Trustee or Beneficiary of a non-resident trust? Action Required!

 

The Italian Revenue Agency has published the draft of the Circular on the taxation of trusts with important rules for trustees of trusts not resident in Italy, but with beneficiaries resident in Italy. The Circular will become definitive after 30.9.21.

The Circular mainly comments on two aspects:

a)   the taxation rules for transfers of income and capital to Italian resident beneficiaries of trusts who are resident in States with a nominal annual tax level lower than 12.5% ​​or 13.5% (<50% of that Italian IRES of 24% or 26% for financial income);

b)   the taxation for the purposes of inheritance and gift taxes of transfers from the settlor to the trustee and from the trustee to the beneficiaries.

Point a) is very important for trustees!

From 2019, the Italian tax law provides that “If, in relation to the attributions of foreign trusts, as well as institutions with similar content, to beneficiaries resident in Italy, it is not possible to distinguish between income and assets, the entire amount received constitutes income” and therefore will be taxed in the year of the collection with an IRES tax of 43% for income over € 75,000.00 (paragraph 4-quater of article 45 of the TUIR DPR 917/1986).

The law provides that all sums paid to the beneficiary resident in Italy are considered capital income unless the foreign trustee delivers to the beneficiary resident in Italy a statement of the trust assets drawn up with Italian tax rules from which it is possible to distinguish between:

1.   patrimony, consisting of the initial patrimonial endowment and any subsequent transfer made by the Settlor (or by third parties) in favor of the trust;

2.   income, consisting of any income earned by the trust, according to Italian tax rules (produced everywhere according to the “worldwide taxation principle”).

If the trustee of the trust is not resident in Italy draws up this type of report and delivers it to the beneficiary resident in Italy, the portion of assets that the beneficiary resident in Italy collects (1) will not be taxed for direct tax purposes, while the income (2 ) will be taxed at the personal income tax rate (the rates start from 27% and reach 43% for payments over € 75,000.00).

The trustee of the trust not resident in Italy must maintain analytical accounting that allows distinguishing:

a)   the share/attribution referable to the value of the trust assets at the moment of the trust’s birth;

b)   any assignments of assets made to the beneficiaries;

c)   income earned from year to year;

d)  attributions in favor of the beneficiaries made during the life of the trust.

Special rules are envisaged to calculate the share of income and assets paid to the beneficiary resident in Italy in the case of distribution to beneficiaries of sums of money deriving from the sale of real estate.

The report must specify whether the trust has assets and income produced in Italy and these should not be subject to taxation when transferred to the beneficiaries, as well as any income taxes paid abroad.

For information on how to prepare the report in compliance with Italian tax regulations and other news of the Circular of the Italian Revenue Trust, contact us at the email: info@studiogaeta.com and subscribe to our newsletter here.

 

Paolo Gaeta