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LOCONTE & PARTNERSWEALTH MANAGEMENT

***International estates in the Italian legal and tax system

Loconte & Partners – Studio Legale e Tributario 1


CROSS-BORDER ESTATES

According to Italian international private law an estate is regardedas cross-border when one of the key elements is not Italian, i.e. when:

� The deceased person is resident abroad, the heirs are residentin Italy and the assets are located abroad;

� The deceased person is resident in Italy, the heirs are residentabroad and the assets are located in Italy;

� The deceased person and the heirs are resident abroad and the assets are located in Italy;

� Thedeceased person and the heirs are resident in Italyand the assets are located abroad.


THE ITALIAN DOMESTIC LAW

The inheritance and gift tax – Legislative Decree n. 346/1990

� Each State must legislate on tax matters in its own Country -> inItaly the Legislative Decree n. 346 of 31 October 1990 regulatesinheritance and gift tax;

� In Italy the inheritance and gift tax is proportional to the value ofthe inherited or received assets, with different tax rates anddifferent no-tax allowances according to the relationship betweenthe deceased and the heirs.


THE ITALIAN INHERITANCE AND GIFT TAX

� The current tax rates

Relationship No-tax allowances Tax rate

Spouse, ascendantsand descendants

1,000,000 eur 4%

Brothers and sisters 100,000 eur 6%

Relatives up to 4°degree of relationship

Not applicable 6%

All other people Not applicable 8%

People with a severe disability –Recognised by the law n.104/1992

1,500,000 eur See above


TERRITORIALITY

The connecting criteria, provided by the article 2 of LegislativeDecree n. 346/1990 are the following:

� Worldwide taxation principle – If the deceased or donatorqualified as an Italian tax resident:

«The inheritance or gift tax is due on the worldwide inheritedassets»;

� The territoriality principle (lex rei sitae) – If the deceased ordonator qualified as non tax resident in Italy:

«If the deceased or donator qualified as non tax resident atthe demise or at the date of the transfer of wealth, theinheritance or gift tax is due only on the asset located inItaly»;

� Some assets (e.g. real estate located in Italy, shares in Italiancompanies) are irrefutably deemed to be located in Italy


CASH, JEWELERY AND FURNITURE

According to article 9 of the Legislative Decree n. 346/1990 «inherited asset is deemed to include also cash, jewelery and furnitures for a value of 10% of the total value of the estate, even if they are declared for a lower value, unless there is an analytical inventory, drawn up according to the articles 769 and following of the Italian Civil Code, stating a different value».

� the assumption does not apply if there is an analyticalinventory;

� The increase of 10% is calculated on the value of the asset lessdeductible allowances;

� The assumption does not apply if the deceased qualified as nontax resident in Italy at the demise.

THE VALUE OF DOMESTIC REAL ESTATE

The value of property located in Italy, according to art. 14 of TUS (Italian IH and Gift Tax Act), must be determined as follows:

� Full ownership: market value as of the demise;

� Usufruct: difference between the market value of full ownership and the value of bare ownership as determinedaccording to a specific schedule;

� If the stated value is at least equal to the cadastral value, no further claims can be raised by the Italian Tax Revenue (art. 34, co. 5 TUS).


THE VALUE OF FOREIGN REAL ESTATE

In case of property located abroad, the Italian Tax Authority,according to the Circ. 5/E of 10 January 1973, follows the criteriaof:

� The value stated by the taxpayer;� In special circumstances, the Value agreed by the Italian

Tax Authority with the foreign Tax Authority.

In any case International Tax Agreements in respect of exchange ofinformation are applicable.


DOUBLE TAXATION ISSUES

Each Country can choose its own connecting criteria, as:

� Residence, domicile and/or nationality of the taxpayer,regardless the location of assets (worldwide taxationprinciple);

� Principle of the location of assets.

In case of cross-border estates,double taxation issuesmay arise.


