Foreign Owned Asset Tax for Italian Residents

My meetings with expats around Italy are becoming increasingly alarming due to the general confusion in the expat community in relation to the taxes specifically on overseas property and assets.  (IMU is already well publicised so I will not recover that ground).  

Who is expected to pay the new taxes?

Anyone who is tax resident in Italy and who has a house and/or financial assets overseas. You are included if in any tax year you were either signed up as resident with your Comune OR living in Italy for more than 180 days, OR the centre of your business and domestic activities was Italy (in other words, you earned income in Italy and/or your family lived here).

The taxes

 Imposta sul valore degli immobili situati all'estero:

Tax on the value of property situated abroad.

The tax on overseas property is being charged on property held abroad by people who are tax-resident in Italy (whatever their nationality).

How much?

The charge on property is set at 0.76%.  Any taxes paid in the country in which the property is located (if those taxes are a direct taxation on the property and not paid by the person living in the property, as is the case for UK council tax) can be deducted and if the net total is less than 200 euro, the tax does not have to be paid in Italy.

One of the problems has been the taxable value of the property held overseas on which the tax will be calculated.    Originally it was to be based on purchase cost (if evidenced) or market value.  This throws up lots of problems and so has now been revised. 

It has been revised to the taxable value of the property held in any country belonging to the EEA (European Economic Area: i.e. the EU + Iceland, Liechtenstein and Norway) is the one used for property tax purposes or for property transfers in that country i.e the land registry value.  (the valore catastale in Italy).  

For property situated outside the EEA, the two alternatives mentioned above - purchase cost or market value will remain, with all the problems that might come with it.

More taxes

Tax on foreign financial investments (not property)

It is the foreign equivalent of the tax on financial investments in Italy.

This tax is due on all sorts of financial investments (stocks and shares) including those held in pension funds. You will have to gather information and give it to your tax adviser. This information will essentially be fund and/or portfolio valuations at 31 December

How much?

The tax will be charged in 2011 and 2012 at a rate of 0.10% (€200 on investments of €200,000), but the rate rises in 2013 to 0.15% (€300 on investments of €200,000) and 0.2% in 2014. Current and deposit accounts in EU/EEA countries will be charged a flat €34.20.

You will also need to provide information on movements to and from abroad on these investments and/or other funds/bank accounts.  

What are the risks for expats?

1.   1.   Failure to report foreign-held assets and significant financial movements between Italy and abroad is in itself an offence. If you’ve never done it, that’s several times you not met Italian tax compliance.  The fines for non-compliance are steep: from 3-15% of the amount not reported and 6-30% for assets unreported but located in a black listed territory such as the Isle of Man, Jersey, Guernsey, etc. 

2.   2.   If you comply, what might have normally gone unnoticed suddenly becomes visible.

3.   3.  If you decide not to report information on your foreign held assets, then you are discovered you can expect that the taxman's anger will be multiplied.  Severe penalties and fines can be imposed, maybe by a factor of 10.

4.   4. The last risk is that unreported funds might in the future be difficult to bring into the country, and you cannot justify where it came from.  Since 2009 any undeclared funds held in offshore tax havens (Jersey, Guernsey, Isle of Man and the rest) are assumed to be derived from deliberate tax evasion.    In the Italian system  the fines come first and the proof of innocence follows.

What might have been acceptable, perfectly legal or at worst overlooked in the past, is now becoming very serious. There won’t be any special treatment for expats. 

The Italian government has significantly reduced the amount of money for Comuni  in an effort to alleviate public finances.   However, to reenergise the Comuni into self preservation mode they have decreed that 100% of any fines/penalties/and back taxes discovered as a result of tax evasion/failure to report can be retained at a local level for 3 years (from 2012) and 50% after this time.  So now the your local Comuni have an incentive to keep an extra careful eye on those in the International community.

And on that happy note, I will leave you with a joke:

What's the difference between a taxidermist and a tax collector?
The taxidermist only takes the skin.

If you would like more information or you would like to discuss your situation in more detail you can contact me on gareth.horsfall@spectrum-ifa.com or 3336492356.