Italy has not enacted an own specific legislation on the matter of trusts. However, on certain conditions, trusts are fully recognised in the Italian legal system as a result of the ratification of the the Hague Convention, come into force on 1 January 1992.

From an income tax perspective, a specific regulation of trusts exists as of 2006. Indeed, with Budget Law for 2007 trusts have been, inter alia, included among the taxable persons for corporate income tax purposes.

Over the time, the Italian Revenue Agency, most recently with the issue of Circular Letter n. 34 of 20 October 2022, has provided important clarifications which have certainly contributed to make the tax regime applicable to trusts in Italy clearer and less uncertain.

In the current framework, dealing with income taxes, three types of trust can essentially be found: 

  • trusts whose effects are not recognised from a tax standpoint (“disregarded trust”) and whose income should be attributed to the settlor or beneficiaries depending on the circumstances;
  • trusts whose beneficiaries are clearly identified in the deed of trust and who hold a current unconditional right to claim a share of the income generated by the assets held in trust (“transparent trusts”). In this type of trust the income perceived by the trust is imputed to the beneficiaries and taxed in their hands at progressive tax rates, even if not factually distributed to them;
  • trusts other than the above (“opaque trusts”), whose income is determined and taxed against the trust itself and it is not taxed in the hands of the beneficiaries when distributed (to the extent that the trust does not carry out a commercial activity or it is not established in a low-tax jurisdiction as defined by the Italian Income Tax Code (“TUIR”). In such cases, also the distribution to the beneficiaries represents a taxable event for income tax purposes).

In relation to the other taxes, the Italian Revenue Agency has recently confirmed that the Italian gift tax in most cases applies only at the time of distribution of the assets to the beneficiaries and not at the previous stage in which the assets are contributed to the trust by the settlor. In order for the gift tax to arise, the settlor must be resident in Italy at the time of the contribution of the assets to the trust, or the assets contributed must be located in Italy. The applicable gift tax rate (that currently ranges from 4% to 8%) and any possible allowance must be determined on the basis of the degree of kinship between the settlor and the beneficiaries.

In this rather favourable context for establishing trusts with Italian connections, however, some critical aspects still persist:

  • the quite complex tax rules that regulate the distributions of income by opaque trusts established in low-tax jurisdictions to Italian resident beneficiaries. The burden for the taxpayers and trustees is enhanced by the provision of article 45, paragraph 4-quater of TUIR whereby, if it is not possible to distinguish between income and capital, the entire amount received by the beneficiaries of trust must be treated as income and consequently taxed as income from capital;
  • the quite strict approach of the Italian Revenue Agency in the matter of disregarded trusts. Indeed, in the view of the Italian Revenue Agency the reservation of some kind of power in the hands of the settlor, protector or beneficiary often triggers the qualification of trusts as disregarded for tax purposes.

The above issues should not nevertheless have considerable negative impact in case the trust’s settlor and/or beneficiaries are resident in Italy and opt for the Italian lump sum tax regime referred to in article 24-bis of TUIR. 

As highlighted in our previous focus (, the Italian lump sum tax regime is designed for high-net-worth individuals who transfer their residence to Italy and provides for the payment of an annual substitute tax of EUR 100.000 on foreign source income (and gains). Moreover, no wealth, inheritance and gift taxes on foreign (non-Italian) held (or situs) assets are due.

Notwithstanding the lack of published rulings on the matter by the Italian Revenue Agency, the taxpayers resident in Italy under the lump sum tax regime may be able to take advantage of their status of settlor or beneficiary of trusts established in “trust friendly jurisdictions”. We especially refer to those jurisdictions which combine a well-run legislation with a favourable tax environment in which no income, gift and inheritance taxes are levied. In such scenario, from the perspective of a family who moves to Italy, the foreign income produced by the trust fund and the following distributions to the beneficiaries could generally not entail any taxation in the country of administration of the trust and any additional taxation in Italy (in which the foreign income at issue should be absorbed in the forfait of 100.000 EUR or 25.000 EUR in case of family members). Furthermore, in line of principle, in case of trusts with foreign assets and income set up at the time in which the settlor was not resident in Italy, it may be not necessary to keep track of the distinction between income and capital for the purposes of the above-mentioned article 45, paragraph 4-quater of TUIR and no additional taxes to the forfait of EUR 100.000 (or EUR 25.000 in case of family members) should be due, even in case of distributions of capital.

Another interesting opportunity for the taxpayers resident in Italy under the lump sum tax regime is represented by the possibility to establish and enjoying the benefits of foreign “reserved power trusts”, without running into the negative tax consequences that, under normal circumstances, would probably arise in Italy. In this scenario the settlor may retain powers of control and direction over the trust, like the power to revoke, vary or amend the trust instrument or to appoint, add or remove any trustee, protector or beneficiary. At the same time, the probable qualification of the trust as disregarded for Italian tax purposes should not entail any negative consequence as a result of the lump sum tax regime. Indeed, the income attributed to the settlor should be encompassed in the forfait of EUR 100.000 to the extent that they qualify as foreign income. Furthermore, no wealth taxes should be due in Italy by the settlor on the assets (financial instruments, properties) held by the trust, to the extent that they qualify as foreign assets. Finally, no disclosure of the existence of the foreign trust and of its assets should be made in the tax return of the taxpayer who has opted for the lump sum tax regime.

Edited by Lodovico Bolis