Italy taxes your WORLDWIDE income, just like the US.
For any deductions (depending on your family and resident status) I strongly recommend to use the services of a 'comercialista', as Italian tax regulations are complicated, to say the least...
Janin

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True statement, however you don't get taxed twice, so as an American you already pay taxes in the US on those items you mention...and they are not considered "earned income" so they don't fall under the "earned income exclusion" you get as a US citizen living abroad.

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In compliance with the International Convention on Double Taxation of August 25th 1999 between USA and Italy, all pensions are only taxable-on in the relevant issuing country. The same thing applies to IRA withdrawals,whichcan only be taxed in the U.S.

Hope this helps,
Giandomenico.

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I've used a company called Taxes for Expats the last several years and they are very reasonable and do a great job.

https://www.taxesforexpats.com/clt/VS210

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I "thought" my U.S. pension was only taxable in the U.S. Now, two tax accountants in Italy have told me that because I "registered residency" in the town that I am in, I must pay Italian taxes on my U.S. pension. I also understood that because I have a permanent home in the U.S., my "tax residency" is the U.S. and not Italy. Research on the topic has only garnished me conflicting information. Can anyone recommend a reliable source that can give me the facts about this? BTW, the only reason I registered residency in my comune is because I needed to do so to open a bank account. Now, I'm thinking that was a huge mistake! Thanks.

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Jackster,

I also have an Italian bank account to pay my rent and transfer money in every month from my stateside account. I am not an Italian citizen, only a legal resident. Just as the Italian Law Firm above states, you do not pay taxes in Italy on US pensions or IRAs. Let me repeat...your U.S. Pension is only taxed in the U.S. Pensions, IRAs, 401Ks are not considered "earned income" as such are solely taxed in the country of origin.

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Thanks Maluza89. To which law firm are you referencing?

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DeTullio Law Firm in the post above:
http://www.detulliolawfirm.com

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Thanks again, maluza86. I somehow missed the fact that it was a post by a law firm.

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No worries Jackster,

We've been here a little over a year and have filed taxes twice. We've also sorted through a plethora of other issues, so if I can help in any way do not hesitate to ask.

We live in Puglia in San Vito Dei Normanni. I am retired military and have am a legal resident but am not a citizen, even though I could be through my wife or family blood line. My wife is a dual national.
Regards.

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No worries Jackster,

We've been here a little over a year and have filed taxes twice. We've also sorted through a plethora of other issues, so if I can help in any way do not hesitate to ask.

We live in Puglia in San Vito Dei Normanni. I am retired military and have am a legal resident but am not a citizen, even though I could be through my wife or family blood line. My wife is a dual national.
Regards.

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Hi. When you say you have filed taxes twice, I assume you are meaning Italian taxes. Can you recommend a good commercialista that I can talk with to find out exactly what I need to do for my situation? I live in Firenze and I cannot find a commercialista who knows and understands the Tax Treaty. Thanks much.

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Oops, Maluza, I thought I was directly replying to your last response. My last message was meant for you. I'm new to this board and am just learning how the posting/responding works. Thanks.

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Nope, only US taxes. I am not an Italian citizen, I don't work in Italy, and don't own any property...just pay rent. Sorry, don't have a commercialista.

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Also, if you want to reply to someone directly and not in the forum, you can use the private message link.

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Interesting b/c I lived/worked in Italy for two years (6 years ago). Americans get two years tax-exemption on income working there because of a tax treaty. We had to pay 9% for socialized healthcare program though. I had a bank account while there too. I also had my permesso disirgiorno. After two years, you had to pay Italian taxes. One of my colleagues tried to get her taxes done for her in Italy to send back to the US .... they tried to rip her off and say she owed them money when she didn't (clearly b/c of the tax emeption). Good luck!

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Here is the information I have received from three tax accountants in Italy (this does not apply to the 2-year exemption, which depends on where you work in Italy as a foreigner). I can only speak to retired persons. If one resides in Italy for more than 183 days, Italy considers one a resident whether one is registered as a resident or not, thereby one is subject to Italian taxes. That is how Italy sees it. They have made changes in the last few years or so to address the rising immigrant population and their desire for more tax money. Italy taxes all U.S. pensions (except government pensions), U.S. bank accounts, U.S. earned interest and dividends, a wealth tax on balances of any U.S. investment accounts (including savings), real property, etc. The rate of taxation depends upon the source, i.e., "income" (including interest and dividends) is taxed at one rate, taxes on investment accounts at a different rate, etc. Once the total "income" is taxed, the Treaty allows for U.S. citizens to deduct what they have paid the U.S. in taxes, but only on the portion that is considered income. What remains is due to Italy. Any "wealth tax" on investments and bank accounts is not counted as income. One must also pay both regional and city taxes, which are not part of the double taxation exemption. Italian taxation laws are changing and I have researched these issues thoroughly. The question is one of "residency," and regardless of how we interpret Article Four of the Tax Treaty, Italy WILL demand tax payment if one is in the country for more than 183 days. That's the current state of things and I believe two of the three Italian tax accountants I have spoken with are thoroughly well-versed with Italy's current tax laws as they apply to foreigners. Some folks have flown "under the radar" in Italy, but that is becoming more and more difficult as the government is requiring documentation of some type or other when applying for services, such as internet, water, gas, etc. As a matter of fact, one can no longer open a bank account without having registering residency with the city in which one lives. They are "tightening up" things and connecting one agency to another to another, etc., and they have stepped up efforts to ensure foreigners pay taxes and the fines for not doing so are extremely high. Further, if one claims residency in both countries, the Tax Treaty is not applicable. To receive Tax Treaty benefits, one must claim residency in only one country. Of course, this does not release U.S. citizens from paying U.S. taxes as the U.S. taxes all U.S. citizens no matter where they live. Both of the tax accountants I trust here in Italy have said that they know a number of U.S. retirees that have left Italy because of these changing Italian tax laws. They aren't making it easy, or financially advantageous, for U.S. citizens to live in Italy.

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Does this information change at all for dual citizens?

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I'm sorry, but I don't know the answer to that one. Ask a well-qualified international tax accountant. I would not rely on what you find on the internet as most of what I've read has been incorrect or incomplete. I was quite shocked when I found out my true tax situation in Italy.

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If you are a dual citizen and own property or work in Italy you will have to pay Italian taxes.

Jackster...I don't want to argue or belabor the point, but I, too, have researched and talked to a local commercialista and looked further into the info provided by DeTullio Law firm and concur with the statement "all pensions, IRA withdrawals, 401Ks are only taxed once"...and that is in the country of origin. You cannot be double taxed. You can even deduct Italian mortgage interest on your US tax return.

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I don't feel like anyone is "belaboring the point." I appreciate all information I can gather. These are very complicated issues; more complicated than first thought. I also believed what you have said, but if you read both the Tax Treaty and the Technical Explanation, U.S. government pensions are not taxed by Italy (Article 19), and Social Security benefits are only taxed by the country that pays them (Article 18, Section 2). Here is Article 18, Section 1: "... pensions and other similar remuneration beneficially derived by a resident of a Contracting State in consideration of past employment shall be taxable only in that State." The sticky points are the terms "resident of a Contracting State" (in this case, a resident of Italy), and "taxable only in that State," i.e., the country of residence (which would be Italy), including 401Ks, etc., Here is Article 18, Section 2 concerning Social Security: "Payments made by a Contracting State under provisions of the social security or similar legislation of that State to a
resident of the other Contracting State shall be taxable only in the other State." Notice the difference in wording: "only in the other state." That is not a provision of Article 1. I think the confusion comes in as to which type of "pension" one receives as to whether it is taxed by Italy. In general, people are often referring to Social Security payments, but those rules do not apply to all pensions. I sent a message to the DeTullio law firm for a further explanation of what they mean by "country of origin" as it applies to pensions, 401Ks, etc., but they have not responded. If they are referring to Social Security, or government pensions, the Treaty supports the statement. As to other types of pensions, it does not appear to be the case. The exception would be if one claims residency in both countries. In that case, one will pay taxes on pensions to both countries as the double-taxation clause of the Tax Treaty will not apply. Further, it is not that pensions are taxed only once. It is that if you owe income taxes to Italy, depending on the type of pension you receive, they will apply the double taxation rule and reduce what you owe to them by how much you have paid in taxes in the U.S. For some people, that can be quite a chunk as Italian taxes are quite a bit higher than U.S. taxes. I asked for the name of the commericialista you spoke to, but you said you did not have one. If you recall the name of the one you spoke with, I would love to speak with him/her. These issues are not as clear-cut as one would like and I think there is a misunderstanding of the true situation. Different rules apply to different types of pensions.

