Rental Income from properties overseas and how to declare it in Italy.

One of the questions I am asked regularly is how income from property held overseas is taxed in Italy.  Is it exempt from Italian tax because tax has been paid on it overseas first and is it subject to the same taxes as Italian rental income?

I would like to dispel any myth and confirm that you do have to pay Italian tax on the profit from any rental income on properties held overseas as a resident in Italy.  (if it was really ever in doubt.  Out of interest the arrangement is reciprocal, and any if you were resident in another country with rental property in Italy then it need to be declared as well).

The best way to organise your rental income

The law for Italian tax residents states clearly that the net profit (after expenses) from property overseas, must be declared in the Italian end of year tax return.  The net profit is then assessed as income, added to the rest of your income for the year and tax paid at your highest rate of income tax (that could be as high as 43%).

Let's not forget the IVIE tax as well which is 0.76% of the property council/cadastrale/rateable income (whatever you choose to call it) value of the property.

If tax has been applied in the country of origin, it is the law in Italy to declare the funds here as well and so annual declarations need to be made.

As an aside, it is relevant to note that in 2012 I received a deluge of enquiries from people who had been contacted by the Guardia di Finanza who had obtained information from HMRC (UK tax authorities) about people who have/had rental properties in the UK, were legitimately declaring tax in the UK, but who had failed to then declare that income in Italy. In some cases they were fined substantial amounts for merely this simple mistake.

However, all is not lost because there is a way to limit your Italian tax liabilties.  If the property income is declared in the country of origin and all the costs are deducted from the income, still within the country of origin, then ONLY the net profit needs to be declared in Italy.  In some cases it might also be necessary to declare the rental income in the country of origin even when that country no longer requires you to, for example the UK. If you have rental income under the basic allowance of approx the first GBP 10500 of income and therefore the UK no longer requires a declaration, it may still be wise to insist on making a declaration because the UK allow for multiple expense offsets for tax purposes.  By following this process you are showing the Italian authorities your expense declarations and therefore it is acceptable for Italian tax purposes. 

You may in some cases be able to reduce your net profit to zero. 

To clarify, any rental income from properties held overseas must be declared in Italy, for Italian tax residents.  This is the NET income (after expenses).  And this net figure is added to your other income to determine at which rate of income tax it is assessed in Italy.

Depending on why you are investing in property overseas the advantages/disadvantages can work in 2 ways: . 

1. If you have high expenses for the property then it can work in your favour as a capital appreciation investment. (assuming the value of the property goes up).  Less income means less tax.

2. The downside of this arrangement is that someone with low expenses and high net income (maybe living from the income in retirement) will be assesed at their income tax rates in Italy (IRPEF) which could go as high as 43%

If you are concerned about your tax situation in Italy and would like an initial meeting to assess your liability then we are here to help.  In addition, there might be other more tax efficient and less costly ways to produce income and grow your money.  If you are interested in exploring these then you can contact me on gareth.horsfall@spectrum-ifa.com or on cell 333 6492356

CANCELLED! 20% Witholding Tax on transfers from overseas

Good news: 

The law regarding a 20% withholding tax on overseas transfers of money in Italy was cancelled in the Spending Review in April when Matteo Renzi came into power. 

If you want to see a full article you can do so (it is in Italian), click here: 

For anyone bringing money in from overseas, i.e pensions, income from employment, money from investments etc, you can rest at ease knowing that 20% will NOT be with held at source when it enters Italy. 

There was a lot of pressure on Renzi when he entered power to overturn this decree since it was administratively an enormous burden on individuals, banks and other financial intermediaries and would have been almost impossible to police.  Beppo Grillo was quite outspoken about the potential impacts on Italy and its ability to attract investment from overseas if the law went ahead.  I think he may have had a point, and hence the reason it was repealed. 

It will not be introduced in July and will not be proposed (as things currently stand) in the near future. Italy will be relying on agreements that are now in place with Spain, France, the UK, Germany and the USA, to track movements of money from, to and within the aforementioned countries. These bi-lateral share of information agreements are currently in place and operating.  The frameworks, under which they were originally established, will also be rolled out to another 34 OECD countries within the next few years.

Should you be unaware of this information, then I hope it puts your mind at rest and you are able to enjoy the summer in Italy, once again! 

Feel free to pass this information on and if you have any questions about this law or other tax laws in Italy and how they may affect you, do feel free to get in touch on gareth.horsfall@spectrum-ifa.com or on my cell +39 3336492356

Plug the leak: Those expensive bank accounts.

During the course of my many conversations, one particular issue comes up all too frequently and which I thought I just have to write about. It is something which has been on my radar for some time now. Now the time has come.

What am I talking about?
I am referring to basic bank accounts that expats use in Italy, those bank accounts which were probably set up when you first moved to Italy, either because the person who you were buying a house from suggested you open an account at the same branch to make life easier, or you were referred to the local branch because most people used it, or someone knew someone who could open you an account when you may not have even been a resident at the time. I am sure these reasons may sound familiar to some of you.

But unfortunately, you are more than likely being charged an extremely high amount of bank charges for little to no service.

Monte Pashi di Siena.  

nte Paschi di Siena keeps coming up as the worst culprit, by a long stretch, but yet, seemingly used most frequently by the expats I meet. The person I met last week was paying 34 euros a quarter for the bank account and then on 210 euro transfers to another Italian bank account (a simple bonifico) a commission of 4.50 eur. (2% commission PHEW!). 