DOUBLE TAXATION MITIGATION

Generally speaking, Italy allows a foreing tax credit for inheritanceand gift taxes paid in another Country (art. 26 or 55, par.1-bis, ofthe Legislative Decree n. 346/90) when the same assets are taxed inboth countries;

The amount of the tax credit cannot exceed the amount of taxes thetaxpayer would have paid in Italy on the same assets.

Some Countries have signed International Tax Agreements againstthe Double Taxation also covering inheritance tax matters.


DOUBLE TAXATION TREATIES

The international Tax Agreements on inheritance and gift matterssigned by Italy are seven, of which:

� Six are based on the first OECD Model (Denmark, Israel,Greece, Sweden, United States and United Kingdom);

� One is based on the new OECD Model (France)

According to above Agreements the general criteria to avoid thedouble taxation are the following:

� International information exchange;

� Principle of tax domicile (habitual abode, center of vitalinterests, nationality or mutual agreement between competentAuhtorities).


DOUBLE TAXATION TREATIES

The mechanism provided by International Tax Agreements in orderto avoid double taxation are:

� Tax exemption: assets are only taxed in the State where theyare located (Sweden, Greece, Israel and Denmark);

� Foreign tax credit (United States and France): a tax credit isgranted in the Country of residence for taxes paid in theCountry where the assets are located.


THE INTERNATIONAL TAX AGREEMENT ON INHERITANCE TAX BETWEEN ITALY AND USA

The International Tax Agreement between Italy and USA on inheritancetax has been signed in March 1955 and includes cases where the deceasedis resident in a Country and the asset is located in the other Country.

� Territoriality rules : art 3 of the International Tax Agreementdetermines where the asset is deemed to be located if an individual iscitizen or domiciled in one of the contracting States;

� Tax credit: art 5 of the International Tax Agreement provides that, ifthe same asset is taxed in both contracting States, a tax credit shall begranted by the State of residence or citizenship of the deceased;

� Exchange of information: art 6 of the International Tax Agreementprovides that Italy and US must exchange information on theinternational estates.


EXAMPLE

� The deceased is resident in Italy at the demise, heirs are USresidents and the inherited asset is composed by a property inNew York and some shares in a US company.

� According to the Legislative Decree n. 346/1990, if thedeceased had his last tax residence in Italy, the inheritance taxis due on his worldwide transferred rights ans asset (worldwidetaxation principle )

� In case of double imposition a tax credit shall be granted by theState of the residence of the deceased


TAX ISSUES – ITALY/USA

Whether the deceased was resident in Italy or the asset was locatedin Italy, the heirs, within 12 months from the opening of thesuccession and regardless of their tax residence, must file with thecompetent Office of the Italian Revenue a declaration of succession.

� If the deceased was resident in Italy: the declaration should befiled to the competent Office in relation to his last residence.

� If the deceased was resident in USA: the declaration should befiled to the Rome Revenue Office.


LONDON42 Barkeley SquareW1J5AWTel +44(0)207409501

[email protected]

MILANOVia Fratelli Gabba, 320121Tel +39.02.45476250Fax [email protected]

NEW YORK350 Park AvenueNY 10022Tel +1.9174384351

[email protected]

PADOVAGalleria Porte Contarine, 435100Tel +39.02.45476250Fax [email protected]

BARIC.so della Carboneria, 1570123Tel +390805722880Fax [email protected]

ROMAG.Battista Martini 1600198Tel +39.06.45682450Fax [email protected]

Avv. Angela Cordasco

[email protected]

LOCONTE & PARTNERS

WEALTH MANAGEMENT

***

Wealth management in Italy: new opportunities for foreign

investors



Wealth Management

Investing wealth - A 2018 Global Wealth Report

• Driven by accelerating economic and equity market performance in key regions,

global HNWI wealth grew to 10.6% to surpass US$70 trillion threshold for the first

time;

