Imodica
7/25/2020 17:05 EST
We are dual citizens and wanting to stay more than the "183" days in Italy.
We understand we have to file taxes in both countries - but only pay in one.
IF we stay more than 183 days, (perhaps 8months) must we pay our taxes then in Italy?
If so, will our social security and any IRA withdrawls be taxed too?
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Umbertomar
7/26/2020 02:24 EST
The answer to your question is maybe. Depends on your residency for tax purposes under the treaty between the US and Italy. Here is the linkhttps://www.treasury.gov/resource-center/tax-policy/treaties/Documents/italy.pdf Take a look at Article 4. Note that there is no 183 day rule The issue is fact sensitive, and in my view, worthwhile to have an international tax professional evaluate your situation.
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guestuser
7/26/2020 03:06 EST
According to Article 2 of the Italian Tax Code, an individual is considered an Italian resident for tax purposes if, for the greater part of the fiscal year (i.e., for more than 183 days) if any one of the following applies:
-the individual is registered in the Records of the Italian Resident Population (called Anagrafe),
-the individual has a ‘residence’ in Italy, or
-the individual has a ‘domicile’ in Italy (principal center of business, economic and social interests, etc.).
The tricky thing in your situation is that Italy generally categorizes people into two basic groups: visitors who stay less than 90 days, and residents who stay more than 90 days. Even other EU citizens who stay longer than 90 days are required to register with the anagrafe.
But there are so many laws governing residency and taxation, I recommend you ask the appropriate experts regarding both.
Having said that, if you are determined to be a "tax resident," then, yes, both your US social security income and IRA withdrawals will be taxed by Italy.
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rsetzer99
7/26/2020 03:31 EST
The OP has not indicated the conditions of permission they hold for staying in Italy more than the 90 day tourist visa periods. Still, absent some unique situations, It is pretty certain than SSN and IRA withdraw will be subject. --- Additional, if the OP still holds assets outside of Italy of significant value, they will be subject to the IVIE, which will not high, adds another tax situation.
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bogart2
7/26/2020 09:26 EST
Yes, you should. You will likely need to engage a commercialista in Italy as the tax forms and processes are quite different, and the payments are made twice a year (not just once). Also, you pay in both countries but can and should offset tax in Italy with tax paid in the US.
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dave2018
7/26/2020 10:10 EST
If you stay in Italy more than half the year, i.e. 183 days, then you are considered a resident of Italy whether you apply for formal residency or not, and as such you must pay taxes on all your income to Italy with a few exceptions depending on the source of income.. This is in the case of a U.S. citizen. You don't say what other country you are a citizen of so the tax treaty between that country and Italy may be different than the U.S.-Italy one. By the way, unless you are from another high tax European country get ready for a shock and a big hit to your income.
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mamapatty
7/26/2020 15:42 EST
Here's a great link with clear info: https://www.taxesforexpats.com/italy/guide
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rsetzer99
7/27/2020 03:14 EST
The tax in Italy is not as high as one thinks. Americans often do not take everything else into account. Say for example, your Federal Rate is 8%, your State rate 4-7%, if your still working Social Security 7%, your property tax 5-8%, and your cost of health care 10-15%. When you add it all up. You get up to around 30%. I pay in the 25% range here in Italy.
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guestuser
7/27/2020 04:07 EST
Hi rsetzer99.
It would depend on where in the States one is from. My property tax rate was 1.15%, sales tax 2%, no state income tax and health insurance is 2% under my retirement plan.
So I'm paying considerably more in Italy for income tax, city/regional tax, wealth tax, and sales tax than I paid in the States.
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rsetzer99
7/27/2020 06:41 EST
Still, you have to admit you situation would be atypical. Ultra low property tax, no sales tax, very low income. They can't have any money to fund any services. And you health costs under a retirement plan are a thing now long gone. Even those that had them are losing that as the pension funds dry up.
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guestuser
7/27/2020 09:42 EST
True, although I don't know how other retirement plans are fairing for those that are currently retired, or nearing it.
There are seven states with no income tax and many others that reduce the tax, or don't tax at all, retirement income from a qualified plan at age 65.
