IL NOSTRO STUDIO E' SPECIALIZZATO NELLE SEGUENTI TEMATICHE:
- PROBLEMATICHE FISCALI TRA ITALIA E STATI UNITI
- NUOVA FLAT TAX AL 7% PER I PENSIONATI AMERICANI CHE RIENTRANO NEL SUD ITALIA
- DICHIARAZIONI DEI REDDITI AMERICANE: TAX RETURN E MODELLI FBAR
- SANATORIE FATCA: STREAMLINED FOREIGN OFFSHORE PROCEDURE E DELINQUENT FBAR
- TRUST AMERICANI CON BENEFICIARI ITALIANI: COME SI TASSANO IN ITALIA
- CITTADINI USA CHE SI TRASFERISCONO IN ITALIA MANTENENDO I LORO INVESTIMENTI NEGLI USA: COME FARE?
- INVESTIRE IN AMERICA: COME APRIRE STABILI ORGANIZZAZIONI E SOCIETA' NEGLI USA
- SUCCESSIONI ITALO-AMERICANE: PROCEDURA E TASSAZIONE IN USA ED IN ITALIA
- PROBLEMATICHE PREVIDENZIALI TRA ITALIA E AMERICA
- PENSIONI ITALO-AMERICANE: IN CHE PAESE VANNO DICHIARATE
- DIVORZI ITALO-AMERICANI: PROBLEMATICHE GIURIDICHE E FISCALI
- IMMOBILI VENDUTI IN ITALIA DA CITTADINI AMERICANI: IL PROBLEMA DELLA TASSAZIONE USA

20 gennaio 2019

New interesting Tax Benefit for retired Americans who want to move to Italy: a FLAT TAX AT 7 PER CENT

The following article analyzes the fiscal law introduced December 30th, 2018, regarding the new FLAT TAX at 7%. This fiscal law establishes a particularly interesting tax benefit for all America residents who receive foreign pensions and would like to permanently transfer their residency to Southern Italy.


Note: this post is the english translation of the previous post.




First of all, let’s look at an initial analysis of the fiscal law, highlighting the most prominent aspects:


SUBJECTIVE limit of the tax benefit:

A) The individuals benefiting are persons receiving a pension granted by a foreign country (not only America).


First CONDITION for the tax benefit:

B)  Individuals as described in point A, in order to benefit from the fiscal law, must transfer their fiscal residency to Italy, specifically to a municipality containing a population of up to 20,000 inhabitants, in the following regions:


- SICILIA (SICILY);
- CAMPANIA;
- PUGLIA (APULIA);
- ABRUZZO;
- SARDEGNA (SARDINIA);
- BASILICATA;
- MOLISE;
- CALABRIA.

OBJECTIVE characteristics of the tax benefit:

C) Individuals meeting the conditions requested by the fiscal law can make the option to tax all of their foreign incomes at a FLAT TAX RATE OF 7%.

DURATION of the tax benefit:

D) The tax benefit is valid for the first 5 tax periods following the period in which residency was transferred to Italy.


Additional CONDITIONS:

E) The tax benefit is admitted for persons who have not been fiscal residents in Italy within the 5 tax periods prior to the period in which residency is transferred in Italy.

F) The tax benefit is admitted for individuals who transfer their residency from foreign countries with which there is an agreement of administrative collaboration and fiscal information exchange (undoubtedly including the United States).


Additional CHARACTERISTICS:

G) As previously stated, the tax benefit is not mandatory and should be applied as an option. It is still possible for the individual who transfers his/her residency to Italy to use the alternative regime ”Regime dei Paperoni,” (the so called "Donald Duck" regime) which allows a FLAT taxation of €100,000 regardless of the income produced abroad.

H) The FLAT TAX at 7% can also be applied only to some foreign countries, specifically indicated when the option is selected: in such cases, the FLAT TAX regime would apply to income produced in those countries, while the ordinary regime would apply to all the remaining countries.

Now let’s look each point of the fiscal law in more detail.

It is important to note that the first information sheets from the Italian Tax Authorities will provide more specific indications on how to apply this fiscal law.


