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Financial advice for foreign nationals living in Italy

Foreign nationals in Italy are finding themselves in need of expert advice to know exactly how to declare their foreign assets and income to meet Italian tax obligations. This article provides an overview of the key considerations

Written by Daniel Shillito on 17 February 2021

Recently there has been a surge in demand for Italian residency. Whether as a result of the Covid19 pandemic, and the ability to work remotely, or the political climate around the world and the effects of Britain’s exit from the European Union, many more people are being registered officially as Italian residents.

Expats are finding themselves in need of expert advice to know exactly how to declare their foreign assets and income to meet Italian tax obligations, as well as to ensure they are being as tax-efficient as possible in managing those foreign assets and incomes.

British and EU citizens in particular are looking at their options now more than ever. A clear understanding of different requirements and all associated financial and taxation elements is key.

It is important to remember that the information found in this article is only a guide and before making any decisions or submitting any tax returns in Italy, you should seek independent advice (which you can do by entering your details using the form) and we will arrange for an expert in Italian financial planning and related taxes, to provide an initial free consultation.

Tax residency in Italy

An individual will be considered an Italian resident for tax purposes if:

  • Resides in Italy for the greater part of the fiscal year (more than 183 days);
  • Is registered within ‘Anagrafe’ (Records of the Italian Resident Population); or
  • Has domicile within Italy (meaning a place of business, social or economic interest)

(Only one of these will need to be met to be classed as Italian tax resident).

Post-Brexit residency changes for British expats

There have been many expats that have recently registered as residents in Italy, in order to maintain their Brexit Withdrawal Agreement Residency rights. These expats that were lawfully living in Italy before 31st December 2020, have now protected their lifelong rights to live, work and access healthcare in Italy, the same as they did before. It’s not too late right now, during the first 6 months of 2021, for British citizens to register formally at the local Comune in Italy and show evidence of their residency pre-31 December 2020.

If you have taken this step as an expat residing in Italy, it is crucial to remember that you should always seek professional advice to make sure that you are not only covering all your bases, but to avoid making any costly tax errors. Many changes and new expectations can come with becoming a tax-resident of a different country, and you must always be thorough and well-informed.

Any of your owned property, pensions and other bank accounts/ISA’s/investments within the UK will have to be assessed and declared after becoming foreign assets, despite not having to previously.

Who can help me efficiently manage my UK assets?

UK expats living in Italy can still obtain advice and if desired maintain access to respected UK asset managers and international asset managers for their investments and pensions.

However, since there is no deal in financial services between the UK and the EU at time of writing, (and since the Brexit transition period ended), UK-based financial advisers cannot advise EU-resident clients unless their license provider has a licensed branch within the specific EU country in which their clients live.

Using an Italian based financial advisor is required to help British expats manage their investment and pension needs, and to help guide them in ensuring their assets are tax-effective and Italian-compliant.

Using an Italy based financial advisor (ideally one who is also UK-experienced and licensed) can ensure that:

  • The individual is paying less tax overall
  • The individual is completely tax compliant in Italy
  • The individual’s finances/retirement pensions can still be managed within the hands of UK investment manager household names (e.g. Prudential, Kames, Jupitor, Rathbones, Schroders etc.)

UK Property tax changes

The UK’s exit from the European Union has changed how UK-owned property is taxed.

The Italian IVIE tax (equivalent tax on foreign real estate properties) applies to all foreign property owned by Italian Tax residents. Now that Britain is outside of the EU, an individual’s UK-owned property will now be taxed differently, resulting in an increase of the annual tax payable.

Tax residents of Italy that own property within the UK are now liable to pay the IVIE tax based upon the purchase price of that property, rather than the previous basis of council band valuation (like other EU property).

Failing this, the current market value of the property itself can also be used, if evidence of original purchase price does not exist. This tax increase for UK property owners that are tax resident in Italy is not avoidable, unless you were to consider either selling the property, transferring the property into a different name, or rather ceasing your Italian tax residency altogether.

Tax concessions available for new Italian residents – from wherever they arrive

Something important to be aware of is that the Italian government has introduced a range of attractive tax regimes, the aim of which is to encourage new tax residents to Italy, as well as to appeal to Italians considering moving back to Italy, which may just apply to you.

There are three principal tax schemes that have been introduced that apply to working new residents, pensioners, and high income/wealthy new tax residents as well.

For the purposes of a brief summary, of only one of these regimes, the incoming workers regime, is for new working tax residents of Italy, and the current tax concession is currently available for any person who has not been a tax-resident in Italy within the past two years – and who consequently works in Italy as an employee (or entrepreneur providing any sort of goods or services).

This regime provides a large tax incentive by providing that at least 70% of their gross employment income will be completely exempt from any income tax for 5 years. This tax exemption is also increased to an attractive 90%, if the person relocates to certain southern Italian regions (Abruzzo, Molise, Campania, Puglia, Basilicata, Calabria, Sardinia, Sicily).

This particular tax exemption can be extended for 5 more years longer than a 5-year period if the new resident either purchases a home in Italy within 12 months of arrival, or if they have children.

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