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Great info but the provisions of Article 18 Section 1 as I understand them apply to the state (country) where you earned the pension. If you earned the pension in the U.S. It is taxed in th US...not country of current residence, as the pension belongs to that State, regardless of where you may currently reside. That State lawfully has a right to the taxes on it. The tax treaty is in place to ensure double taxation does not take place as pensions are not earned income, whether they are in the form of a 401k, Social Security or as in my case military pension.

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That's the rub. The problem is that the U.S. taxes based upon citizenship and Italy taxes based upon residency. The Tax Treaty addresses that issue. From the Technical Explanation of the Tax Treaty regarding the taxation of pensions (Article 18, Section 1): "Paragraph 1 provides that distributions from pensions and other similar remuneration derived by a resident of a Contracting State in consideration of past employment are taxable only in the State of residence of the beneficiary." It clearly states "are taxable only in the State of residence." Also from the Technical Explanation of the Tax Treaty regarding Article 18, Section 1: ". . . However, it is understood that, in the case of a U.S. resident receiving a pension distribution from an Italian pension plan, the United States may tax the entire distribution pursuant to paragraph 1 regardless of the fact that Italy may have previously imposed a tax on the Italian pension plan with respect to earnings and accretions." That same statement also works in the other direction, i.e., Italy imposes an income tax on U.S. pensions earned by its residents (with exceptions we have already listed) regardless of the fact that it is taxed in the U.S. Lastly, Article 23, Relief from Double Taxation, does not state that if one country taxes income, the other will not. Relief is given in the form of a credit toward taxes due. From the article: "The United States agrees, in subparagraph 2(a), to allow to its citizens and residents a credit against U.S. tax for the appropriate amount of income tax paid to Italy." The reverse is also true. Thus, Italy will apply a credit toward taxes due them for taxes paid to the U.S. Nothing in the article says that if one country taxes income, the other will not. Italy taxes all residents on worldwide income regardless of its source (again, with the exception of U.S. government pensions and Social Security). The fact that it is a pension does not matter to Italy, and that includes 401K plans. It is difficult to believe that any pension derived from past employment in the U.S. are subject to taxation in Italy, but, with the exceptions noted, it appears to be true. If you can read the above explanations and see a different interpretation to the term "resident," please share. What is clearly missing from the articles we are discussing is "citizenship." Yes, the U.S. has the lawful right to tax U.S. pensions. But, based upon one's residency in Italy, so does Italy. The Double Taxation clause will apply a "credit;" it does not state that the U.S. has the "exclusive" right to tax. It's very disheartening, to say the least.

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Short answer. Social Security and Government Pensions are exempt per treaty.
http://www.treasury.gov/resource-center/tax-policy/treaties/Documents/italy.pdf

See section 18.

IRA and 401K will be taxable by Italy.

The whole "Residency" thing is kind of a red herring. If you are staying in Italy on any visa that allows you stay longer than 183 days, (we will ignore student visas since the topic is directed to Pensions.) you are considered a resident by default.

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Say I'm a US Citizen, Italy resident. I have a 401k in the states. I want to know how does IVIE, *the wealth tax*, treat foreign pensions such as a 401k? Reading through the tax site, it looks as if it's taxed like any other financial asset. I really hope I'm missing something in the reading.

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In that previous post I meant to write IVAFE not IVIE. Whoops.

So we're thinking of moving to Italy. I've modeled our : [url=https://docs.google.com/spreadsheets/d/1p8RTwq7KYbk1fq6QF6Ll1yFqpVcEPari8MTxOL0wBQs/edit?usp=sharing]tax situation in this Google spreadsheet.[/url].

I think I made it as straight forward as possible. If you're not too scared, to take a peek I'd really appreciate corrections.

I'm new here and thrilled to see so many people discussing the details of taxes in Italy for expats ... in 2016.

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I spent about 20 minutes searching about and could find nothing to the contrary. That said, a detailed breakdown on the full definition of financial investments would be useful as this is a deep pool. Stocks, deferred income, certain types of insurance policies.

That said, 401k is perhaps the closest to a standard financial investment, and odds are it would fall under the tax umbrella. At least the rate is .2% of year end value.

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Italy will tax everything unless it's a US government pension (not sure about other countries pensions, most of the posts above are from US Expats)....and they would do that as well if they could get away with it;-)

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Two questions:

Does the reporting of US investments rely on the holder of the accounts or is there some system in Italy that checks for these investments, such as having access to your US annual tax statement?

Since you are being taxed both in the US and Italy does it make sense to move part of your funds into Italian investments?

One reason that US pension funds may not be taxed is that Italy is one of the countries the US has arrangement with involving Social Security accounts. For example, my Italian wife (who is not US resident) will have access to my SS pension if I pass away before her.

This exchange network is very informative.

Thanks

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They don't both tax you. There is an agreement between the countries. If you live in Italy 180 days, you pay Italian taxes, not american.. You still have to file in both countries. This is true except for government pensions (social security, military, possibly teacher).

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Good to read your posts. Unfortunately my Italian accountant makes me pay taxes on my social security. He insists that social security is considered income in Italy.
I have double citizenship, Italian and American and I now live in Italy.
Best to all

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Oh, make no mistake about it, the US will tax you even if you are living in Italy all year long. The tax treaty addresses double taxing allowing credit on Italian returns (or vice versa) for US taxes paid on US based income or Italian taxes paid on Italian income.

As has been discussed many times, government based pensions are not taxed by Italy. This exemption is usually considered to apply to both National or State level. Often teachers pensions qualify, but not always.

The treaty is a bit counter intuitive on US Social Security, saying that the US does not tax it but Italy will. To be even more confusing, I have heard that Italian accountants are split on whether Italy taxes US Social Security. I have seen at least one article about some obscure Italian tax ruling that placed a narrow definition of "Social Security" as to mean payments for things like unemployment and disability. One however would likely be ill advised to make this a cornerstone of ones tax strategy. The law, as always, is debated endlessly by lawyers and bureaucrats. The best route for planning is to always assume, absent a very concrete basis, that your ultimate tax burden will be equal to whichever is the higher rate.

Find an accountant you are comfortable with, follow their advice. At the end of the day, you really have little other recourse.

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What we have discovered is the understanding of the word "pension". My husband is retired and recieves a superannuation "pension." That is what the super fund and the Australian taxation office (ATO) call it. However when getting down to the nitty gritty of it all the ATO and the Italian government call it a defined benifit and it may be taxed in Italy under the wealth tax. It cannot be taxed under income in Italy because of the taxation treaty.
We have also been advised that the ATO will share our financial information with Italy. Not maybe but definetly will advise the Italian govt. The issue of tax avoidance is becoming huge and it has been in the news a lot. The ATO don't care that we pay tax here and in Italy because it is a wealth tax! and we cannot make any claims of reimbursement against our Australian tax for any tax we pay in Italy because it is the wealth tax and not income tax.
Goes around and around and the topic is enough to make me want to reach for a glass of wine. Lol. As it is only 8.00 am I'd better not.
Regards.