• High net worth individuals around the world enjoyed investment returns above 20%

for the second year in a row, with clients in Asia-Pacific (excl. Japan) and Latin

America realizing the best returns compared with other regions;

• While overall asset allocation remained largely stable since the 2017 WWR,

enthusiasm for digital currency broke out in 2017 with 29.0% of HNWIs globally

saying they had a high degree of interest in purchasing or holding cryptocurrencies

and 26.9% saying they were somewhat interested. Despite the growing fervor, wealth

management firms have to-date been ambivalent about offering guidance, with only

34.6% of HNWI saying they had received cryptocurrency information from their

wealth managers;

• With disruptive trends challenging record wealth growth, wealth management is

poised for renovation.

Anirban Bose, Capgemini, Global Wealth Report 2018


Wealth Management

Investing wealth - A 2018 Global Wealth Report


New Opportunities - Italian Real Estate

Italian Real Estate –A «brick-solid» market



Italian Real Estate – Foreign Investments

Source: Cushman & Wakefield: Italian Investment market Overview, 2018



A constantly evolving market

New investment opportunities inspired by changes in society,

technology and business strategies.

• Logistics

• Housing for seniors and nursing homes

• Co-working and shared office spaces



Logistics



Logistics

• Increased reliance on e-commerce;

• Reduction in the distance between distribution hubs and inner cities (a function of product

demand, cost of transportation, and development of electric/green vehicles etc.)

• Competitive market which rewards speed, precision and flexibility;

• Development of «last mile» delivery distribution points;

• According to CBRE, in Italy the share of investors preferring logistics is on the rise: 20%

in 2018, rising from 8% in 2016 and 14% in 2017;

• Development of the retail sector fosters and is supported by the development of logistics;

• Quality tenants and well structured lease contracts are crucial to investments in logistics.



Source: Cushman & Wakefield, Real Estate Market 2018

Logistics


New Opportunities - Elderly care

Ageing population: a European trend

The demographic old-age dependency ratio (people aged 65 or above relative

to those aged 15-64) is projected to increase significantly in the EU as a whole

in the coming decades. Being about 25% in 2010, it has risen to 29.6% in 2016

and is projected to rise further, in particular up to 2050, and eventually reach

51.2% in 2070. This implies that the EU would move from four working-age

people for every person aged over 65 years in 2010 to around two working-age

persons over the projection horizon.

(The 2018 Ageing Report)



Factors

- Ageing population;

- Compression of wages/income;

- Young family members are unable to care for family elders (from occasional

assistance to around the clock care). This is often due to academic

commitments, the need to work full hours, etc.;

- Emigration of young adults;

- National and especially regional subsidies to structures designed to provide

elderly care;

- Inadequate coverage: as of 2017, 18.5 beds/1000 inhabitants vs. optimal

estimated coverage (EU estimate: 50beds/1000 inhabitants).



The Italian market for elderly care

▪ Case di Cura: (Retirement homes) – typically designed to host self-sufficient or

partially self-sufficient elders. Nursing staff is present at all times but medical staff

need not be. Generally real estate designed for such purpose features diversified

lodging solutions (different sized rooms, with different services, etc);

▪ RSA: (Long term care) – structures designed to host non self-sufficient elders with

specific medical needs. Design and construction generally favors function and

efficiency. Higher operating costs due to more stringent operating requirements;

_______________

▪ Accreditamento: The act by which the region authorizes a private entity to provide

services on behalf of the national healthcare system (SSN) on the basis of an

agreement between the public administration and the entity/structure;

▪ Improved legal environment: Faster payment of invoices (180 days - Decrees

351/2012 - 35/2013) and increased budgets dedicated to elderly care.



