Offshore Investment Bonds: The tax treatment explained

Offshore investment Bond, investment bonds, life assurance investment bonds,  polizze assicurative, call them what you will.  There are clear tax benefits to holding these as a tax resident in Italy, but not all are created equal and it is important to know the tax implications for each different type.

Firstly, offshore investment bonds.  These are one of the least favourable types of investment wrappers in Italy.  Why?  The word offshore normally gives it away.  They are located in offshore territories or paradisi fiscali.  For the Italian tax authorities these places are mostly black listed.  This means that the tax treatment of the bond is NOT favourable or at normal rates.

In fact, if a withdrawal is made from an offshore investment bond then any capital gain could be charged at your highest marginal rate of income tax.  i.e the gain is added to your other income for the year.  Considering that the lowest rates of IRPEF (income tax rates) start at 23%, then it may not be in your interests to hold one of these as a tax resident in Italy.  That could rise to 25, 35 or 43% depending on your other income in any one year, 

Understanding this concept is critical for British folks particularly, since the Isle of Man is often recommended by ill informed UK based financial advisers for clients who are moving overseas.   Little attention is taken to where you might be moving to.  This creates a whole raft of difficulties as most of these contracts have exit terms which can be costly to break.

Lastly, on this point, there are also financial advisers operating exclusively with ex-pats, in Italy and outside, who may recommend an offshore Bond as a compliant vehicle in which to hold assets.  If an Isle of Man, Jersey, Guernsey, Caribbean islands, or any other offshore territory is recommended as the domicile for an investment product, and you are a resident in Italy, then you should politely decline unless a clear rationale for tax reasons can be justified.

If you hold assets in an offshore territory and would like to know how to repatriate them back into Europe in a complaint vehicle for Italian tax purposes you can contact me at gareth.horsfall @spectrum-ifa.com or on +39 333 6492356