I did not even get to see what they were paying for exchange rate conversions (the mind boggles) or transaction fees for taking money from the hole in the wall and other services.

I estimated the costs could be as high as 800 Eur a year.

But it is simply daylight robbery and too many of you could be getting ripped off (I have no better words for it I am afraid) because you think that 'it is just not worth the hassle  of changing' or 'they are all alike' or 'banking back home is much better'.

However, this is no longer the case. Italian banks have really started to compete for business in the last few years and there are options available.  If you are happy with internet banking, then even better.

I personally use 2 banks (personal and business). My personal account is Fineco. (who? I hear you say.). Fineco! (part of the Unicredit group). I am VERY satisifed with the service they offer. It is an exceptionally well operated online bank and even won the Global Finance Award for Best bank in Italy in 2013. It is 100% online. Now, I imagine that you might be thinking, online - Italy - errr, not sure, I need to keep an account where I can talk with someone if things go wrong. (My wife refuses to use the bank on that basis and she is Italian.  She is slowly being brought around to my thinking). But, for basic banking it operates very smoothly.   And I have emailed them many times and got reponses within 24 hours.

And the best part is, at the time of writing:

ZERO canone. In other words no monthly, quarterly, or annual charges just for having an account.
FREE withdrawals from ANY cash machine in the whole of Italy.
FREE credit card cash withdrawals from any Unicredit machines in Italy (and there are many).
ZERO cost bank transfers in Italy.

My other bank for the business is Banca Popolare del Commercio e dell'Industria. This does not mean much, but it is part of the larger UBI banca group network. 

 
I chose this account at a branch as it is business account and I need to speak with my bank Director from time to time, but otherwise I operate everything online.

I pay only 5 EUR a month for this account and 0.50 Eur to make bank transfers. I can also withdraw cash from the UBI Banca group bancomats for FREE. The account, in general, is more expensive than the Fineco account but it is a business account and it has to be expected.

However, there are other personal account options with similar cost structures to Fineco, such as Ingdirect, Webank, Chebanca or Hellobank.

A good comparison website is www.confrontaconti.it

My simple message is to pay some attention to your bank account in Italy if you have not done so for some time.  It is not difficult to change or use accounts, as in the past.  With basic Italian you can do it without problem.

You could be making huge savings just through changing bank accounts. They are as easy to operate as online bank accounts abroad and , if in this persons case, a saving of 800Eur a year can be made then I would think it is definitely worth it.  Any savings made can compensate for the increased taxes in recent years! 

Take some time and  have a look at your old bank statements to see what charges you are paying and compare this on the web link above to find out how much you 'could' be paying. 

If you would like to know more about this or any other financial planning issues regarding living in Italy as an expat then feel to contact me on gareth.horsfall@spectrum-ifa.com or on cell 3336492356

Tax reporting or TAX PLANNING!

I know that you might, myself included, be waiting in anticipation for this years Italian tax bill.  So, whislt we wait I thought I would question what we doing with our hard earned money.  Is sufficient tax planning taking place or are we mainly reporting the facts without paying sufficient attention to whether we are making the most of the tax saving opportunities in Italy and overseas? 

I was recently asked by a prospective client, if I was a commercialista because it was not clear given that I write so much about tax and the changes in tax laws in Italy. The answer is NO, I am not a commercialista.

My basis for writing about the changes in tax laws is founded on 2 very simple principles. 1. I actually enjoy reading about it.  2. I believe that expats in Italy should know this information. Whilst it is quite freely available on the internet, it is a question of finding what is relevant to expat life in Italy and then translating it into a language you can understand so that it can be shared through this blog, by newsletter, word of mouth and also on the internet.

One of my other biggest concerns is that I hear, all too often, that commercialisti have incorrectly reported assets or do not understand the legislation relating to different overseas assets. I think it is important that people have a basic understanding of the tax laws in Italy before relying on someone else to make your tax declaration, which you are often then liable for if any mistakes have been made.

Which brings me back to the difference between tax reporting and tax planning.

Tax reporting is the process of providing your commercialista with information relating to your income and assets, once a year, which they report to the Italian tax authorities and, on which, your tax bill is prepared. 

(Interestingly, I was speaking with a very successful, and now retired Australian friend in Perth when he was last in Italy.  His advice was always to know your business/affairs and the tax laws surrounding it better than your accountant does.  In his opinion, no accountant had never been proactive enough to help him reduce his tax bill or plan effectively and, in his opinion again, where they had offered advice it had often not been very good advice)

Tax planning is about looking for ways around the tax system/s (legally, of course) and trying to establish ways you can save money by restructuring your assets, taking advantage of the income tax rates, capital gains and losses, the pensioners tax credit, inheritance tax planning, and also establishing whether it is more tax advantageous to hold assets in one partners name or another. In essence, tax planning is a very important arm of financial planning. And that is exactly what I am. A financial planner.

A commercialista is not authorised to provide financial advice, by law. Their role is to take your financial information and make sure it is reported correctly. A good commercialista may spot some financial planning opportunities but would ultimately need to refer you to a financial planner to analyse the possibilities in closer detail.

As the reporting season for 2013 will soon come to a close, take note that if you think you might be paying too much in tax in Italy, or even overseas, then it is worthwhile looking at your financial affairs to see if you can structure them differently to make best use of the possible Italian and cross border tax opportunities that exist, or ways to pay less tax in the first place.

If you would like to discuss this then you can contact me on gareth.horsfall@spectrum-ifa.com or on cell 3336492356