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I cannot disagree with your Italian accountant. I am a CPA in the US right now, and I would certainly have to advise clients to take the safe route and pay the tax.

Assuming you also file US tax returns, may I inquire how you are reporting the US Social Sec payments?

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From Article 18 of the U.S. Tax Treaty, private pensions and social security benefits are taxed only by the country in which one resides, which is why it is important to make a declaration regarding in which country one is residing to the I.R.S. Government pensions, addressed in Article 19, are taxed only by the government from which the pension is derived. So if a U.S. citizen residing in Italy derives a pension from a U.S. government entity, taxes are paid only to the U.S. However, if that same person is also a national of Italy, taxes on that pension are paid only to Italy. It's all pretty convoluted but, in general, you pay taxes where you live. As a frustrating aside, I have just been informed by the Prefettura that if a U.S. citizen is retired but resides in Italy for the long-term, that person does not qualify for the permanent permesso (available after 5 years of continuous residency in Italy) because the income is derived from retirement and not from current work. So a U.S. retiree's pension is good enough to be taxed by Italy but not good enough to be eligible for Italy's long-term permesso. Gotta love it.

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There are many tax issues that remain unclear. For most, even if I assume the worst case, we're still probably okay... all except for IVIE - the .76% tax on foreign real estate.

Below I've cited some sources that lead me to conclude that I can offset IVIE tax with property taxes I pay to local US gov'ts where the real estate is situated (US).

My question is this: Is there any reason I should not be confident in this conclusion?

The IVIE offset is something I want to be damned sure of, otherwise it'll be a very expensive mistake.

Here's an example:

Say I have a house in the US with a valuation of $1M, the annual IVIE asset tax due is $7,600. However, I pay local US property taxes every year in the amount of $9,800. My understanding is that the local property taxes offset the Italy IVIE tax. In other words, since $9800 > $7600, my actual IVIE due will be $0.

We own two properties in the US. If my assumption is correct here, then I'm comfortable with the Italy tax situation. If however, this assumption is wrong, we will need to seriously rethink moving to Italy.

From www.agenziaentrate.gov.it :

"Dall’Ivie è possibile dedurre l’eventuale imposta patrimoniale versata nello Stato in cui è situato l’immobile." - translated: "By Ivie you can deduct any property tax paid in the State where the property is situated"

Other sources of supporting info:
"The (IVIE) tax rate is equal to 0.76% of the property value, calculated with reference to the purchase price indicated in the title deeds or, if missing, the market value. A deduction from the tax paid in Italy can be made, which is equal to the amount of the property tax paid in the foreign country" - http://www.oliverpartners.it/ivie-and-ivafe.

and

"IVIE ... local taxes paid in certain jurisdictions where the property is located can be used to offset the IVIE charge"
http://www.italianinsider.it/?q=node/2787

and

"Any property tax paid in the Country where the real estate is located can be offset against IVIE." - http://www.pkf.com/media/1960282/italy%20pkf%20tax%20guide%202013.pdf

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This is my understanding as well. Article 18, Paragraph 2 can seem odd to many people in that it specifically states Social Security, if one is a resident in Italy, is taxable only by Italy. I have never, in my experience, known the US govt to pass up tax revenue.

For people without some tax background it can be additionally intimidating as many items hinge on specific definitions.

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Your supporting documentation seems solid, however, since you are looking at a substantial amount, it would seem money well spent to get an opinion from a firm that deals with these issues on a regular basis.

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rsetzer, I agree 100%. Taxation is a complicated subject in both countries and it is well worth the money to ensure that one gets it right. The international tax accounting firm that I use in the U.S. pointed out that it is very important that if one is a U.S. citizen residing in a foreign country, one should always file U.S. tax forms on a yearly basis even if one's pension is only taxed by Italy in order to gain tax treaty benefits, i.e., protection from double taxation. It is much easier to file every year than have the IRS pop up in five years and ask why one hasn't filed U.S. tax forms! What a nightmare that would be! This is a mistake many U.S. citizens make: they assume that because they are being taxed by Italy that they don't have to file U.S. tax forms. The tax agencies in both countries want to know every little thing every single year about one's tax liability!

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Jackster is absolutely correct...as a US citizen you are required to file a tax return every year, regardless of you owe taxes or will receive a refund. You also need to file a FATCA form by June if you have or have had over $10,000 in any foreign bank account.

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Maluza, the FBAR is the form to file if one has an excess of $10,000 in any financial institution physically located in a foreign country. The filing date been changed (as of December 31, 2015) to April 15 of every year. This form is not attached to one's tax return and can be e-filed. The FATCA is the form to file if one has any type of financial interests in a foreign country if those interests exceeded $50,000 at the end of a given tax year or exceeded $75,000 at any time during the year. This form IS attached to one's tax return.

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BTW, the fines for not filing these two form if required are steep; in the tens of thousands of dollars type of steep!

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Thanks for the correction Jackster....meant FBAR, good catch;-) However didn't realize the date moved up, so as my FBAR is now late, I need to go file!!
Ciao. https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Report-of-Foreign-Bank-and-Financial-Accounts-FBAR

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One caveat Jackster, the reporting date for this past year remains June. The date changes for calendar year 2016 bank accounts which are reported in 2017, see not below. So for 2015 FBAR deadline remains June.

Note: The recently enacted Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 changes the standard FBAR due date to April 15 beginning with the 2016 calendar year reports, which are due in 2017. The FBAR deadline for calendar year 2015 reports remains June 30, 2016 (with no extensions allowed).

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Maluza, thanks for adding clarification regarding the deadline for filing the FBAR; my post was unclear regarding that. So much to keep track of; I don't know how tax accountants do it - especially in Italy where changes seem to be made almost daily! ;)

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Maluza, thanks for adding clarification regarding the deadline for filing the FBAR; my post was unclear regarding that. So much to keep track of; I don't know how tax accountants do it - especially in Italy where changes seem to be made almost daily! ;)

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Di niente. Thanks for all your input and research on the subject as well, very informative. However as neither of us are tax attorney's I'd recommend as you do for those with very specific or peculiar circumstances to seek the assistance of a licensed US and Italian accountant. Buona fortuna a tutti.

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Maluza, anche a te! Grazie per la ricerca e messaggi.

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Aaahhh.. Italian Law is as fluid as wine, and regardless of any and all preparations, things change. My solution was to put all income and assets outside my social security in a revokable trust for my children. Volia! I don't have any income! Estate planning and Italian crazy stuff killed with one stone...

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Ok you have my attention with the fines and FBAR. I keep my accounts in the USA. But to buy a car I transferred $17k to an Italian account and then bought the car. Do I have to do a FBAR.

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Sergios, I would say, "yes." Better to be safe than sorry. It's just a reporting form and my opinion is that what they are looking for are huge money transfers on a regular basis mainly to combat money laundering. If they ever ask for an explanation, just keep all of your receipts and bank records of where the money went. I had to file a form last year and it's quite simple. You can go here to file: http://bsaefiling.fincen.treas.gov/NoRegFBARFiler.html

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Nick, I've been toying with this idea. Do you have a good resource that explains the types of trusts that qualify, as well as both U.S. and Italian tax implications? This is something well out of my knowledge base! I would certainly use the services of a professional for guidance, but I'd like a general overview of how it works before doing so. Thanks.

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Is the Us and Italian tax accountant one in the same person, or more often two separate people? If separate, how do you get both in concert with each other? How do the small time taxpayers do it without paying hefty fees to international consultants?

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There must be something about the trust account and the benifit as we were advised to do this here in Australia. We don't know enough about it so haven't sought any other advice. As we only wanted to come to Italy for 12 months it has developed into something too big to handle.
Regards.

