In this article we will continue with the analysis of the tax implications of moving to Italy: in this second and last part, we will focus on topics like Tax Residence, US Trust with beneficiaries who lives in Italy and on the Tax Breaks reserved for people who move to Italy, such as Tax Break Impatriati, Tax Break for US Researchers and Professors, Tax Break 7% for Foreign Retirees and Tax Break for High Net Worth Individuals.
You can find Part 1 of this article here:
You can also visit the page we have specifically dedicated to all US Citizens who have an interest in moving to Italy:
Some of the links could bring you in a post written in Italian: use the tool "Translate" to translate it into English.
QUESTIONS N. 17 (Q17): Let's talk a little bit more on Tax Residence: is it true that if I spend more than 183 days in Italy in a certain calendar year, I become tax resident in ITaly for that year?
ANSWER 17 (A17): Yes, this is generally correct, but there are also other elements that must be taken into considerations to understand if a certain individual is to be considered as tax resident in Italy or not for a certain year.
Q18: What are the most common mistakes that a individual, who doesn't want to become tax resident in Italy, makes?
A18: There are several small mistakes that can be greatly problematic when it comes to tax residency. One of the most common is the mistake of remaining in Italy for a number of days that is "too close" to 183 days. For example, the strategy of remaining in Italy for 180 days in a certain calendar year, is for sure not correct, as a small mistake, a health problem or a problem with the flight can jeopardise entirely the tax residence concept, and put the person in a quite complicated situation with the Italian Tax Agency (Agenzia delle Entrate).
Q19: Ok, this is an helpful information: do I need other tips on the Tax Residence topic?
A19: We always suggest to our clients the "our 5 tips rule for tax residence" that are the following:
TIP N. 1: We've already said this: don't stay in Italy a number of days close to 183: The maximum number of days you should target is 160- 165, so you have a small buffer of days in case of complications.
TIP N. 2: Remember to count the day that you have arrived and the day in which you will leave as an entire day spent in Italy;
TIP N. 3: Keep a file (like an Excel file) in which you keep record of the dates for every travel you do, in and out of Italy: this is helpful as it will avoid mere calculation mistakes. Keep in mind that you don't have to rely of the fact that you have been in Switzerland or in Austria for a couple of days to consider yourself as non-tax resident in Italy.
TIP N. 4: Keep a folder with all your flight tickets, so you can prove that you were flying in and out in Italy at a certain date. Keep in mind, that it's the taxpayer who must prove if he/she was out in Italy on a certain date. Moreover, if you will get audited, this will happen 4-5 year after the year that is under audit, and it could be difficult at that moment to recover the flight tickets for you and your family.
TIP N. 5: Avoid the situation in which your spouse will spend more than 183 days in Italy and you will spend less than 183 days in Italy in the same year: this could bring to your qualification of tax resident in Italy.
Q20: Can you be more specific on TIP n. 5? Why the behaviour of my spouse is relevant for my tax residency qualification?
A20: The point is that the number of days spent in Italy is one of the element to consider, but not the only one. It's relavant where your spouse and children live and go to school, if you are owner of a house in Italy, if you have businesses in Italy etc.
In particular, Agenzia delle Entrate is particularly interested in a concept that is called "centro degli affetti e degli interessi", that means "where the individual has the loved ones and where he has the center of his businesses".
If you have a spouse who lives in Italy all year long, and you also have children who go to school in Italy (it doesn't matter if the school is public or private) than you are attracted to Italian tax residency because of your family, and it's difficult to prove the opposite.
Q21: I didn't know that, thanks. Are there other involountary behaviours that can jeopardise my non-tax residence strategy?
A21: Yes, you must be careful about a couple of other aspects: the first one is if you go or have been to the hospital in Italy during your stay in Italy. For example, if you have been to the Emergency Room in Italy ("Pronto Soccorso" in Italian), this is an information that the Agenzia delle Entrate has on its database. Same thing if you have been hospitalized for a few days.
Q22: And the second aspect?
