Be Glad You’re Not in Italy

If you've been following the news recently, you'll be familiar with Italy's struggles to avoid becoming the next Greek tragedy.

To accomplish this difficult task, new Prime Minister and technocrat "Super" Mario Monti is attempting to introduce an aggressive austerity budget. While yet to be passed by legislators, this decree has already been signed by the Italian head of state. Desperate times, desperate measures, eh?

Some of the "highlights" of the proposed program:

  • Higher Value Added Tax (VAT): From 21% to 23% starting next fall.
  • Lower threshold for cash transactions: To supposedly help avoid tax evasion, there was a previous limit of € 2,500 per transaction if done in cash. That limit has been reduced to € 1,000 with the exception of payments to those working for the government, pensions and oddly, opera performances. Those latter three items are subject to a new cash limit of just € 500. (Oh, and "structuring" will not be tolerated - i.e. getting around the restrictions by using multiple transactions in a short period of time to the same buyer / seller. Banks will be watching out for such patterns.)
  • Tax on private planes and helicopters: The draft provides for a tax on the annual rate applicable to private aircraft registered in the national aircraft register. The fee is calculated according to weight and is doubled for private helicopters.
  • Tax on luxury cars: The luxury tax is also provided for the most powerful cars on an annual basis. Beginning on the first of January 2012, such cars will be subject to an annual tax equal to € 20 for each kilowatt of power of the vehicle exceeding 170 kW (231 hp).
  • 1.5% "bonus" tax on the most recent amnesty period: 3 times since 2001, Italy has given its citizens the opportunity to repatriate capital from overseas with minimal charges. Approximately € 180 Billion was brought in this way. The government wants to apply an extra 1.5% tax to this substantial amount retroactively.
  • Tax on Financial Assets: The authorities want to apply a tax to most types of assets (investment funds, bank accounts, life insurance policies, securities accounts, etc) at a rate of 1 per thousand in 2012 and 1.5 per thousand in 2013.
  • Real Estate Tax: The reintroduction of municipal property taxes and a variety of related real estate tax measures.

It goes on from there including some additional taxes and duties and a reduction in entitlements.

Needless to say, in one fell swoop, this package is going to affect a lot of people's lives - and not for the better. That's assuming it passes, which isn't yet guaranteed.

But here's the question: Is this a one-off event by a unique country in unique circumstances... or... is this only a sign of things to come (almost non-existent financial privacy, a drop in entitlements, and increased taxation) not just in Italy, but across much of the developed world?

If you've been a member for a while, you already know what we think - this is not just a one-time event. It's a trend and one in which the pace "citizens will pay for the mistakes of the state" is ever increasing.

Hence the need for internationalization. Especially in this case, asset diversification is the most critical; to first protect what you have. Getting your assets outside the country, using appropriate structures to legally lower taxation (under the watchful eye of someone experienced with your situation), mitigating risk as much as possible.

Then comes income diversification: trying to build up streams of independent revenue that are not tied to a specific jurisdiction and in markets where people will continue to buy even when times are tough.

Finally, one considers personal diversification - especially for those that live in a country that seems to actively prey on their citizens. Even though it's fair to say that all governments tend to see their citizens as proverbial "milk cows", it seems that states in much of the developed world - those with high public debt and unfavorable demographics - are going to become increasingly restrictive on how their people are allowed to live, work, earn money, invest and even protect themselves and their families.

But, through proper planning and action, you can set yourself up to not only ride out the storm but be ready to capitalize on the opportunities that such government manipulation creates in the marketplace.

(My sincerest thanks to two Italy-based subscribers, "Marco" and Ruggero Carraro of Horo Capital in Milan, for assisting us in researching today's feature.)

Tags: italy, internationalization,