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I want to thank you all for your comments.
It is good to be in touch.
Best regards

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Nick, the family trust route seems like a good solution. However, many in this forum seem to be focused on solutions pertaining to social security and other retirement income as well as deposits in IRAs and 401k plans. My layman's understanding has been that these types of funds can't go into a trust. For many these funds are the bulk of their estates, so trusts wouldn't work for them. Nonetheless, thanks for sharing this creative option. Feel free to critique my understanding of this estate planning tool.

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Anyone been following the Panama Papers affair? It has focused on Trusts. If only we had billions to hide. Lol

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I used the CPA Dr. Lucia Desogus
Via Ippolito D'Aste, 3/11
Genova

tel. 010-588048
good luck

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Whidden, I do believe you are correct. Since the mention of a trust renewed my interest, I did a quick search and found this from a website that defines types of trusts and it made a side note, which is this: "Many assets can be included in the trust, such as real estate, vehicles and bank accounts. But 401(k)s, IRAs and some other retirement accounts cannot be placed in a trust. 401(k)s must be owned by individuals, not trusts, businesses or other entities. Thus, you cannot place your 401(k) into a trust even though you can put other assets into the trust's name. Creating a trust does not automatically place any of your assets into the trust; you must place your assets into the trust's name by changing the title documents or other ownership papers. However, you cannot change your 401(k)'s ownership, since only individuals can own 401(k) accounts."

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As a side note, I already know that I can not put my government pension into a trust.

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JacksterJam, same with IRAs (operative word, Individual). You stated more clearly what I believed to be true.

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I have the same questions regarding pensions from Canada, both SS (our CPP) and workplace, also assets (didn't know about that!) I promise to share anything I discover, perhaps you can too.

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I inherited an IRA from my father and continue to take an annual distribution which is not taxed in Italy but the dividends and capital gains from the stocks in the IRA are taxed at the 26% rate ( according to my Italian accountant). He considers these financial earnings so taxable in Italy. But I have already paid taxes in the US on the distribution. Is that a double taxation?

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patsing, if dividends and capital gains are set up to be automatically reinvested back into your IRA instead of paid out to you, then they should not be taxed as income because you haven't taken them as income. So it will depend on whether you have them reinvested, or they are paid directly to you. If they are paid directly to you, then they are considered taxable income.

The double taxation issue works this way: Italy calculates the tax amount on your income, then calculates the amount of taxes you paid to the U.S. on that EXACT same income. Your commercialista should then deduct the amount you paid to the U.S. from your Italian income tax liability and you pay the difference to Italy. (I say to Italy because their tax rate is generally higher than that of the U.S.) So the double taxation clause protects you from paying the same tax twice , but it does not necessarily zero out what you owe to Italy.

The above is how my commercialista has explained things to me. However, if you are an Italian citizen, I don't know how or if that changes anything. It is best to read and understand the tax treaty to ensure you are not over-taxed. It's not easy, but it's worth the "pain." For example, under Article 19, my government pension from the U.S. is not taxable in Italy UNLESS I am a "resident AND a national" of Italy. In that case, it would only be taxable in Italy.

Hope this has helped and good luck!

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I am a dual citizen and inherited an IRA from my father in the States and continue to take an annual distribution ( the US taxes this distribution) which should not be taxed in Italy but the dividends and capital gains from the stocks in the IRA are taxed in Italy at the 26% rate ( according to my Italian accountant). Still, I have already paid taxes in the US on the distribution.

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Jackster Jam, I am a dual citizen with residency in Italy since I married an Italian many years ago. My IRA does not pay out anything other than the required allowable distribution which is taxed in the US. . All dividends and capital gains are automatically reinvested. My accountant here in Italy insists that , all the same, these are considered taxable financial income for the Italians. Italy does not tax the annual distribution but wants their 26% on any financial earnings in the IRA even if I do not take these out.
Thanks for your help. I plan on looking at the treaty.

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patsing, I believe it's possible that he is confusing "retail" accounts with "retirement" accounts when it comes to taxing dividends and capital gains. Dividends and capital gains earned on retail accounts are taxable; not so for retirement accounts unless they are paid directly to you.

My commercialista did not compute taxes on the capital gains and dividends in my IRA since they are automatically reinvested, but he did compute the capital gains and dividend tax amounts on my retail account since they are considered income, just as the U.S. does.

I went round and round with him regarding my CDs. They are bank issued not brokerage issued. Since they are bank issued, I can have the interest taxed as ordinary income but he was insisting that I had to pay the "substitute tax" rate of 26% which does not allow for protection under the double taxation clause. I actually had to research the issue on the Agenzia delle Entrate website to give him proof otherwise he would have had me paying double the tax I actually owed. Perhaps, if you can stand it, you can research their website and find something that addresses the difference between "retail" and "retirement" accounts. It's a headache but, for me, it was financially worth it.

I can tell you one thing; after all of the research I've had to do regarding my own particular tax situation in Italy, I know enough to now do my own taxes and save the money I would pay to a commercialista! There was "pain," and next year, there will be "gain." Ha!

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patsing, I just perused the tax treaty and can find nothing that specifically addresses the issue of reinvested dividends and capital gains within an IRA.

I did come upon a statement from the "technical explanation" that addresses my own situation. As I previously stated, my government pension is not taxed as per Article 19 of the treaty. This also includes any 457, 401(a) and 403(b) plans established for government employees. That is my case, which explains why my commercialista did not compute tax on any dividends and capital gains within my IRA.

However, I would still look around at the Agenzia delle Entrate website to see if you can get any clarification on the subject.

Good luck!

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Hello again, patsing. Because tax questions abound for U.S. citizens, I have a lot of stuff bookmarked on my computer. I checked there and found this paper regarding how Italy taxes public and private pension plans. They also provide references that might be useful to you. The paper can be found at: http://www.eatlp.org/uploads/public/Lisbon_Italy.pdf

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Jackster Jam , i am not government so that may change things. I have asked my Italian accountant here to check the site " Ufficio delle entrate" which you mention. I hope he does that because I am horrified at the thought of having to wade through it myself. You are better than me but I agree that taking the time to get through all of this can save a lot of tax money. Thanks again.

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Hi Jackster Jam, wow. You are on this. Thanks so much and I am going to check this right away. Tomorrow is D-Day for my taxes. We are running out of time.

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The key may be on the inheritance side. Italian law exempts the first 1M of an inheritance passed to a spouse or child. It would appear that the accountant is considering increase in the basis of that original asset to be taxable income when the distributions are taken. It would not be a complicated procedure to compute the gain as specific holdings would be liquidated to cash and their original basis identifiable.

I have not examined the Italian rules, but I assume dividends and Capital Gains are taxed at two different rates, and one would have to refer to fund statements to separate the figures, but again, not horribly complicated.

This does seem little different than how one would approach a cash inheritance. Original amount tax free under 1M EU, and subsequent interest earned taxable. The difference in this case is that dividends/interest reinvested in a tax deferred account remain that way until a distribution is taken.

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I will amend my previous post. I did not quite realize that the OP was saying they were being asked to pay taxes on gains on Undistributed portions of the IRA.

I would end up agreeing the Jackster. The accountant may be taking the stance that the IRA is to be treated the same as any other retail account.

This would kind of make a mess of computing double taxation. Being taxed on an amount in Italy before it is considered taxable in the US. Typically the world over, taxable income events are accompanied by some sort of paper trail.

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patsing, can't you file for an extension? I know two people who have done so. That would give you and your commercialista time to explore your situation more thoroughly.