A22: The second aspect regards more specifically the owner of houses: one strategy we suggest to avoid is the strategy to send family or friends all year long into your apartment in Italy: if the electricity bills are more or less of the same amount all year long but you have never rented the apartment, than, if the Agenzia delle Entrate asks you to give them your bills, you could find yourself in a more problematic situation as it "appears" that you have been in that apartment all year long. So, if your strategy is the non-tax residency approach, than it would be better to have electricity bills that are high for certain months, and low for other months.
Q23: Let's change topic and talk of the case in which I want my children to be the beneficiaries of my Living Trust: is that possible? What are your suggestions for this case?
A23: Well, if we talk of US Trust, the topic is an ocean. In any case, the answer is positive, in the sense that it's always possible for a US Living Trust to have beneficiaries who live in Italy. And this is possible if the grantor lives in Italy or if he/she lives in the US. Our suggestions are the following:
A) Send us your Living Trust and we will study the deed of Trust to see if there are weak points for the Italian perspective;
B) If we find some weak points, that is usually the case, you can always modify and re-write your Living Trust (as it's revocalbe for definition), suggesting the adaptation and modifications that are necessary to make your Trust efficient for Italian and Us tax perspectives.
C) We will make all the evaluations with your US Lawyer or with our Staff of Lawyers in the US. See also:
Q24: Is it the same also for US Non-Grantor Trusts? What happen if my children receive a distribution from a US Non-Grantor Trust while they are living in Italy?
A24: Italy has a good tax legislation for US Trusts, and if your children receive a distribution from a US Non-grantor Trust that has certain specific characteristics that the Italian legislation require, than the distribution is not taxable in Italy. We have just received a positive answer to this specific question from a Ruling; you can see all the details here:
Q25: That is excellent news! What are the differenc between the tax breaks for people moving to Italy? What are the difference between Tax Break Impatriati, Tax Break for US Researchers and Professors, Tax Break 7% for Foreign Retirees and Tax Break for High Net Worth Individuals?
A25: Well, these four Tax Breaks are very different and they cover a really wide range of different needs for the US Citizen who wants to move to Italy.
Let's start by saying that there are two Tax Break that are designed for people who come to Italy to work:
You can find all the information on these two tax break here:
These two tax breaks work in this way: the US Citizen moves to Italy and start working for an Italian Company or start a self-employment position and continue working from remote with his/her US Company as an independent contractor.
The income so produced, is abated of a certain percentage:
For Tax Break Impatriati:
- the income produced, is taxable in Italy on 50% of its original amount.
- if the individual moves to Italy with at least with a child who is a minor, the income is taxable on 40% of its original amount.
For Tax Break Researcher and Professors:
- the income produced, is taxable in Italy on 10% of its original amount.
So, in these two Tax Breaks, it's the income produced in Italy to be the one who is the focus of the tax break.
The US incomes are taxed with ordinary taxation.
Q26: And what is the focus for Tax Break 7% for Foreign Retirees and for Tax Break for High Net Worth Individuals?
A26: For these two tax breaks the focus is not the income produced in Italy, that is taxed in the ordinary way, but it's the US income.
For Tax Break 7% for Foreign Retirees all US incomes are taxed at a fixed flat tax rate of 7% if the individual:
- is a Foreign Retiree;
- moves his/her residency in a small city in the South of Italy.
- see all the necessary requirement for this tax Break here:
Tax Break for High Net Worth Individuals is spefically designed for people who have high US incomes and can be very interesting as it consists in paying a fixed amounts of 300.000 yearly for all US incomes.
Q27: Is your Tax&Legal Firm able to give assistance to create a strategy for moving to Italy, applying for the most suitable Tax Break and make a long-term estate planning between Italy and US?
A27: Yes, absolutely. Our consultation approach starts with the goal help US Citizens to be able to plan the entire move to Italy, from the tax aspects, to the timeline planning, from the Visa topics to the Estate Planning with US Trusts and Wills.
We have an important network of Professionals in Italy and in the US who work for us fo this very purpose.
You can find Part 1 of this article here:
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CONTACT US FOR MORE INFORMATION
If you need more information you can send an email to:
enrico.povolo@dottcomm.net
or make a phone call to the following number:
+39 0444 322987
Enrico Povolo