Italy has an exit tax, and it is a serious one. It also has a rule, in the same article, saying that the transfer abroad of a company’s tax residence does not of itself produce any taxation of that company’s shareholders. Those two statements sit at opposite ends of article 166 of the consolidated income tax code, in its first and fourteenth paragraphs, and the distance between them is the whole subject of this piece.
The practical question for a shareholder leaving Italy is therefore not what the Italian exit tax costs. In most private cases it costs nothing, because it does not apply to him. The question is what Italy keeps after he has gone, and how the instalment regime works for the cases where the charge does reach an individual, which are narrower and more specific than the general commentary suggests.
One change of numbering is already enacted. From 1 January 2027 the income tax code of 1986 gives way to the consolidated income tax text approved by Legislative Decree 117 of 19 June 2026, whose article 376 repeals articles 1 to 191 of the code and whose article 377 applies the new text from that date. The exit rules pass to article 193 and the residence rules to article 2 of the new text, where paragraph 2 bis becomes paragraph 3, with their wording unchanged apart from cross references and terminology. The references below are to the provisions in force today.
The charge applies to enterprises, not to shareholders
Article 166 opens by stating that its provisions apply to soggetti che esercitano imprese commerciali, persons carrying on commercial enterprises, where one of five situations occurs. The first is that they are resident in Italy and transfer their tax residence abroad. The others concern transfers of assets to a foreign permanent establishment under the branch exemption, the transfer abroad by a non resident of its Italian permanent establishment or of assets forming part of it, and cross border mergers, divisions and contributions.
Nothing in that list reaches a private individual holding shares outside a business. An Italian resident who owns a participation in his personal estate and moves abroad is not carrying on a commercial enterprise in respect of that holding, and the article does not touch him. This is the single most important structural fact about Italian departure taxation, and it is the opposite of the German position, where section 6 of the Foreign Tax Act treats, where its conditions are met, the end of unlimited tax liability on giving up residence as a disposal at fair value of shares within section 17 of the Income Tax Act.
Where an individual does carry on a commercial enterprise, the position changes. Paragraph 13 of article 166 applies to individual enterprises and partnerships letters (g) and (l) of article 17(1), the separate taxation provisions for gains on the disposal of a business held for more than five years and for income on the liquidation of a business carried on for more than five years, and for sums attributed to partners on withdrawal, exclusion, capital reduction or liquidation, or to heirs on a partner’s death, where more than five years have run since the partnership was formed. The distinction that matters, therefore, is not between individuals and companies. It is between assets held in a business and assets held privately.
What the charge measures
Where the article applies to a transfer of residence, the taxable amount is a gain determined as a single figure: the difference between the aggregate market value and the corresponding tax recognized cost of the assets and liabilities of the person transferring residence, excluding those that remain within an Italian permanent establishment of that person.
Market value is determined by reference to the conditions and prices that would have been agreed between independent parties operating at arm’s length in comparable circumstances, taking account, where a business or a branch of a business is concerned, of the value of goodwill calculated by reference to the functions and risks transferred. In determining it, account is taken of the guidance in the decree of the Ministry of Economy and Finance issued under article 110(7).
Two further elements come into the same computation. Reserves in suspension of tax, including those taxable only on distribution, are brought into charge to the extent that they are not reconstituted in the accounting equity of an Italian permanent establishment. And where no permanent establishment remains in Italy, losses realized up to the end of the last period of residence are set first against the income of that period and then against the exit gain itself, in both cases without the ordinary loss limit of article 84(1). Where one remains, that limit applies to the set off against the income of the period, and the share of losses attributable to the permanent establishment is excluded from the set off against the gain. The exit charge is therefore not gross. For a business leaving with accumulated losses, the loss relief can absorb a substantial part of it.
Five annual instalments, and the states that qualify
The tax determined on the exit income, reduced by those losses, may on election be paid in five equal annual instalments. The election is available where the residence is transferred to a European Union state, or to a European Economic Area state included in the list, provided for by article 11(4)(c) of Legislative Decree 239 of 1996, of states allowing an adequate exchange of information and with which Italy has concluded an agreement on mutual assistance in the recovery of tax claims comparable to that of Directive 2010/24/EU.
Two conditions frame the election. It is expressly subordinated to the provision of any guarantees required, and it must cover the entire tax on the exit income, determined as a single figure. There is no partial instalment plan, and no ability to pay the comfortable part and defer the rest. Interest is due on the instalments after the first, at the rate set by article 20 of Legislative Decree 241 of 9 July 1997, to which paragraph 11 of article 166 refers.
The list condition deserves attention because it is not the same as membership of the Economic Area. An Economic Area state that is not on the list, or with which the recovery assistance is not comparable, does not qualify, and the tax is payable in full, without instalments. For an Economic Area state outside the Union, checking both conditions before the move decides whether four fifths of the tax can be deferred, on election and subject to any guarantees required.