The link to the paper I sent to you seems to be how your commercialista is looking at your inherited private pension. If that's the way Italy's tax code is written and you do have to pay tax on the dividends and capital gains, I'm not sure how the double taxation clause will apply since the U.S. doesn't tax capital gains and dividends held within an IRA. Generally, double taxation protection is on the exact same income; if the U.S. doesn't tax the dividends and capital gains, I don't know how you can get a tax credit toward your U.S. taxes for what you paid to Italy, and you certainly can't get a credit from Italy since the U.S. didn't tax them in the first place. What a circle, eh? Round and round.

HOW your money is taxed is very important in terms of the tax treaty provisions. That was the situation when my commercialista wanted to tax my CD interest using the "substitute tax." There is no "like" U.S. tax, thus no double taxation protection. He said there was nothing in the code addressing my question, which is why I went on the Agenzia website in the first place. Lo and behold, there was a code addressing my situation and it cut my tax bill to Italy in half.

I'd recommend an extension if you can get one. And I know it's not an exciting thing to research tax code. But, commercialisti have a tough job because the Italian tax code is so incredibly extensive; when tax treaty provisions are added, the job gets even more complicated. My commercialista actually thanked me since he has other Americans as customers and he learned something about that particular type of income that had previously escaped him.

In any case, good luck. If you're not comfortable with how it turns out this year, perhaps you can investigate it further for next year's filing. If you find you were over-taxed, you can always apply for a refund, although I'm told it takes 2+ years to get it. lol

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Jacksterjam , I will ask my commercialista for an extension if it is not too late . You said it correctly, it is a big circle. And I also have another problem that has nothing to do with the IRA and taxes . It involves a trust that I have had set up in the States for inheritance reasons. ( I have two children - both with dual citizenship and residing in Italy) . It appears that Italians don't like trusts. Getting back to the IRA ; to tell you the truth I don't know if I have the patience to research the italian tax laws but , like you say, the Commercialista doesn't seem to want to do it either. It just seems like someone should know the answer. I will sleep on it.

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Very complicated. In Italy my American Social Security is taxed

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Jackster every time you answer a question on this forum about tax you amaze us with your comprehension.

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jacksterjam , I have filed for an extension regarding the IRA. I found a site called "Italia Estera" . I found some interesting information . I will keep you informed as to what my accountant(s) decide. Thanks. Patricia

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Patsing, glad the extension was possible. Whatever you find that is relevant to your situation, be sure to download/bookmark it in case you decide to use a different commercialista (for whatever reason). Do keep us posted!

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Also, if you have the link, please share. Jackster is not the only one collecting tax links. :)

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rsetzer99, http://www.italiaestera.net/modules.php?name=News&file=dossier&cid=186

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Do you know if pensions from a state government in the U.S. (State of Nevada) are exempt from tax in Italy?

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Do you know if a pension from a state government in the U.S. (state of Nevada) will be taxed in Italy after 183 days?

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Edrinne, I think the answer is, it depends. If you are a dual citizen, then yes, if you are only a US citizen and permanent resident, then no. At least that is my understanding of the tax codes/treaties. I am a permanent resident in Italy and have a US Military pension. I do not pay tax on that in Italy, since I am only an American citizen.

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Maluza, the way I, and my commericalista, read Article 19, Section 2, of the tax treaty is the same as your interpretation.

Edrinne, here is what the article states: "Subject to the provisions of paragraph 2 of Article 18
(Pensions, Etc.): (a) Any pension paid by, or out of funds created by, a Contracting State or a political or administrative
subdivision or local authority thereof to an individual in
respect of services rendered to that State or subdivision
or local authority shall be taxable only in that State.
(b) However, such pension shall be taxable only in the
other Contracting State if the individual is a resident and
a national of that State."

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Edrinne, I used the word, "commerialista" in my reply. My apologies if you are unfamiliar with the word. It is what business consultants/tax accounts are called in Italy.

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Jackster.Jam, I appreciate your postings on the Italy tax situation. I am an American citizen and have recently retired in Italy and have been trying to figure out what I need to be doing.

Because you seem to have done a lot of research into this and have actual experience filing taxes with the Italians, I thought I would post two questions:

1. If you have a US Government pension, and by virtue of the Italy/US tax treaty must pay income tax only to the US on that pension, is it still necessary to file an income tax return in Italy? Assume for the moment that the USG pension is the only income, and that you would be considered a "resident" of Italy.

2. Assume you have had an investment in X stock for 20 years, in the US/while a US resident, retire to Italy and become a resident there, and after a year in Italy sell the stock for some gain--gain accrued over 21 years. Would you owe the Italian government income tax on only the one year of gain accrued since you became a resident of Italy, with tax owed to the US for the previous 20 years, or would you pay the Italian government tax for all 21 years of gain even though the vast majority of that gain was accrued during the years you were a resident of the US? Most of the gain (income, as reflected in your investment account) accrued before you became a resident of Italy, but that gain was not "realized", or taxed/taxable, until the stock was sold, so I'm not clear on whether it is when the gain/income is "accruing" vs. when it is actually "realized"--and taxed--that matters under the tax treaty.

It is hard to see why the IRS would be prepared to lose tax on 20 years of capital gain accruing to a US citizen/resident just because the year before you sell the stock you become a resident of another country. It would seem to me that both Italy and the US would believe it more appropriate that each country receive the tax owed on the portion of the gain/income accruing or "earned" while the person was a resident of that country.

A more obvious case of tax "deferral" is where a US Government employee makes pre-tax contributions to a US Government "Thrift Savings Plan"/401k from their government salary and does not pay tax on that portion of their salary at that time, but only when they start withdrawing from the TSP in retirement. The IRS was assuming the tax was being deferred on that position of the salary, and would eventually be paid upon withdrawal, and it's hard to believe they would be willing to see that deferred payment nullified by a change of residency in retirement. (In the TSP case I think those payments could be considered to derive from "remuneration" for services to the US Government, so exempt from taxation by Italy under the tax treaty just like the pension, but we can ignore that point for the purpose of this example.)

Thanks for any insights you might have.

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Hello.

I am not an expert on Italian tax law, nor U.S. tax law for that matter, but I will tell you what I "think" is true. First, I recommend that you find a competent tax accountant in both countries who are completely well-versed with the tax treaty and your tax obligation to both countries. The Tax Treaty offers some insight, but reading and understanding it is a vicious circle and takes dogged determination to understand it. Even then, tax accountants in both countries might interpret the document in different ways. It is important to read through the entire treaty for two reasons. First, some little statement about a specific type of income might also be discussed elsewhere in the treaty, and second, the better armed you are with information, the better you can pose specific questions to your tax accounts.

So, as to your first question, yes, you must still file your tax forms every year in Italy. Although your U.S. government pension will not be taxed as income by Italy (unless you are also a "national" of Italy), other taxes due are reported at the same time. Those taxes include the city/regional taxes, a wealth tax on all of your retail investment and savings accounts held in the U.S., a tax on any and all bank accounts held in the U.S., etc.

As to your second question, I have not yet sold any stock held in my retail investment account, thus have not yet had to delve deeply into that area. I do know that you will pay a wealth tax on the amount of your retail investments; for 2015, that was .002, or .2%. I have read a bit of Italian tax law and believe that whatever amount "realized" upon the sale of stock in a retail account is the amount that will be taxed as capital gains by Italy at the appropriate tax rate. I don't recall the sale of stocks being specifically addressed by the treaty, thus I will have to re-read it. I do know that, from the "technical explanation" of the treaty, at the end of Article 13 (Capital Gains), the following is stated: "Notwithstanding the foregoing limitations on taxation of certain gains by the State of source, the saving clause of paragraph 2 of Article 1 (Personal Scope) permits the United States to tax its citizens and residents as if the Convention had not come into effect. Thus, any limitation in this Article on the right of the United States to tax gains does not apply to gains of a U.S. citizen or resident." Like I said, a vicious circle and why reading the entire treaty is recommended, as well as the "technical explanation" of the treaty.

