# Tax-Habitual Residence



## Giulietti (Nov 4, 2021)

I understand that a US retiree receiving US pension income must pay italian income taxes on the pension income if one is present for more than 183 days in Italy. We are considering buying a property in Italy, but using it less than 183 days so as to not encounter Italian income taxes. However, I have now learned about the "habitual residence test" that can allow the Italian govt to tax worldwide income even if you are present less than 183 days if they deem you to have a habitual residence. That means having family ties, business relationships and other factors. The guidelines on habitual residence appear to be similar across Europe. Portugal for instance deems you a "habitual resident subject to tax" if you own property in Portugal. Do any forum participants have experience where you own property and spend less than 183 days in Italy? Any tax experiences with that?


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## Bevdeforges (Nov 16, 2007)

If you are a US citizen, you will also be responsible for US taxes - so do read the IRS publication on US SS benefits carefully. Social Security payments are not subject to US taxes for Italian residents, but only those who are also Italian citizens.

What you actually need to check on is the Italian tax authority's definition of "tax residence" in Italy. It varies from one country to the next in Europe, and some countries have no reference to 183 days in the determination of your "tax residence." Depending on the facts and circumstances of your situation, you can also be held to be "tax resident" in more than one country. (And in fact, as a US citizen you are always considered to be tax resident in the US.) It's not an easy thing to determine from just a few facts.


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## Giulietti (Nov 4, 2021)

Thanks very much Bev...I appreciate your comments. I understand the US taxation having been a US expat in Europe for many years. Its the Italian taxation when one owns property and visits for less than 1/2 year total that can create uncertainty. 

Since the "habitual residence test" is very subjective, and can generate Italian tax even with less than 183 days in Italy, it would be useful if anyone has had practical experience in the interpretation, whether in dialogue with the authorities or advisors.


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## NickZ (Jun 26, 2009)

The Italian tax act uses three tests for tax residency. Two are more or less standard around the world (if you exclude the US)

1) Centre of interests

2) Habitual abode

3) The Italian only one being registered for residency with the town



https://www.oecd.org/tax/automatic-exchange/crs-implementation-and-assistance/tax-residency/Italy-Tax-Residency.pdf



Centre of interests is basically a weight test. Think of those old scales that you put something on one side and something on the other. If most of your stuff ends up on the Italian side of the scale you're Italian. If it's mostly on the other side you're not. Remember your other country will also want to claim you. 

Habitual basically means if I want to send you a letter where do I send it with the best chance of finding you?






Internal Revenue Service (U.S. Taxes)


There are no U.S. Internal Revenue Service offices in Italy. For tax assistance, please visit the official IRS website or the "International Services"




it.usembassy.gov





I disagree with the statement that Social security is not taxable for US citizens in Italy.

The question I'd ask is are you moving your life or are you vacationing? You need to make a clean break with the US to run afoul of the first two tests. Give up your drivers license. Sell your house and furniture. Quit clubs. If OTOH all you're doing is spending time in both you haven't quit the US and you aren't an Italian resident.


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## Bevdeforges (Nov 16, 2007)

NickZ said:


> I disagree with the statement that Social security is not taxable for US citizens in Italy.


From p.5 of IRS Publication 915:


> U.S. citizens residing abroad. U.S. citizens who are residents of the following countries are exempt from U.S. tax on their benefits.
> • Canada.​• Egypt.​• Germany.​• Ireland.​• Israel.​• *Italy. (You must also be a citizen of Italy for the exemption to apply.)*​• Romania.​• United Kingdom.​The SSA won’t withhold U.S. tax from your benefits if you are a U.S. citizen.


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## NickZ (Jun 26, 2009)

That's US taxes but the OP would pay Italian taxes.


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## GeordieBorn (Jul 15, 2016)

Any information derived from other than official bodies is risky. You have to ask yourself if you would be happy/able to deal with Italian revenue people calling at your house in Italy at 05:00 in the morning. A lady (living alone there) we know had this happen to her, 6 rather large guys banging on the door at 5. The there was the on going investigation lasting months, no tax to pay, but fined in any case for some obscure reason I don’t recall….

This is a link to the convention between the two countries, clear as mud to me. A question I would ask is if you need to register with the comune? I assume you have bought the property saying you do not intend to get residency it Italy?


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## Bevdeforges (Nov 16, 2007)

NickZ said:


> That's US taxes but the OP would pay Italian taxes.


Precisely. To a certain extent, when you live between two (or more) countries, you pretty much have to treat the tax systems as separate and distinct. There may be various deductions and credits you can take based on what you pay or your status in the other system, but to a large extent, each country is only worried about their own tax rules and obligations and not how they do or don't affect your "foreign" taxes.


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## Giulietti (Nov 4, 2021)

Nicks post full of lots of info shows the issue with the habitual residency concept. Lots of Americans have purchased Italian vacation homes and visit a couple of times per year, spending at least a few months there. The very subjective habitual residence concept really does require advice from Italy-based advisors who know how Italy has practically implemented it. Registration with Comune is normally required for residence permit, I assume also required when purchasing a home but not being full time resident. Easy to answer with a trip to comune.


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## NickZ (Jun 26, 2009)

Domicile isn't that subjective. If you bought country cottage in the US it wouldn't become your domicile if you treated it like a country home. If OTOH you had all your mail forwarded there it might well be.

Centre of life is potentially more subjective but for most people it's fairly obvious once you start making a list of all the factors.



https://ca.rbcwealthmanagement.com/documents/1435520/1435536/Determining_your_tax_residency_status_in_Canada_05172018_email.pdf/9ff73a9f-af5c-4cb4-8860-070050ac23e0



That's Canadian but the test is basically worldwide. The part to look at are the first two pages

This is from the IRS






Closer Connection Exception to the Substantial Presence Test | Internal Revenue Service


You will be considered to have a closer connection to a foreign country than the United States if you or the IRS establishes that you have maintained more significant contacts with the foreign country than with the United States.




www.irs.gov





Scroll down to "Establishing A Closer Connection"



> The location of:
> Your permanent home,
> Your family,
> Your personal belongings, such as cars, furniture, clothing, and jewelry,
> ...


Compare the Canadian and IRS and you'll notice a certain similarity. The test is more or less uniform worldwide because it's one of the standard tie breakers in all the tax treaties.

NB it's not just one of the above. The only single one that can be enough is your family. If you family lives in X and your kids go to school there than that's almost always going to be enough. But the rest are just parts of the puzzle. They all add weight in one direction or the other .


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## Giulietti (Nov 4, 2021)

Those are great resources..thanks Nick.


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## PauloPievese (Nov 2, 2012)

From https://www.treasury.gov/resource-center/tax-policy/treaties/Documents/italy.pdf
.
ARTICLE 18
Pensions, Etc.
.
1. Subject to the provisions of paragraph 2 of Article 19 (Government Service), pensions and other similar remuneration beneficially derived by a resident of a Contracting State in consideration of past employment shall be taxable only in that State.
.
2. Payments made by a Contracting State under provisions of the social security or similar legislation of that State to a resident of the other Contracting State shall be taxable only in the other State.

Full title of document:
CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND THE GOVERNMENT OF THE ITALIAN REPUBLIC FOR THE AVOIDANCE OF DOUBLE TAXATION WITH RESPECT TO TAXES ON INCOME AND THE PREVENTION OF FRAUD OR FISCAL EVASION 
.
The link is titled:
Italy - Tax Treaty Documents
Technical Explanation - 1999


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