays my friends told me they're implementing AI to handle the huge amount of CRS data, so they will start to catch more people.
Nearly every italian big football club is owned by US LLCs. And everyone knows unofficially who's behind them...
yet the tax agency goes to beat the small guys. So be careful.

 

[Hito]

Wow guys, really appreciate you taking the time to provide all this feedback!

Are you really registered in Italy as tax resident or are you only living there short-term?
e.g. you went to the local city hall, have the italian ID card and tax ID number etc?
Have you an italian passport too or only foreign one?
do you have family in italy, they're registered too(school etc)?
what documents you gave to the hk bank? have you filed any CRS forms? do they know you live in italy now?
I am not a tax lawyer, but these are all questions that can offset the initial picture and will have to provide the answers to a tax lawyer, especially in countries with thousands of crazy laws like Italy.

Yes, I’m a tax resident as of 2021 after having moved there for a new job. I’d answer yes to all of your questions, with the exception of citizenship - I’ve got a German passport.

As far as the bank is concerned they know I have an Italian phone number and work there, but know that the company is registered elsewhere. As far as CRS forms are concerned, there was never mention of Italy / EU.

AFAIK BVI is on the italian black list only for individuals tax residency, not for companies.
e.g. italian citizen moves to BVI, Italy still continues to see him as tax resident, and if questioned (yearly compliance letters etc) he must prove he doesn't have any ties there.

Now for company accounts Italy has dropped the black-lists and follows pretty much the OECD definitions.
But they are very strict about the POEM(place of effective management). They can raid your house and if they find even a small email or paper you're fucked.

This is also my understanding based on the research I did.

I agree with the above, it's a bad place tax/law wise and you really need expensive big4 for this stuff if you want to sleep somewhat safe.
Even then, there's still a risk to be questioned and fined without reason only because they woke up like that that day.
There is both a tax agency with his officers and also an economic (armed!) police.
There's a saying that when the guys show up, they aren't going away with empty pockets.
If they start a procedure it'll last years and it will hurt.
You know, they have priorities, so they pick the bigger/easier ones to catch, maybe you're not italian and they will not care, unless living there for years and evading millions.
But nowadays my friends told me they're implementing AI to handle the huge amount of CRS data, so they will start to catch more people.
Nearly every italian big football club is owned by US LLCs. And everyone knows unofficially who's behind them...
yet the tax agency goes to beat the small guys. So be careful.

@JohnnyDoe @marioIT One thing I find concerning is that as a tax resident, my accountant informed me that I now have an obligation to report all foreign financial investments and assets (RW form) held since 2021 by June of this year. Whilst I don’t have anything to hide, I’d lie if I wasn’t worried about negative consequences from the unjust use of “authority”. Failing to report might mean I get fined and/or draw increased attention.

Quickly before s**t hits the fan. Dissolve the company, close the account, delete all traces, documents etc (for real! They might come in your house and confiscate your pc/phone/archive). Try at least to make their job difficult and to save what you can, whatever it costs. If you don’t act, you will lose everything and possibly more.

Given the above, and given that I’m based and employed in Italy, where would you see me moving funds, to “secure“ them?

Again, I really appreciate all the help.

 

[JohnnyDoe]

Given the above, and given that I’m based and employed in Italy, where would you see me moving funds, to “secure“ them?

Cash, physical gold, crypto. Any of those, or a combination of those at your preference is fine. Just be sure to hide very well whatever you buy, where the guys in grey/green uniforms (GdF) can’t find.

 

[marioIT]

Yes, I’m a tax resident as of 2021 after having moved there for a new job. I’d answer yes to all of your questions.

well, then you're fucked if they find out and you didn't fix this!

I think you still can use the non-dom 100k flat tax if you want, if you just moved in last year. From their book:

The option of the substitute tax regime on income generated abroad shall be chosen in
the tax return relating to the tax period in which the taxpayer has moved his/her tax
residence to Italy or in the tax return for the following tax period.
Therefore, to benefit from the incentive in 2017, the option must be made in the tax
return to be submitted by October 31, 2018

Individuals - Tax regime for new residents - Agenzia delle Entrate

Tax regime for new residents

www.agenziaentrate.gov.it

the book

https://www.agenziaentrate.gov.it/portale/documents/20143/233483/Tax+incentives+for+attracting+human+capital+in+Italy_Tax_incentives_for_attracting_human_capital_in_Italy.pdf/f4a91a80-8ed0-92a5-0186-424a9013bfc3

You need to contact a law firm. Find one in Milan that deals with international clients.