I believe that if both countries tax capital gains realized from the sale of stock held in a retail account, the double taxation clause of the treaty will come into play.

As to your last thought, it is my understanding that if a separate retirement investment account, such as your TSP, was developed as per IRS guidelines and offered to you by your government employer, any income taken from that account is also not taxed by Italy. I have not yet started withdrawing from my own government-sponsored retirement investment account, so I have not yet delved deeply into this topic. I had a brief conversation about it with my commercialista and he believes that Article 19 (Government Pensions) also protects withdrawals from that specific type of retirement investment account, although he also didn't delve deeply into the issue at the time since I am not yet making withdrawals. Again, from the Technical Explanation, the following statement, which is strangely placed at the end of Article 18 instead of Article 19, says: "Article 19 covers section 457, 401(a) and 403(b) plans established for government employees.”

By the way, as a retirement investment account, your TSP should not be subjected to the wealth tax like "retail" accounts are.

The above is what I, and my commercialista, believe to be true at this point in time. Since the entire Tax Treaty is not only written in "legalese," it is poorly written in general making it very difficult to obtain clear information on a number of tax issues.

I'm sorry that I don't have more specific answers to all of your questions. Taxation laws are complex enough in the U.S., even more so in Italy, and the Tax Treaty is often of no help; I think some items in the Technical Explanation were added as an "after thought" and think that both documents contain conflicting information. Sigh.

If I come across more specific information regarding the above topics, I will post them. All of your questions will be ones I will also need to address in the future. I tend to only deal with what I am being taxed on during a given year as that in and of itself is enough of a challenge to understand. I've gained a "fuzzy" understanding of other topics just by having read the entire Tax Treaty in it's entirety at least twice, and via posts made by other participants.

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Jackster Jam, Thank you for this marvelously comprehensive post. Do you consider US Social Security income and US Government Pension the same thing or are you speaking of the latter as a pension from working for the US govt? I have read in several forum posts that SS is taxed in Italy even if you are not a Italy citizen and that the taxes are high. It is this fact alone that will keep me in France for retirement with extended vacations in Italy (France doesn't tax U.S. Social Security). If Italy didn't tax SS, I'd retire there.
Thanks!

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Maluza86 - thank you for your response....if, I did move there that would be my plan too. Stay a U.S. citizen and become a permanent residence of Italy. My pension is a state government pension not a U.S. government pension, but I would assume that a government pension is a government pension, whether federal, state or municipal.

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JacksterJam- Thank you for your reply and the information.

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I am a US CPA, and I generally agree with Jackster's tax on the reconciliation of US/Italian tax issues.

He is correct in that often seems clear, tends to get muddied when they start throwing the "Saving Clause" about. Its like they knew they were writing a vague document, and used this as their fallback position. Generally it ends up meaning, no matter how weird some type of situation is, the end result is that someone, somewhere, is going to tax it.

I would tend to think that Capital Gains would get taxed on the entire amount realized at sale for the same reason that the gain is taxed at the tax 'rate' in force at the time the gain is realized even though said rate may have changed during the life of the asset.

Although it is pointed out you need to file because there are other tax items you need to report on, It is always a good idea to file, even for the tiny minority that technically don't have to, just so that you have that paper trail. Even if you tax liability is zero, there is still the need to prove it with documents requirement.

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What part of Italy do you live in and how do you like it compared to living in the U.S.
According to a recent article posted on the internet, Abruzzo, Italy was listed as the 5th best place in the world for U.S. retirees abroad.
The article states that a couple could retire comfortably in Abruzzo for $2,000 a month...I am not sure how true that is?

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If you own a home, yes you could live on about 2000. Though I would probably state that in Euros. You would have to be frugal, but you could do it.

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Hello, 2countryliving. No, they are not the same thing. A government pension is derived from being a government employee. Here is the technical explanation regarding social security benefits, which is covered in Article 18 of the tax treaty:

"The treatment of social security benefits is dealt with in paragraph 2. As in the prior
Convention, this paragraph provides that payments made by one of the Contracting States under the provisions of its social security legislation to a resident of the other Contracting State will be taxable only in the other Contracting State. This paragraph applies to social security beneficiaries whether they have contributed to the system as private sector or Government employees."

However, if you pay U.S. tax on your social security benefits, the double taxation clause will come into play.

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Thank you for the information on cost of living.
But, what if you plan to rent a 2 bedroom apartment, how much would you estimate monthly cost of living to be?
Also, if planning on becoming a permanent resident what do most Americans do for health insurance?

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Edrinne, as a non-E.U. citizen, you will need to have private health insurance to qualify for a visa. If you are granted a visa, once you arrive in Italy, you are required to apply for the Permesso di Soggiorno (permit to stay) within 8 days. Once you have that, which can take up to 5 months to get, and you have your I.D. card (carta d'identita`), you can buy into the public health care system. The cost is on a sliding scale based on one's income level and the current maximum amount per year is 2,700 euros. The cost has gone up considerably during the past five years, so I would expect an increase in cost every year.

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JacksterJam- Thank you for this valued information. Appreciate it.

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A 2 Bed apt will be priced according to location, location, location. You can range from about 400EU a month to over a thousand.

I don't know if you have already researched the requirement for Elective Visa, so I will give the abbreviated answer. You will need to have purchased health insurance before arrival. One place you can look at which will give you an idea of what it would cost you is AARO.

After you have applied for, and received your Permesso di Siggorno, you can pay to join the Italian National healthcare system. Much less than private insurance.

This is the short answer. You can find out a whole lot more by searching this forum on the keywords your interested in knowing more about.

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One import thing to note regarding buying into the Italian healthcare system: the cost is on a calendar year basis and NOT discounted if you join after January 1st.

In other words, let's say your cost to buy in is €452. You will pay exactly that amount whether you join on January 1, 2017 or on December 18, 2017, and if you do join on December 18th, you will need to pay the same fee again two weeks later when the new calendar year begins.

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Also, there is no such thing as a monthly payment scheme. The cost to join the public health care system, whatever it might be in one's particular case, must be paid in full at the time of registering.

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edrinne said: "My pension is a state government pension not a U.S. government pension, but I would assume that a government pension is a government pension, whether federal, state or municipal. "

Not necessarily. Italy has a tax treaty with the United States of America, not with any individual state.

People often ask why they can't exchange their US driver's license for an Italian license as residents of many other non-EU countries can - the reason is that there is no such thing as a "US driver's license", there is a New York State license, a South Dakota license, a Florida license, etc. Italy is not going to try to create reciprocal agreements with each of the 50 US states.

I suspect the same applies to state pensions. You need to check this point carefully.

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DoppioCittadino, here is the response I wrote earlier addressing the question of government pensions.

"Maluza, the way I, and my commericalista, read Article 19, Section 2, of the tax treaty is the same as your interpretation.

Edrinne, here is what the article states: "Subject to the provisions of paragraph 2 of Article 18 (Pensions, Etc.):
(a) Any pension paid by, or out of funds created by, a Contracting State or a political or administrative subdivision or local authority thereof to an individual in respect of services rendered to that State or subdivision or local authority shall be taxable only in that State.
(b) However, such pension shall be taxable only in the other Contracting State if the individual is a resident and a national of that State."

I'll add a another note to this. My commercialista contacted the Agenzia delle Entrate to verify his interpretation. At this point in time, he is confident that state pensions are covered under Article 19.

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Great information to know about purchasing health insurance.

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Good information on apartment costs and health care insurance.

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Thank you for the information on taxing state pensions. This is hugely important since I read that Italy can tax your pension up to 29%, which is a lot.