The Italian market for elderly care

▪ A growing market with some successful first movers (for example, ORPEA group

with more than 750 facilities, 77,100 beds and 50,000 beds with an infrastructure

extending across several European countries);

▪ A rapidly growing market: between 2006 and 2015, RSA investments totaled 30

million Euros growing to 230 million between 2015 and 2017;

▪ Significant recent investments (e.g. 2016 - Fondo Personae managed by

Serenissima SGR and promoted by Orpea, specialized real estate investment fund

open to Professional and Qualified Investors only);

▪ Experts report return rates a high as 7% pre-tax (see ThreeStones Capital);

▪ New, tailored legal solutions to allow elders to provide for themselves financially;

(However…)

▪ Tenancy “quality” and operation standards are of paramount importance for

continued profitability;

▪ Medium to long investment time frame;

▪ Regulatory and legal complexities.


The sharing economy - Co-working

As society changes so does the real estate market: Co-working

- Increased digitalization and decreased dependency on physical resources (space,

infrastructure, staff, etc);

- Downsizing of existing businesses;

- Flexibility to pursue attractive markets as these move across the country/countries;

- Economic crisis and unreliable cash flow vs. fixed real estate/utility costs;

- Change of perspective: from a society based on absolute ownership to a sharing

economy;

- Vacancy rates drop;

- Diversification and multiplication of independent tenancies reduces risk;

- Reduced risk in turn reassures banks and facilitates lending;

- Smoothed out cash flows for landlords (increased reliability and predictability);

- Affordability for SMEs, increased services and utilities;

- Stimulating working environment; increased networking and synergies between

enterprises/workers.



As society changes so does the real estate market: co-working and flexible offices

Credit Suisse Report, February 2018



The Italian co-working numbers

▪ According to godesk.it (2018 survey), there

are 551 co-working spaces in Italy;

▪ According to mycowo (mycowo.com)

Milan has the highest concentration of co-

workings spaces;

▪ Coworkers are 53% freelancers, 39%

entrepreneurs and 8% others;

▪ 62% male and 38% female;

▪ “indispensable” services are high speed

internet, printing hardware, meetings

spaces and…coffee.


Conclusions

The Italian Real Estate market

▪ New asset classes and market segments;

▪ Depending on the investor’s profile, investment strategy, needs and level of risk

aversion, the choice of the actual investment instrument will differ;

▪ Direct investments (as a person or through an SPV) vs. indirect investments;

▪ Optimization of liabilities and overall tax burden;

▪ Wealth management: balancing several factors:

▪ Decision making and propensity for direct management;

▪ Ease of disinvestment;

▪ Divisibility;

▪ Overall risk;

▪ Family relationships, skills, ambitions and desires;


The Art Market

Italy and the Global Art Market


The Art Market

The numbers of the global art market

▪ Sales in the global art market increased 12% from 2016, reaching $63.7 billion in

2017;

▪ The US market was the largest, with 42% of total sales by value. China came

in second with 21% and the UK third with 20% - combined the three markets

totaled 83% of the global sales by value;

▪ Dealers at the highest ends (sales at over $50 million) experienced a marked

increase in sales, while lower end sales saw a decline;

▪ Auction sales of fine and decorative art totaled $28.5 billion in 2017;

▪ US, UK and China auction sales totaled 74% of overall sales;

▪ The largest sector by value was Post War and Contemporary art (46%) followed by

Modern Art (27%);

▪ The market for European old masters rose 64% due to the sale of a single Leonardo

da Vinci painting (for $450 million, in the absence of which, the sales would have

fallen to 11%).

Source: The Art market 2018 – An art Basel & UBS Report


The Art Market


The Art Market

Art & Technology

The Online Market:

• Estimates suggest that the online art and antiques reached a new high of $5.4

billion in 2017, representing 8% of the value of global sales and up 10% from

2016;

• The online market has increased 72% over the last five years;

• Online sales have expanded the buyer base: 45% of the online buyers were new to

the business in 2017 (new online buyers totaled 40% of top tier houses buyers);

• Most of the traditional dealers recognized the potential of the online market.