 

[blizz]

hat better solutions might a EU citizen with tax residence in Italy wholly owning a BVI Ltd banked in HK have for using company funds for daily expenses

with what bank or EMI did you manage to open an account for your BVI company ?

 

[Hito]

well, then you're fucked if they find out and you didn't fix this!

I think you still can use the non-dom 100k flat tax if you want, if you just moved in last year. From their book:

Individuals - Tax regime for new residents - Agenzia delle Entrate

Tax regime for new residents

www.agenziaentrate.gov.it

the book

https://www.agenziaentrate.gov.it/portale/documents/20143/233483/Tax+incentives+for+attracting+human+capital+in+Italy_Tax_incentives_for_attracting_human_capital_in_Italy.pdf/f4a91a80-8ed0-92a5-0186-424a9013bfc3

You need to contact a law firm. Find one in Milan that deals with international clients.

Grazie Mario, I was considering the flat tax but wasn’t sure if it could still be applied for one year after the move.

Given your knowledge, if I successfully pay the 100k flat tax, do you think it would also cover a transfer of all company funds to myself if I were to dissolve the company? Would it be considered as foreign income?

Cash, physical gold, crypto. Any of those, or a combination of those at your preference is fine. Just be sure to hide very well whatever you buy, where the guys in grey/green uniforms (GdF) can’t find.

@JohnnyDoe What secure, privacy oriented setups / wallets might you recommend I use to enter the crypto market? Been wanting to start but haven’t done any research into the many options available yet.

with what bank or EMI did you manage to open an account for your BVI company ?

ABN Amro - but this was 10 years ago when a friend used to work there. I doubt they’d onboard me if I came today.

 

[JohnnyDoe]

Grazie Mario, I was considering the flat tax but wasn’t sure if it could still be applied for one year after the move.

Given your knowledge, if I successfully pay the 100k flat tax, do you think it would also cover a transfer of all company funds to myself if I were to dissolve the company? Would it be considered as foreign income?

@JohnnyDoe What secure, privacy oriented setups / wallets might you recommend I use to enter the crypto market? Been wanting to start but haven’t done any research into the many options available yet.


ABN Amro - but this was 10 years ago when a friend used to work there. I doubt they’d onboard me if I came today.

If you have not yet submitted your first tax returns and have been non resident for the last 10 years you can opt for the flat tax (subject to the approval of the Agenzia Entrate) and it will cover all your foreign income. No RW form for you. You will still have to pay standard taxes on your Italian income.
If you need assistance I can introduce you to a good accountant in Rome.

For crypto, any non custodial cold wallet will work, like Trezor. You can then look at DeFi for earning income.

 

[Hito]

If you have not yet submitted your first tax returns and have been non resident for the last 10 years you can opt for the flat tax (subject to the approval of the Agenzia Entrate) and it will cover all your foreign income. No RW form for you. You will still have to pay standard taxes on your Italian income.
If you need assistance I can introduce you to a good accountant in Rome.

For crypto, any non custodial cold wallet will work, like Trezor. You can then look at DeFi for earning income.

@JohnnyDoe Do you know if I might be able to pay the flat tax directly from my company account? Adding on to this, if I’m accepted and pay the tax, will dissolving the company and wiring all cash to private held accounts make it a tax free transaction?

Thanks for pointing me in the right direction with the type of wallet I should be looking for

 

[CyprusLawyer101]

Hi
Are you sure that you are off the German tax residency? There might still be a riks there. Finally what is your BVI operation?

 

[Hito]

Just got a confirmation from my accountant, if I pay the 100k flat tax now, it will only apply for 2021 - meaning that I’d pay a hefty 100k only to remove the obligation of declaring all foreign assets held in 2021 (RW form).

This also means that if keep my Italian tax residence in 2022 and choose to dissolve the company and move the funds to myself now, I’d have to pay another 100k flat tax this time next year for it to cover 2022.

@JohnnyDoe @marioIT Given the deadline for worldwide asset declaration and tax payment being June, what do you two think might be the risks of not declaring foreign assets for 2021 but paying all due normal taxes (including dividends from BVIco), cutting all ties with Italy and relocating to a tax haven, making it my new tax residence for 2022?

Hi
Are you sure that you are off the German tax residency? There might still be a riks there. Finally what is your BVI operation?

So dissolving the company and moving funds to myself might still trigger risks on the German side, regardless of Italian flat tax, right? Regarding Germany, I still have a few ties binding me to the country.

The BVI has no business operations as of now but sold a US apartment in 2021 at a loss.