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Edrinne, that appears to be the current interpretation by the tax authorities in Italy. As one commenter posted on this thread back in April, "Italian law is as fluid as wine." That concept can easily be applied to most things. Many of us have learned that how something is done (or interpreted) today might not be the same as how it will be done (or interpreted) tomorrow.

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JacksterJam,

Good to know and something to seriously consider on whether Italy would be the right choice for me.

Thank you.

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Jackster,

It is an extremely confusing point; I can only say that most of what I have read over the years indicates that "state" pensions are not treated the same as pensions paid by the federal government and definitely not the same as military pensions which are in an entirely different classification.

For example, "TAX ON INCOME -
If you are in receipt of a pension income, for example, and it is being paid from a private pension provider overseas or a state pension, then that income has to be declared on your Italian tax return (nb. different rules apply to Government service pensions, where tax is generally deducted at source in the country of origin and there is no further requirement to report the income in Italy). If tax is deducted at source in the country of origin, the income must still be declared again in Italy. A tax credit will be given for the amount of tax paid in the country of origin (assuming that country has a double taxation agreement with Italy), but any difference between the tax rates in the country of origin and Italy will have to be paid. "

That from http://www.spectrum-ifa.com/are-you-a-resident-in-italy-and-what-taxes-apply-to-you/

I believe in the above statement, "Government service pensions" refers to military pensions.

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edrinne1450,

If I am reading (between the lines) your comments correctly, you have a bigger issue than state pension taxation.

Unless I missed it, you do not have Italy or other EU citizenship. This means you would be relying on being able to obtain an Elective Residency visa; if this is the case, be forewarned that the income requirements for such a visa are very steep, with most all consulates demanding about €35,000 per year per person in guaranteed income or very substantial (some say €1,000,000) cash or similar assets.

At least one consulate (Philadelphia) is reported to have recently insisted on $120,000 per year combined income for a couple seeking to retire in Italy...

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DoppioCittadino, the main reason I engaged the services of a commercialista before deciding to remain in Italy was to get that question answered. I also consulted with a U.S. tax accountant who specializes in assisting Americans living in Italy. She, my commericalista in Italy, and the local office of the Agenzia delle Entrate all interpreted Article 19 of the treaty in the same way. What more can one do but rely on those three separate interpretations, which, by the way, is also how I interpret it?

I also read the same interpretation on the website of an international tax firm. Sadly, I either neglected to bookmark it, or I deleted it since I got the above-stated three concurring interpretations.

This is how it goes. I had a long protracted battle with the local Prefettura who were, in my opinion, applying a law to me that actually didn't pertain to my situation. I went as far as hiring an Italian immigration attorney to point that out since my protests were getting me nowhere. They wouldn't budge. Interestingly enough, the Prefettura in Milano was applying the law exactly as I, and my attorney, understood it. Two different offices of the same government entity applying a law in two different ways. What did I do? Not wanting to spend more money to fight it, I ended up fulfilling a requirement that didn't apply to me.

Such is the life of a foreigner in Italy. lol

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This is certainly a confusing area. Like Jackster we too have read the whole tax treaty( you need to drink wine while reading it) and thought we sort of understood. However then discovered my husband's super pension is only called a pension for convenience and it's real name is a derived benifit. Despite every man and his dog calling it a pension. We have had advice that this MAY be liable for tax in Italy. Of course we could claim what we pay here but would loose a tax concessions. Italy's tax rate is higher so there would be a difference. Although no one has been able to advise that the MAY have to pay would be definetly Have to pay as every one says ' the tax treaty' is not clear, even the experts.
This topic has driven us to drink on several occasions.

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Thanks, Jackster Jam, that's what I thought and have seen on other posts (perhaps yours). Since from what I can determine, up to $25,000 I'm not taxes on my SS in the US so Italy would tax it. Thus, I guess I'll be staying in France and hanging in for a second home a few months a year. Thanks.

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Hi Velvet! Other than needing occasional nips from a bottle to steady your nerves while trying to determine what's what with Italian taxation, I hope you're doing well! I have to ask, though, what the heck is a "derived" benefit and who calls it that?

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Thanks Jackster I am very well and life is good here even though I have a few days off and was going to spend the days gardening but we have gone back to winter.
A derived benifit is income that my husband
is paid every fortnight from his super fund. This is a government funded super( he worked for the government) scheme Whenever we receive information about an increase the wording is 'your super pension....' In Australia when a person is on pension it means a pension paid for by the government usually those that don't have any super.
So the Tax office here determines his income as a derived benifit that is not covered by any Tax treaty as it is classed as income and not a pension.!!!!Confused so we're we.?
Our understanding is that the Italian gift MAY tax us on this and we would not know until we lodged a tax assessment in Itay. As you know we only wanted to live in Italy for one year. Seems too hard and we have discovered that there are a few financial disadvantages with being outside of Australia for 12 consecutive months.
Hope you are well and happy and it was good to hear all your issues were resolved. Maybe not to your liking and hopefully now you are able to relax.
Regards

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DoppioCittadino, you are correct, I have not started anything with regards to residency and am exploring options. Based on this information, it would not be an option for me to retire in Italy...Thank you for this information.

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Anyone U.S. Citizen considering retiring in Italy needs to read this post about minimum required income...

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I am thankful to you all for providing me with enough information to decide Italy would not be a worthwhile retirement spot for a U.S. Citizen for a couple of reasons:
There minimum income is ridiculous and it seems that there is no solid answer on whether or not the Italian government can or will tax your retirement pension. If they do, they can tax it up to 29% which is huge. Sufficient reasons to look elsewhere. Thank you all for your guidance. Better to find out sooner than later.

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The required income posts need to be taken with a grain of salt. If they were the hard and fast rule, then there would be no Americans in Italy other than the ones living in luxury villas in Como. You have to remember, most of the posts you see are from people who were denied. The few from people who got their visas almost never go into any detail.

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I can confirm the guideline of 31,000€ in income to be granted an Italian elective residency visa. We applied at the KL embassy in July and got our visas in August. The Consular Officer said we'd need to show that per person. We have a kid - I asked if we needed that number per adult or per person. He simply shrugged. I assumed per adult, but I made the numbers look like all three were covered - even though our actual income is not that high.

We own rental property, so I showed the monthly GROSS income from those. In reality, net income is quite a bit less as we pay interest on a mortgage, property taxes, and some maintenance expenses. But he seemed satisfied with the top line numbers.

I got the feeling that he wanted us to jump through hoops and then see how we did, and to see if he still liked us at the end of the exercise. Apparently we passed. Phew.

He referred to the 31k as a guideline, so I assumed there was wiggle room there. But I didn't want to chance it.

Before that application process, I'd read income requirements that were as low as 8k per year. That seems to no longer be the case.

One data point point from a family now living in Verona.

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Based on those figures, a couple would need to show a retirement income of approximately $71,000. Not too many couples have a retirement income of $70K, $40-$50K would be more the norm. I think this, along with the debate of paying income taxes on government income taxes would make people look elsewhere.

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Based on those figures, a couple would need to show a retirement income of approximately $71,000. Not too many couples have a retirement income of $70K, $40-$50K would be more the norm. I think this, along with the debate of paying income taxes on government income taxes would make people look elsewhere.

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I would agree that the tax situation can be perhaps the most significant factor. If one is equally interested in several countries, the one with the most favorable economic outlook will be chosen.

That 31K EU figure is probably not out of line. There can be wiggle room on the 'per person' or whether they want X percent more for each additional. I do like Murican's comment that at times he felt like they just enjoyed yanking his chain.

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Yanking his chain is not good. Imagine being told by one Italian government official that your state government pension will not be taxed. You move and relocate there and a 9 month later another government official tells you that your pension is supposed to be taxed. On a $5,000 pension that could me about $1,450 in taxes each month, along with relocation costs ($10K?). That would be a costly mistake and not sure why anyone would take that chance?

