Even in English the highest form of formality is the third person. Think of a question posed to, say, Queen Elizabeth. It would sound like:

"Is Your Majesty Italian?".

"Sua Maesta' e' italiana?"

In Italian the vestiges of that construction are still present: the underlying reference of the formal address is "SUA ECCELLENZA" (Your Excellency) as in the example: "SUA ECCELLENZA E' ITALIANO?" ("Is Your Excellency Italian?")

Since ECCELLENZA is a feminine noun, the corresponding personal pronoun is LEI. Thus the outcome:

"LEI E' ITALIANO?"

Of course Italians do not imply "SUA ECCELLENZA", they simply use the form that they were taught is POLITE and RESPECTFUL.