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SUBJECTIVE limit of the tax benefit.
A) The individuals benefiting are persons receiving a pension granted by a foreign country.


Such condition requires that the individual meet both of the following characteristics:

-         be retired;

-         the pension must be dispensed by a foreign entity.


The question hence arises if an individual who is a recipient of both an Italian and an American pension can be the beneficiary of the above-mentioned tax benefit. An initial literal interpretation seems to impede the use of the benefit, as the condition to access the benefit appears to be reception of only a foreign pension, therefore excluding individuals who are also receiving an Italian pension.

It also appears evident that a such interpretation could inadvertently exclude certain groups of individuals, given that statistics show that a significant number of Italian foreign pensions are of scarce amounts. It would be contradictory to exclude Retiree A who receives Social Security equaling $2000/month, in addition to a small Italian pension of $150/month, compared to Retiree B who receives Social Security equaling $5000/month. In order to untangle such specific details, we must await further clarification from Italian fiscal authorithies.

Another interpretative issue emerges concerning foreign pensions: must these be strictly Social Security, or may they be pensions of any kind, such as 401(k) or IRA, ROTH IRA, TIAA CREF, etc.?

At this point we cannot identify any reason for which to exclude individuals who receive pensions from private funds, given that the fiscal law simple refers to an amount distributed by “foreign sources,” without any other specification as to the nature of the pension received by the foreign subject, be it public or private. So we consider that persons receiving foreign pensions as 401(k) or IRA, ROTH IRA, TIAA CREF can apply for this tax benefit.

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First CONDITION for the tax benefit.
   B) Individuals as described in point A, in order to benefit from the fiscal law, must transfer their fiscal residency to Italy, specifically to a municipality containing a population of up to 20,000 inhabitants, in the following regions:
- SICILIA (SICILY);
- CAMPANIA;
- PUGLIA (APULIA);
- ABRUZZO;
- SARDEGNA (SARDINIA);
- BASILICATA;
- MOLISE;
- CALABRIA.

Here the fiscal law seems clear, although there are a few things to keep in mind: the process through which a certain municipality is considered as part of the fiscal law is not specified:

-Which entity declares the population of a municipality: ISTAT (the Italian Public Department for Statistics) data, or other entities?

-Which time period must be used as reference when qualifying a municipality as having a population of less than 20,000? It might seem obvious that the time reference should be the moment in which an individual applies for residency in the municipality. However, if ISTAT data is used as a reference, then it refers to the latest census, which is obviously previous to the residency application.

It is hence not clear what would happen if one wants to be a part of a municipality in which the last census data reports 19,816 inhabitants, yet other sources report data well over 20,000 inhabitants at the moment of the residency application. 

The following point should also be considered: what happens, in terms of tax benefit, if the applicant enters Italy and applies for residency in a municipality as listed in the fiscal law, yet also uses a home in another municipality and/or another Italian region (while keeping residency in the first)?

Here the fiscal law does not request “the absence of other residences” in Italy, and therefore multiple residences seems to be admissible in different municipalities. We should, in any case, expect interested municipalities to check for fictitious residencies.




OBJECTIVE characteristics of the tax benefit.
C) Individuals meeting the conditions requested by the fiscal law can make the option to tax all of their foreign incomes at a FLAT TAX RATE OF 7%.

Now let’s begin the critical part of this analysis: the points which seem more interesting for American retired persons currently living in the United States and with the desire to move to Italy are the following:

    1) What happens to other income deriving from financial investments (interests, dividends and capital gain) that the retired American matures in his/her American funds after he/she has begun living in Italy?


We take for granted that the individual who moves to Italy prefers to keep the core of his/her financial wealth in the United States, and hence bring to Italy only the funds necessary for daily living.

This is an important point which is not clearly expressed in the fiscal law. The literal interpretation indicates that the FLAT TAX at 7% applies to all income, and therefore includes:

-         dividends

-         interests

-         capital gain

matured from financial investments in AMERICAN BANKS.