Source: The Art market 2018 – An art Basel & UBS Report


The Art Market

Changing the rules of the game

With law no. 124/17, several provisions of the «Code of cultural heritage and

Landscape» have been modified to improve the regulatory framework of the art

market.

• Law no. 124/17 is the result of a compromise between those who wish to maintain

restrictive provisions in place to protect Italy’s heritage and those who believe that

easing restrictions would, in fact, serve the purpose of adding value to works of art

and strengthen an important market;

• Specifically, the law addresses (i) the criteria according to which the state may

restrict export of works of art; (ii) the duration and effectiveness of certain

documents pertaining to the circulation of said works of art.


The Art Market

Changing the rules of the game

Specifically:

• The temporal limit beyond which the works of a deceased artist may be subject to

restrictive and protective action by the state has been increased to 70 years (from

50) calculated from the year of creation;

• In any event, the state may exercise its powers in the event of works of art of

extraordinary value. However, the state must issue the appropriate «notice» within

60 days starting from the day of filing of the communication by the owner stating

that the piece is to be shipped out of the country;

• For some works of art valued at under 13.500,00 Euro, the exporting procedure is

based on the owner’s «self declaration» and no longer requires an export license;

• New and updated criteria for the offices charged with the release of circulation

permits (Ministerial Decree December 12th, 2017) and a 5 year long «passport» for

circulating works of art.


The luxury market

The strength of «Made in Italy»

Source: Deloitte: Global Powers of Luxury Goods 2018: Shaping the future of the luxury industry


The luxury market

The strength of «Made in Italy»

• Out of the top 100 luxury companies, 24 are Italian;

• Sales are highly influenced by currency exchange rates;

• Italian companies are predominantly family-led and the overall performance recorded by

Deloitte has been strongly influenced by the top three players: Luxottica, Prada and Giorgio

Armani (accounting for almost 50% of the 2016 sales);

• Declines in sales of the largest players have been met with a variety of solutions, some of

which are consistent with the changes recorded in other sectors:

• Development of retail network;

• Restructuring and optimization of brands and distribution network;

• Development of internet based sale solutions.

• Consistent signs of foreign investors’ interest: merger between Luxottica & Essilor, Chinese

investments and interest (coupled with growth of consumer base and e-commerce platforms).


The luxury market

Luxury market trends

• From physical products to digital experiential (Deloitte 2017);

• From standardization to personalization (Deloitte 2017);

• Emerging technologies and consumer perception;


The luxury market


The luxury market

Luxury and technology

• Younger, tech-savvy,

generations are now

leading the consumer

base;

• Personalization of

experience and product;

• Artificial intelligence,

personalized high-end

and shopping, voice-

controlled shopping and

augmented reality;

• Online e-commerce

platforms (to cater to

new market segments

and world regions).


The luxury market

Luxury Pavilion – a bridge between Italian luxury brands and consumers

• Luxury Pavilion – the response from Tmall to the needs of young Chinese millennials;

• 28 brands, 6 are Italian;

• An opportunity for Italian luxury brands to increase the consumer base.

LONDON42 Barkeley Square

W1J5AW

Tel +44(0)207409501

[email protected]

MILANOVia Fratelli Gabba, 3

20121

Tel +39.02.45476250

Fax +39.02.45476251

[email protected]

NEW YORK350 Park Avenue

NY 10022

Tel +1.9174384351

[email protected]

PADOVAGalleria Porte Contarine, 4

35100

Tel +39.02.45476250

Fax +39.02.45476251

[email protected]

BARIC.so della Carboneria, 15

70123

Tel +390805722880

Fax +390805759312

[email protected]

ROMAG.Battista Martini 16

00198

Tel +39.06.45682450

Fax +39.06.45682452

[email protected]

Alessandro Negri della Torre

[email protected]

LOCONTE & PARTNERSStudio Legale e Tributario

Member of

www.loconteandpartners.it

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