It's also true that no state sales tax is a-typical (only five states are in that position), and many states have a relatively low sales tax rate and I don't know any who charge the 22% Italy does, and cities/counties/boroughs usually have the right to levy a sales tax to pay for services used in their area. Many also reduce property tax rates for those at age 65+.
So, again, it just depends on individual situations when one compares the taxes they pay in the US to those they pay in Italy.
For me, I pay more in combined taxes in Italy than I did in the States, but for others it might be about the same, or less.
BTW, my own home state happens to be well-off, manages its money well, and definitely provides needed services at the state level. ;-)
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dave2018
7/28/2020 00:40 EST
5-8% property tax? Yikes! Mine is just over 1% of annual income. My federal taxes are about 5% due to the $25,000 deduction, state tax is about 2% due to the large deduction, plus there's the health savings account deduction which can save even more on taxes. Health insurance costs about 10% of our income. In Italy we would pay about 30% of our income in taxes. We'd barely have enough left to live on after paying Italian taxes. I recently read an article about a possible future special Italian tax regime for retirees wherein they'd pay a lower tax rate if they move there from another country. They already have this for foreigners moving there to work. We might just finally make the move if Italy does the smart thing and implements this.
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Imodica
7/28/2020 12:44 EST
It is truly crazy. This is what is keeping us from moving to Italy 6-8 months/year. As dual citizens with Italy - its what we want but can't afford to have our SS taxed.
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Imodica
7/28/2020 12:46 EST
Thanks for the reply. This is what is keeping us from moving to Italy as dual citizens 6-8 months/yr. We only have our SS and an IRA we pull from when we need it.
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MrsVannelli
7/28/2020 12:46 EST
Umbertomar - that is a great point! Article 4 is vague. So, if one is just on an extended holiday and not a burden on the Italian state, perhaps no one is tracking the actual days. We did have a conversation with a lawyer about real estate and taxes last winter before we bought our little house. He mentioned that if you're not on the health systems, not a registered resident, and just a dual citizen in AIRE, not to worry about the days, as the tax police don't have enough people to waste time looking for people who are using their second home and going back and forth. As we get closer, we'll get more legal/tax advice, but rereading the Tax Agreement again does support what the lawyer said. Thanks for reminding me to read it again!
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Imodica
7/28/2020 12:47 EST
Thank you - I started reading. Very helpful!
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Imodica
7/28/2020 12:48 EST
We are dual citizens with Italy.
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Imodica
7/28/2020 12:52 EST
I have never heard of Italian Resident Population (called Anagrafe), As dual citizens with Italy, we are registered in AIRE but that, I believe, has to do with Italian citizens in the US.
If we were to rent instead of purchase a place in Italy, would Anagrafe still apply?
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rsetzer99
7/29/2020 03:55 EST
Anagrafe would still apply. And you would find that if you wish to just stay here under the radar that would have have a more expensive time of it. First, unless you have residency, you cannot buy a car, and second, again, without residency, you would find rentals to be more expensive as you would mostly be offered vacation lets with vacation let prices. ---- It is very possible that you would be able to just slide under the tax radar forever just as you were unofficially advised, but should you get caught, the penalties are very very severe.
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MrsVannelli
7/29/2020 11:57 EST
If one owns their own home and leases a car, it makes things a bit easier. When the time comes, we plan to run the. numbers. We don want to violate the rules, but there seemed to be some flexibility depending on how enmeshed one is with the system.
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guestuser
7/29/2020 12:51 EST
Hi MrsVanelli.
There really isn't much flexibility.
By law, you must report your presence to the police within 8 days of arriving. You have to fill out a form and the police will give you a stamped copy that you must carry with you at all times.
Even as dual citizens, if you remain in Italy for more than 90 days, you must register as a resident with the comune at the anagrafe office.
If you remain in Italy for more than 183 days, you are subject to Italian taxation.
While some people do "fly under the radar", many also get caught and it's often because of something completely unrelated. Two people I know were "caught" because one had to go to the emergency room and the second was the only witness to an auto accident. Both situations triggered a deeper look at their documents and neither person faired well either legally or financially as a result.
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Imodica
7/29/2020 14:55 EST
Thank you and I understand what you are saying. We always abide by the law and I appreciate it.