What accelerates the outstanding instalments
Paragraph 12 of article 166 sets out the events that cause loss of the instalment facility, with the residual tax then payable by the next instalment date. Where the election was based on a transfer of residence, a subsequent transfer of residence to a state outside the qualifying category ends it. The equivalent rule applies to the other four cases: a later move of the assets, the permanent establishment, the head office or the receiving company outside the qualifying states.
Three further events follow. A merger, division or contribution of a business that transfers the assets whose market value formed the exit gain to a person resident outside the qualifying states ends the facility. So does the disposal of those assets to third parties, including transactions assimilated to disposals, realizations through compensation for their loss or damage, and the further case listed in letter (g) of paragraph 12. So does bankruptcy or the extinction of the person who made the election.
Two complete the list. Failure to pay an instalment ends the facility unless it is regularized within five months of the due date. And for partnerships, the disposal of the quotas by the partners is itself a terminating event, which means that the instalment plan of a partnership is hostage to a transaction at the level above it.
The shareholder is expressly left out
Article 166 ends its substantive rules with a sentence of unusual clarity. The transfer abroad of the tax residence of a company with share capital does not of itself entail any taxation of the shareholders of that company. Italy could have adopted the opposite rule, treating the departure of the company as a deemed distribution. It did not.
For a family holding structure this is the point on which the Italian analysis turns. Moving the operating company or the holding out of Italy is an exit event at the level of the entity, computed on its assets and liabilities, and payable in five instalments if the destination qualifies. It is not a second event at the level of the family. Whatever the entity pays, the shareholders pay nothing by reason of the move alone.
The corollary is that the two decisions, moving the company and moving the family, are genuinely separable in Italy in a way that they are not in systems that tax the departing shareholder directly. They can be sequenced, and each can be tested on its own merits.
What Italy keeps after the individual has left
The absence of an exit charge on a private shareholder does not mean Italy releases him. Under the source rules of article 23, gains arising from the disposal for consideration of participations in resident companies are treated as produced in Italy, and are therefore within the charge on non residents. Excluded from that rule are gains on non qualified participations in resident companies negotiated on regulated markets, wherever those participations are held.
A separate provision, paragraph 1 bis of the same article, extends the source rule to participations in non resident companies whose value derives, for more than half, directly or indirectly from immovable property situated in Italy, at any moment during the 365 days preceding the disposal. Listed securities are excluded from that extension. A departing shareholder whose wealth sits in an Italian property portfolio held through a foreign company therefore remains within the Italian charge, and the test looks back a year rather than only at the disposal date.
The practical consequence is that Italy’s claim moves from the moment of departure to the moment of sale, and reaches only the participations within these source rules. Even then the domestic charge is not automatic. Article 5(5) of Legislative Decree 461 of 1997 takes gains on non qualified participations out of income for residents of states that allow an adequate exchange of information, while gains on qualified participations, those above the voting or capital thresholds of article 67(1)(c), stay within the charge. Paragraph 5 bis withdraws that relief for unlisted participations whose value derives, for more than half and at any moment during the 365 days preceding the disposal, directly or indirectly from immovable property in Italy. Whether it recovers anything then depends on the applicable treaty, which is a question about the destination and not about Italy.
Residence itself is the first battleground
Since 1 January 2024 the residence rule in article 2 has been rewritten. A person is resident where, for the greater part of the tax period and counting fractions of a day, he has his residence under the civil code or his domicile in Italy, or is present there. Domicile is defined for this purpose as the place where the person’s personal and family relations principally develop. Registration in the resident population records for the greater part of the period raises a presumption of residence, rebuttable by contrary proof.
Alongside it stands the older presumption of article 2, paragraph 2 bis. Italian citizens removed from the resident population records and transferred to states or territories with a privileged tax regime identified by ministerial decree are presumed resident unless they prove the contrary. The consolidated text of paragraph 2 bis reads the other way round, as a presumption for moves to states other than those on a list, but that wording applies only from the tax period after publication of the decree it calls for, and the Revenue Agency’s Circular 20/E of 4 November 2024 on residence confirms that the presumption continues to apply to moves to the states listed in the ministerial decree of 4 May 1999, from which Switzerland was removed with effect from 1 January 2024. For a citizen moving to a listed jurisdiction, the burden of proof is reversed.
For a shareholder leaving Italy with a participation, these two provisions matter more than article 166 ever will. He is outside the exit charge because he is not carrying on an enterprise. He may remain within the Italian charge on the eventual sale, under the source rule and subject to the exemption for non qualified holdings described above. And whether he is treated under Italian law as having left at all is decided by three alternative tests, civil residence, a domicile built on personal and family relations, and physical presence, each applied for the greater part of a tax period, alongside the registration presumption, with the burden reversed if he is an Italian citizen removed from the resident population records and his destination is on the ministerial list of privileged tax regimes.
This article is informational and does not constitute tax or legal advice. The treatment of any structure depends on its facts and on the law of each jurisdiction involved. Each engagement is subject to scope and applicable regulation.