If you are a resident of Italy or you are considering relocating, it is important to be aware of Italian tax on foreign assets. Regardless of your citizenship, if you legally reside in Italy for more than six months out of the year, you may be liable to pay taxes on the physical and financial assets you own outside of Italy. Any Italian tax liability is, however, reduced by the foreign taxes already paid in the country where those assets are located.
There are two main taxes that Italian residents must pay on foreign-held assets: IVIE and IVAFE.
IVIE: Tax on Foreign Real Estate
The Imposta sul Valore degli Immobili situati all’Estero (IVIE) is a tax on foreign real estate. The annual IVIE amount is calculated as 1.06% of the value of real estate held in a foreign country. The applicable value is generally based on the property’s original purchase price, when the figure is available.
IVAFE: Tax on Foreign Financial Assets
The Imposta sul Valore delle Attività Finanziare detenute all’Estero (IVAFE) is a tax on financial assets, checking and savings accounts held in a foreign country. The annual IVAFE amount is calculated as 0.2% of the aggregate market value of all financial assets (excluding checking and savings accounts) plus €34.20 for each foreign checking or savings account. The IVAFE rate is increased to 0.4% for financial assets held in countries with preferential tax treatment, such as Hong Kong, Singapore, Switzerland, and United Arab Emirates (UAE).
If these foreign assets are subject to taxation in the foreign country where they are held, those taxes will create a foreign tax credit (credito d’imposta) which will reduce the respective IVIE and IVAFE payable in Italy.
Example
| Michael, a 65-year-old dual U.S. and Italian citizen, has decided to relocate to Italy to spend his retirement years. Even though he resides in Italy, he has decided to keep his previous home in Illinois, which he purchased in 2005 for $300,000. He also maintains a savings account, with approximately $60,000 in cash, as well as an investment account with $100,000 invested in treasury bills. Michael pays $5,500 in annual property taxes in Illinois. At a rate of 1.06% of the purchase price, the IVIE Michael would owe in Italy is equal to $3,180. Since Michael’s property tax paid in the U.S. counts as a tax credit, he can therefore expect to have no IVIE tax bill (the foreign tax credit of $5,500 is greater than the IVIE amount of $3,180). On the other hand, Michael can still expect to owe some in IVAFE taxes. He will owe $200 on his investment account (0.2% of $100,000) plus a flat $34.20 on his savings account. |
It is worth noting that, due to the current property tax rates in the U.S., the tax paid in the U.S. will most often cancel out the IVIE liability in Italy. However, this may not be the case for real estate held in other countries where property taxes are lower or even absent.
What is stated above does not constitute fiscal advice. Because every situation is unique, we advise you to speak with a professional CPA or Dottore Commercialista about Italian tax on foreign assets. Our team at Dolce Living includes an experienced commercialista who can assist you with your tax needs.