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Yanking his chain is not good. Imagine being told by one Italian government official that your state government pension will not be taxed. You move and relocate there and a 9 month later another government official tells you that your pension is supposed to be taxed. On a $5,000 pension that could me about $1,450 in taxes each month, along with relocation costs ($10K?). That would be a costly mistake and not sure why anyone would take that chance?

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Thanks Jackster.Jam, some good thoughts here. I’m still working through these and other issues and your ideas are helpful. (For example, as far as you know, would Roth IRA withdrawals, which are not taxable income by the US, also not be taxed by the Italians for a US resident of Italy? Article 3, para 1 of the Protocol, and the “deduction” example in the third paragraph of p. 2 of the Technical Explanation seem to support this. I sure hope so! I’d hate for Roth IRA withdrawals to be taxable in Italy, defeating the entire purpose of having a Roth IRA.) That the “Italian tax on pensions” topic in the Italy Forum has something like 125 postings, orders of magnitude more than any other topic, speaks volumes about how this can be an important, difficult issue for Americans considering retiring in Italy.

Edrinne1450, we retired to Abruzzo and while building a house here we were renting a three bedroom (small bedrooms) house, furnished, for 450 Euros/month. Food costs would probably be in the same ballpark, of course depending on what and where you eat. What else you need to spend money on and how much depends on you, but cost of living in Abruzzo is low for sure.

Rsetzer99, I’m sure you’re right that the entire amount of cap gains would be taxed upon the sale, at the cap gain rates in effect then (in whatever country), but I’m just not sure the taxable gains derived from the period when the person was a resident of the US would accrue to Italy’s benefit (or vice versa). With a good paper trail (easy enough to get, I would think) it wouldn’t be hard to allocate the gains to the US residency period vs. the Italy residency period. I don’t know if all the tax treaty terms are intended to cross both periods, at least when the time in which the income-to-be-taxed was “earned” is easy to associate with one period rather than another. But some terms do so maybe that is true for all things.

It just seems a bit odd that tax authorities in a Country X where a person is resident for one year gets the entire tax revenue benefit even though the person was resident in Country Y for the previous 20 years when the vast majority of the income to be taxed accrued. A major windfall to Country X at the expense of Country Y. Maybe the US thought mostly they’d be on the receiving end of this windfall, being a Country X with immigrants from Italy, so were happy to have it work this way. Throw the few American expats in Italy under the bus. With Italy’s high tax rates it is looking like the tax treaty is good for Italians in America and bad for Americans in Italy. But there are other compensating factors for Americans in Italy…

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Hi triedler. Since I don't yet take withdrawals from my Roth, I haven't yet researched the question. I will be doing that soon. When I have the time to sit down and concentrate on it, I'll post what I "think" I understand. Ha!

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living in Abruzzo I generate monthly expenses of about 1,000 euro (my house is paid for). very little taxes to pay (local municipal fees, etc). my biggest expense is a car, as I have only had insurance in Italy for a couple years and am paying the highest rates as I establish my risk factors, etc.

If I moved one hour in any direction, my cost of living could double. Abruzzo is a happy middle ground for low costs and services and easy access to airports, etc. Not to mention that property here is very inexpensive -- Regular earthquakes will do that...

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Question: Has anyone delved into the tax ramifications if major assets are in a living trust? Much appreciated! Liz

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Hi. Would you kindly refer me to your "U.S. tax accountant who specializes in assisting Americans living in Italy", also to your Italian commercialista?

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I would be interested as well in the information in Doppio's request but am not sure if it is referring to someone on this thread?

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Here might be a useful link: http://www.euitalianinternationaltax.com/2013/09/articles/international-taxation/overview-of-italys-tax-provisions-on-trust-updated/

My reading of this is that revocable living trusts are not recognized and income is treated as it would be without the trust arrangement (with respect to income tax). IANAL.

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I'm very appreciative of everyone who has contributed to this long and convoluted thread. But I can't hold it all in my head. I'm hoping to consolidate a bit of knowledge (hopefully without making things worse).

I'm trying to answer three basic questions with respect to taxation of vanilla IRAs (e.g., non-government plan) by Italy for US citizens with tax residence in Italy:

1) Are distributions taxable, if so at the 26% rate?
2) Are reinvested returns (divs, interest, cap gain) within the IRA taxable?
3) Are IRA assets subject to wealth tax?

I couldn't get a definitive reading on any of these questions from the thread below, but here's my assessment based on what I read:

1) Probably. Not sure about the rate. So people (on other forums) have claimed distributions are not taxable like they are for US taxes. This seems unlikely to me.

2) Probably not, but the situation is unclear (see conversation w. patsing of 6 months ago.)

3) Maybe. There isn't an explicit exception.

Do I understand correctly?

Having both (1) and (2) being true makes for a big mess, and a potential for double taxation on the same funds. Even computing realized gains within an IRA account is kind of odd, since brokerage firms don't usually summarize transactions in such accounts. Sounds crazy. But then this is Italy.

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My former landlord and commercialista mentioned in passing that there is a new law this year that limits taxes on foreign pensions in Italy to 15%. I have to follow-up with in in the next few weeks when I have all my financial records together but has anybody heard anything about this?

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wobbster,

More importantly, my recollection is that revocable trusts are subject to the annual "wealth tax" and irrevocable trusts are not.

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Dear Jackster,

First, many thanks for your always informative posts!

Now about this particular part, which seems to contradicts everything I've read about the elective residence visa:

"I have just been informed by the Prefettura that if a U.S. citizen is retired but resides in Italy for the long-term, that person does not qualify for the permanent permesso (available after 5 years of continuous residency in Italy) because the income is derived from retirement and not from current work."

Did they quote any authority on that? Were you able to get any further info? Is this a new rule?

One can quote any number of (non-authoritative) sources to the contrary, for instance:

1.1 EC long-term residence permit
56. What is the EC residence permit?
It is a document that authorizes your residence in Italy for an open-ended/indefinite period.
57. What requirements must be met in order to obtain the Stay Card?
You can obtain the EC residence card if you are a foreigner who has been legally residing in Italy for at least 5 years and you have a valid Permit to Stay, provided that you show the availability of a minimum income not lower than the annual welfare benefit (amounting to € 5,749.90 for 2013).
... In Section 61 in that documents, there's a list of additional documents one must provide *If one is employed (or self-emplyed) worker*, but it is my understanding (possibly wrong) that one does not have to be employed. (http://www.integrazionemigranti.gov.it/normativa/procedureitalia/Documents/faq%20lungo%20soggiorno/soggiorno%20inglese.pdf )


Elective residence visa ... Ancillary rights
Permanent residency: holders of an elective residence permit can apply for the EC residence permit for long-term residents after 5 years of legal stay in Italy. In order to be eligible they must have registered as residents and filed tax returns
(13 - Elective Residence Visa Memo_short-June2015.pdf available from many place, e.g.: http://www.academia.edu/9657063/Italy_-_Elective_residence_visas)


Requesting a national Visa for Elective Residence.
... After 5 years, it is possible to request an EC permit of residency for longterm stayers which has permanent validity and allows its holder to benefit from the same treatment as the one granted to EU citizens. (http://www.detulliolawfirm.com/requesting-national-visa-elective-residence/)


One can give more links... but your Prefettura might still know best...

And a question to all: what's the bottom line on this? Does the ER visa make you eligible for a long-tern stay permit or not?

Thanks!

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DolceVi, thanks for the very informative post. The folks at the Prefettura said income must be from work, not pensions, as their reasoning. My attorney said that they are "dead wrong." He further said that the Prefettura has no authority over who does or does not qualify for the E.U. permanent residency card. The only other requirement above what one needs to apply for the permesso di soggiorno is proof that one has filed, and paid, their Italian taxes for each of the five years.

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