Italy is facing a dramatic outflow of “human capital”. According to Eurostat, only Romania and Poland pips Italy to the post in terms of emigration to other EU countries. But back to Italy: 30% of those who leave have a university degree (the rest are unskilled). Mobility of brains is generally a good thing, but the problem in Italy is that the inbound flow is far less than outbound.

Italy has been trying to turn the tide since 2010, by offering very favourable tax incentive packages to convince skilled/wealthy individuals to move to Italy to work/enjoy their fortunes in our fine country. The government has since set its sights on foreign pension holders, offering special incentives for them.

Here are the four incentive packages available:

- HNWI (since 2017): HNWI who move their tax residence to Italy after being resident elsewhere for 9 of the 10 previous tax years can opt for a full tax exemption on their foreign-sourced income and assets (inc. donations and successions) against payment of a substitute annual flat tax of €100k (25k for the spouse and other family members). The exemption is for 15 years but HNWI can withdraw at any time.

- Inbound workers, self-employed workers and entrepreneurs (since 2016, boosted this year): anyone resident abroad in the previous two tax years who commits to remain resident – and work – in Italy for at least two years can get a 30% reduction on their taxable income from their job/entrepreneurial activity. This leaps to 90% if the residence and workplace is in southern Italy. The reduction is for 5 years and may be renewed for another 5, but with a drop to 50%, if the worker has any children under 18 or purchases a home (to live in full time) in Italy in the 12 months preceding the move or after moving. Interestingly, artists and athletes are eligible for this reduction.

- Inbound professors and researchers (since 2011): by moving their tax residence to Italy, then can get a 90% exemption off their taxable basis on their Italian-sourced income for 6 years. A 2-year extension is available for those who have any children under 18 or purchase a home (to live in full time) in Italy in the 12 months preceding or following obtainment of Italian tax residence. The extension is for 11 years for those with 2 children and 13 years for those with more than 2.

- Inbound retirees (2019): foreign pensioners who move their tax residence (having resided outside of Italy for the last 5 years) to southern Italy (but to small towns only!) may elect to pay tax in Italy at the flat rate of 7% on foreign-sourced income for 5 years.

It is too early to judge whether the desired results will be achieved and the flow of brains and muscle redirected. The FY 2017 data (tax returns filed in September 2018) shed little light. For 2017, only 75 HNWI (and 19 relatives) 1,600 professors/researchers and 3,700 inbound workers signed up. The average salary of the last two categories was +€120k: 6 times the national average for employed workers. It might not come as much of a surprise that this average could have been influenced by the many foreign footballers who have joined Italian teams: they are perfect ‘tax’ candidates. The 100 highest paid players boast yearly salaries of +€3 million … with bonuses to boot. Their normal tax rate is approx. 45%, falling to 13.5% with the new incentive. This translates to a yearly saving of a whopping €315k for every million received. An even more fortunate footballer would be one who goes to play for Naples. Admittedly he would have to live close to an active volcano, but I am sure his effective tax rate of less than 5% would more than make up for any ‘discomfort’. Yet another reason I wish my parents had made me become a famous footballer, or made me live abroad …