The fiscal law, in fact, reports that such investments qualify to receive the tax benefit as the tax benefit applies to “…income in any category, perceived from foreign sources or produced abroad…”


    2) Considering that the American person wanting to reside in Italy is almost certainly an American citizen who is also obliged to a file tax return also in the US due to his/her American citizenship, what would his/her comprehensive fiscal position be?

This point is very important and will be dealt with exhaustively in the next post, with simulations looking at specific cases.

We can, however, already anticipate a few relevant points:

-If the individual entering Italy, other than being an American citizen, is also an Italian citizen, the Convention against double taxation between the US and Italy dictates that the retirement income be taxed only in Italy. Therefore a FLAT TAX at 7% of the pension is already a significant tax benefit, given that it is not necessary to tax the US pension back in the United States because of the person’s American citizenship.

-It is still true that American financial incomes are still subject to American taxation in the American tax return, as the person is an American Citizen: in this case the FLAT TAX at 7% is interesting for those who would like to avoid the Italian taxation at 26% otherwise dictated for such income, which would worsen the comprehensive taxation. Given that there are no obstacles for the FLAT TAX at 7% paid in Italy to be considered as foreign tax credit in the United States, with this tax benefit the comprehensive net taxation applied to financial incomes is equal to the American taxation (not being influenced by the Italian FLAT TAX at 7%.)

Subsequent posts will present simulations to look at these point with tangible examples.

In case you need more information on that, please contact us for a simulation of your case.

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DURATION of the tax benefit.
    D)  The tax benefit is valid for the first 5 tax periods following the period in which residency was transferred to Italy.  


On this point we have to make a few considerations on what will happe after the fifth year.
Depending on every personal case, we have already set up a way to optimize taxation (respecting all American and Italian fiscal laws) after the end of the tax benefit. 
We will talk about that in one of our future post.
In case you need more information on that, please contact us for a simulation of your case.

Additional CONDITIONS.
E) The tax benefit is admitted for persons who have not been fiscal residents in Italy within the 5 tax periods prior to the period in which residency is transferred in Italy.

F) The tax benefit is admitted for individuals who transfer their residency from foreign countries with which there is an agreement of administrative collaboration and fiscal information exchange (undoubtedly including the United States).


There is not much to say regarding condition F): there is no doubt that the United States is one of the countries which satisfies this requisite.

Regarding the condition which states that the individual entering Italy should not have had fiscal residency in Italy during the five tax periods prior to the period in which the tax benefit it requested, there is an important consideration to be made about so-called “EXPATS,” individuals who were born in Italy and went to live in the United States many years ago and have now decided to return.

Here the important point is the following: to be able to benefit from the tax credit, the individuals must, alternatively:

- be registered with AIRE (Anagrafe Italiani Residenti all'ESTERO), formed in 1990.

- have expatriated before 1990 AND ALSO have been deleted from the registry in the Italian municipality.

An individual who has been a de facto resident abroad but who has not been deleted from the registry in the Italian municipality IS NOT ELIGIBLE TO RECEIVE THE TAX BENEFIT.


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Additional CHARACTERISTICS.
G) As previously stated, the tax benefit is not mandatory and should be applied as an option. It is still possible for the individual who transfers his/her residency to Italy to use the alternative regime ”Regime dei Paperoni,” (the so called "Donald Duck" regime) which allows a FLAT taxation of €100,000 regardless of the income produced abroad.

H) The FLAT TAX at 7% can also be applied only to some foreign countries, specifically indicated when the option is selected: in such cases, the FLAT TAX regime would apply to income produced in those countries, while the ordinary regime would apply to all the remaining countries.

The FLAT TAX at 7% is alternative to the so-called “Regime dei Paperoni” ("Donald Duck Regime").

You may only opt for the FLAT TAX at 7% tax benefit from certain foreign countries, keeping the ordinary taxation for the other countries. This option gives some flexibility in outlining fiscal strategies for an individual who decides to come to live in Italy.


Some final considerations: the FLAT TAX at 7% per retired persons who move to municipalities in Southern Italy seems like a very interesting opportunity, in particular for many American EXPATS with Italian origins who are thinking of returning to the homeland in their “Golden Years.”


Please contact us for more information.

Authors:

Dr. Enrico Povolo
Dr. Ennio Vial