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MrsVannelli
7/29/2020 16:25 EST
Thanks JJ for clarifying. We haven’t researched all the little details yet, as we’re a few years out. I did not know dual citizens register in AIRE needed to report their presence after 90 days. I do know that passports are stamped upon entry of one arrives in Italy directly. As we wound the staying at a hotel, but our own house, we would never be registered with the police that way. I honesty haven’t liked into all those rules as his JS is in its initial stages. Until we retire, we can’t stay longer than 90 days anyway. I appreciate your wise words!!
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MrsVannelli
7/29/2020 16:25 EST
Thanks JJ for clarifying. We haven’t researched all the little details yet, as we’re a few years out. I did not know dual citizens register in AIRE needed to report their presence after 90 days. I do know that passports are stamped upon entry of one arrives in Italy directly. As we wound the staying at a hotel, but our own house, we would never be registered with the police that way. I honesty haven’t liked into all those rules as his JS is in its initial stages. Until we retire, we can’t stay longer than 90 days anyway. I appreciate your wise words!!
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Imodica
7/29/2020 16:37 EST
It is crazy as we truly can't find a direct answer from the government. I think we are going to just have to find an Italian tax lawyer. We always follow the law and want to do this correctly. Thanks.
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guestuser
7/29/2020 20:55 EST
MrsVannelli, I'm no expert. This is just what I understand to be true. It's always best to get answers to such matters from the appropriate authorities in Italy.
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Umbertomar
7/30/2020 03:47 EST
Dear Mrs. Vanelli and Imodica, The issue is a matter of International Law which is followed by the US and Italy. If you have residences in both Italy and the US, under the Treaty , you will be treated as an income tax resident of either one or the other in both Italy and the US, (the days that you reside in Italy and the US are not an acid test) There are several wrinkles that are a result of the Treaty and situations are fact sensitive. The big law and accounting firms in the US and Italy have specialists that can readily answer these questions and give advise on structuring your life in the most advantageous manner.. Here is a link to the US Embassy lawyer referral list..where you will probably find an English speaking Italy / US Tax adviser that will meet your needs. Good Luck
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Umbertomar
7/30/2020 04:22 EST
Sorry Here is the link https://it.usembassy.gov/wp-content/uploads/sites/67/ACS-Legal-Rome-Jan2020.pdf
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Imodica
7/30/2020 12:12 EST
thank you so much for the information!! Much appreciated.
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rsetzer99
7/30/2020 16:30 EST
For Americans, it does not matter where you live. They use citizenship based taxation. You pay tax to the us regardless of where you live or where you earned it. There are complicated rules for exclusions and credits. Basically it means you are buying your accountant a new car....
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thefountain
7/31/2020 19:30 EST
How does Italy know if the money comes from ira or social security if you transfer money from a general account? Thank you.
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guestuser
8/1/2020 00:14 EST
Hi.
Like US tax forms, Italian tax forms provide places to report the different types of income one is declaring.
Keep copies of all US tax records (forms, year-end statements, etc.) in case you are ever audited by the Italian tax authorities and the type and amount of income you've declared is questioned by them.
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lucysurf
8/15/2020 19:36 EST
Hi Everyone, thank you for sharing all the insights. We have dual citizenship, we sold our house and are getting ready to move back to Italy. With regards to taxation I have contacted several CPA's and commercialisti with supposedly international tax knowledge however I received a few conflicting information. I was in fact wondering about the Italian government knowing where the income is coming from. When transferring money from savings accounts and regular money market accounts it should not be taxed since it has been already taxed in the US. I was told so and it makes sense. With regards to the SS income that will start in two years if we have it deposited in our US account will it be taxed in the US only correct? Any lead for an international CPA familiar with Italian tax laws would be greatly appreciated. Grazie mille.
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guestuser
8/15/2020 23:31 EST
Hi.
Italy will know where your money comes from the same way the US does - you declare it on your tax forms. Be very careful to be accurate with your declarations because the tax agencies in both countries do share information. It's not wise to withhold any information because it would be considered tax evasion and the fines/fees for such are very high in Italy.
