Make sure you know what taxes you'll be required to pay and how before making the big move to Italy
The siren call for living in Italy has certainly made its mark in recent years. That’s why nearly 67,000 UK citizens currently call Italy home. And why not? The beauty, the culture, the history, the slow pace of living and, of course, the food are enough to make anyone wish to call Italy home. But what needs to be considered beforehand if you’re a UK citizen looking to make the move to Italy?
"Nearly 67,000 UK citizens currently call Italy home"
I work as a commercialista (the Italian term for an accountant) and my specialty is helping foreigners who live and work in Italy understand the otherwise complex regulations of paying taxes here. There is a lot that people need to consider and understand before they make the move.
What you need to know before
Make sure you understand all of your financial outgoings and assets before applying for Italian citizenship
Moving to Italy long-term will likely trigger a tax liability, therefore, it is then essential to assess and audit your current:
By doing so in advance, you will be better aware of what to expect.
There are plenty of tax benefits to consider when moving to Italy
Since 2015, Italy has introduced various tax breaks for new residents of Italy providing a reduced tax rate upon meeting certain conditions. The options include:
- The new residents regime: This is for Individuals moving to Italy who are employed or self-employed in Italy and can benefit from a reduced tax rate from 70% up to 90% of your taxable income.
- The new pensioners regime: If you receive a foreign pension and you become a resident of Italy in certain qualifying municipalities (generally central-south municipalities) you can benefit from a flat 7% tax rate on all your foreign income sources.
- The High Net Worth Individual (HNWI) flat tax: Italy provides a flat taxation (similar to the RBI regime in the UK) on foreign income sources. This allows taxpayers to pay €100,000 P.A. against all the foreign income sources. Unlike RBI, there is no further taxation on remittances to Italy, and you can freely use your monies in Italy to invest.
Who qualifies as a resident? And what is needed to establish residency?
If your main residence is in Italy, you qualify as an Italian resident
According to the Italian tax code, an individual is a resident in Italy if “for the greater part of the tax period, he or she is registered with the register of the resident population (Anagrafe) or has their domicile or residence, as defined in the Civil Code, in the territory of the Italian state".
This means that you are a tax resident in Italy if, for the greater part of any tax year (more than 183 days or 184 for leap years), you are:
- Registered in the register of the resident population maintained by the local comune; or
- Have your domicilio (centre of vital interests); or
- Have your habitual place of abode in Italy.
In this case, according to Italian laws, you are required to file your annual income tax return disclosing your worldwide income (any income arising anywhere in the world), as well as disclose your foreign-held assets and eventually pay wealth tax.
It is also possible that you are still defined as a tax resident of the UK according to local legislation for the same period. In this case, the Italy-UK double tax treaty determines the ultimate place of residency; you should discuss this with your accountant. Italy does not provide any split-year test; therefore, your tax residency always starts on January 1st.
"Italy receives information from the HMRC and the UK financial institutions annually through the CRS form"
Prior to filing your taxes, you must bear in mind that Italy receives information from the HMRC and the UK financial institutions annually through the CRS form, as well as the DAC directives up to when the UK belonged to the EU.
Paying taxes as a resident with a visa vs. being an Italian dual citizen
Citizenship is irrelevant to taxation- it's only if you are a resident that you are taxed in Italy
The good news is that Italian citizenship does not provide any advantage/disadvantage to the taxpayer. Italy taxes its residents only, regardless of their citizenship. If you are residing in Italy on a temporary residence permit, you must also register your residency. As an Italian dual citizen, you don’t need any residence permit to live in Italy, and you can move freely within the European Union, changing your residency, as well as your tax residency, faster.
While Brexit did not directly impact taxes for UK citizens in Italy, you are still required to secure a temporary residence permit
Luckily, Brexit did not directly impact UK citizens and their taxation exposure to Italy. Nonetheless, British citizens are now required to secure a valid temporary residence permit, upon obtaining a long-term visa from the Italian consulate or embassy consular services in the foreign jurisdiction.
"British citizens living in Italy prior to Brexit had to register as residents before the Brexit deadline in order to maintain their mobility rights within the EU"
British citizens living in Italy prior to Brexit had to register as residents before the Brexit deadline in order to maintain their mobility rights within the EU upon the Article 50 withdrawal. This has definitely increased the number of British citizens registered for tax to the Italian authorities, helping to highlight various taxpayers who had previously been unknown to the local authorities.
Italy and the UK have a Double Tax treaty which came into effect on December 30, 1990. The scope of the double tax treaty is to avoid taxing the same income source twice. There are various provisions in the treaty which may provide exclusivity or priority of taxation depending on the tax residency, nationality, and type of income.
It is always possible to offset any tax paid in the UK against the Italian tax due via the foreign tax credit system. You need to fill in the CE form of your Italian tax return called Modello Redditi.
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