As a resident of Italy, you will be taxed on your world-wide income regardless of source. The fact that you will also have to pay taxes in the US does not change that. The Tax Treaty does outline relief from double taxation, which basically means that in most cases, you can claim a credit on your US income taxes for the amount of income taxes you pay to Italy by income-type.
Also be aware that Italy will tax any bank accounts you hold in the US, as well as a wealth tax on the value of any retail investments or property held in the US. These taxes are separate from the income tax, thus are not addressed in the Tax Treaty.
As far as taxation of US social security benefits, because you are also an Italian citizen, Italy has the soul authority to tax those benefits. This is also addressed in the Tax Treaty. There are forms you will have to file with the IRS regarding such.
Every person's tax liability is different and filing taxes in Italy can be very complicated, so I recommend that you find a very knowledgeable tax accountant in Italy who is thoroughly familiar with the Tax Treaty once you make your move.
Good luck!
Tax Treaty: https://www.treasury.gov/resource-center/tax-policy/treaties/Documents/italy.pdf
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guestuser
8/15/2020 23:37 EST
Hi!
I should have noted in my previous post that it was in reply to lucysurf's questions.
While I'm at it, I'll making a spelling correction. It's not "soul" authority but "sole" authority. ;-)
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rsetzer99
8/16/2020 03:08 EST
Italy will tax your Social Security income regardless of where it is deposited. The rule is thus - If you are an Italian Citizen, you pay only to Italy. If you are an American Citizen, residing in Italy, you pay to Italy and tax a credit for the amount paid to Italy on your US tax return. In practice, the amount paid to Italy will be more than you would pay to Italy so you pay nothing to the US on your Social Security.
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Imodica
8/16/2020 13:07 EST
This is still our issue too. Our social security earned is not taxed in the US because both of us are under the "threshold" or taxible level.
We are looking for definite answers for our decision to live there 8 months.
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Umbertomar
8/17/2020 08:58 EST
Further to my post: If you have a residence in the US, and a residence in Italy, the treaty apples in order to determine in which country you are a taxpayer. The specific amount of time you spend in each country does not determine of your taxpayer status, Here is the link https://www.treasury.gov/resource-center/tax-policy/treaties/Documents/italy.pdf As you can see, you can be a resident of Italy and not necessarily an Italian taxpayer. The applicable part of the treaty is pages 5 and 6 - Article 4. If you are not an Italian taxpayer under the treaty, you do not need to file an Italian tax return, and thus you will not pay Italian income tax. Most of the responses on this forum come from those who reside only in Italy and have income sources in the US. This will not be your situation as you have described in your posts. Again- contacting an expert in this field is well worth the cost.
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rsetzer99
8/18/2020 03:21 EST
The parts of the treaty you cite confine themselves to business operations. Can you elaborate on your position?
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Umbertomar
8/18/2020 03:52 EST
I disagree they apply to individuals (ie persons) See the treaty--- ARTICLE 3 General Definitions 1. For the purposes of this Convention, unless the context otherwise requires: (a) the term "person" includes an individual, a company, an estate, a trust, a partnership, and any other body of persons; ARTICLE 4 Resident 1. For purposes of this Convention, the term "resident of a Contracting State" means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management, place of incorporation, or any other criterion of a similar nature, provided, however, that: etc.
Article 4 2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined as follows: etc
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Italia77
12/6/2020 19:45 EST
What state is that? Maybe I should just retire there!
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MarcheMan1
12/18/2020 06:27 EST
The tax system in Italy is renowned for its complexity. Ask an accountant. It will be worth it. Try here. www.accountingbolla.com the accountant has studied in both the US and Italy (english speaking Italian.
Good luck!
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rollin
1/19/2021 15:30 EST
So if my wife is living there to for 3 yr residency requirement for citizenship and withdrawals living expenses out of her interest on investments, she will get taxed twice?
Im pretty sure uncle sam will take taxes out of her withdrawal and then Italy will also tax her? Im confused.
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nick0126
1/19/2021 16:11 EST
you never pay double income taxes, every year you do your Italian taxes first then send that info for US tax processing. Full credit is given for paxes paid in both directions. Italy has individual tax treaties with the US that exceed general EU rules.
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