# US expat in Italy



## jackfrost9p

Hello, 

I am a US Citizen doing a paid, summer internship in Rome, Italy. I am wondering if I will pay Italian or US taxes. From the US/Italy tax treaty, it is my understanding, that I will pay US taxes if all of the following are applicable:

•	You spends less than 183 days in Italy;
•	The compensation is paid by an employer who is not a resident of Italy;
•	and, the compensation is not borne by a permanent establishment that the employer has in Italy.

As I understand, points 2 and 3 are not true in my case. Also, my Italian employer, said because this is an internship, I am not subject to Italian tax. 

I find it hard to believe my income, although minimal, is completely tax free. Could somebody help me?

Thanks for your time!!! Any insight would be greatly appreciated!


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## Bevdeforges

I don't know about Italian tax law, but it's very possible that you will not be taxed by Italy on your internship. (You're not actually "resident" in Italy, so not subject to their tax laws.)

You WILL, however, be expected to pay US taxes on your earnings if your worldwide earnings for the year exceed the filing threshold for your filing status (probably single). You would only get out of paying US taxes on the income if you qualified for the Foreign Earned Income Exclusion - but that requires that you stay in Italy (or elsewhere outside the US) for a full year, which it doesn't sound like you will be doing.

As a US citizen, you're ALWAYS subject to US taxes, no matter where you wind up "tax resident." There are a few peculiarities of the US/Italy tax and social security treaties, however they tend to apply to very specific situations.
Cheers,
Bev


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## jackfrost9p

Thanks for the reply, Bev!

I have read a bit more into it, and yes, I would be a non-resident, but there are still taxes for non-residents on income earned in Italy. 

I guess, I am wondering if anyone knows about internships specifically. My employer said, I don't not have to pay Italian taxes because it is an internship. 

I found this paragraph in the US/Italy tax treaty:

Payments which a student or business apprentice (trainee) who is, or immediately before visiting a Contracting State was, a resident of the other Contracting State and who is present in the first mentioned State exclusively for the purpose of his education or training receives for the purpose of his maintenance, education, or training shall not be taxed in that State provided that such payments arise outside that State.

So as I understand, it depends where my payment originated from. If it originated from the US, I pay US taxes, otherwise, Italian taxes. 

Also, I should only pay tax to either the US or Italy, not both. Correct? 

Thanks again!


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## BBCWatcher

I'm assuming this is an Italian employer and not, say, a U.S. university with an outpost in Rome that'll be paying you via regular U.S. payroll.

You might want to review this tax guide. Italian source income is almost always subject to tax in Italy. Since the Italian tax rate is very likely higher, your U.S. Foreign Tax Credit should let you recoup some or all of the gap between your lower U.S. tax rate and your higher Italian tax rate in the next or other future tax years.

Your Italian employer should be withholding Italian taxes. The _simplest_ explanation for why he isn't is that you're getting hired illegally. That's not _necessarily_ true, but it's a possibility, so be careful. For example, if your Italian employer never asks for your codice fiscale (Italian Social Security number) you're definitely not on the books, and you're both _probably_ breaking the law. This unfortunately happens way too often, and the workers are the victims.

I should also ask whether you got a visa and what type. If you didn't get a visa that permits paid employment then you simply cannot work.


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## Bevdeforges

Is this paid internship something that was arranged through your school? Or through some intermediate organization, like an "exchange organization"? If so, you should consult with the school or the organization for details about visas, taxes, etc.

In many European countries there are lots of specific tax rules that relate to students doing internships that are a part of their academic program (i.e. required for graduation in their field). It's those tax rules that will affect you for your Italian earnings.

If this is an "internship" you organized by yourself, then it's your employer who should be handling the matter of your work visa, and the Italian taxes you do or don't pay. (It occurs to me that if you organized this job on your own, it may not be considered an "internship" in the sense intended in the tax treaty - be careful here and make sure you have your visa situation in order.)
Cheers,
Bev


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## BBCWatcher

I think he's consulted with his prospective employer, and he's asking for a second opinion. Good move.

I agree with Bev that we need to know a bit more. Let's start with the visa since that's really straightforward: what type of visa (if any) do you have? It'll be a national "type D" visa, but what type type D? That hurdle must be cleared first.


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## jackfrost9p

Thanks for the information, Bev and BBCWatcher! 

I will bring these points up with my employer.

I do have a codice fiscale. My visa is just a tourist visa. My university does not require an internship, however, this may have been missed by my employer as they never asked. My employer may have mistakenly assumed it was.


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## BBCWatcher

I assume you mean you're visiting Italy as a U.S. citizen on the Schengen 90 day visa waiver program.

If so, you simply cannot work for compensation from an Italian employer -- and that probably explains why they aren't withholding taxes as they should. However, if you are continuing to be paid by a U.S. employer via U.S. payroll, and your activities within Italy are permitted -- not all work is -- that's OK. (The tax treaty might also let you avoid tax in Italy as you point out.)

If it's an Italian employer you just can't accept compensation in the circumstances I'm afraid. You're a tourist, and that greatly limits the activities you can legally pursue.


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## jackfrost9p

Yes, that is correct.

Monday, I will have a discussion with my employer for more information, and bring up this issue and my confusion.

After receiving the codice fiscale, I went to the Italian labor office with my employer to complete a form titled "convenzione di tirocinio di formazione ed orientamento." This form has my pay, but it is listed as "rimborso spese" or reimbursement of expense, "rimborso spese viaggio" or reimbursement of travel expenses and "borsa di studio" or scholarship. Also this form was officially stamped, which I am assuming means approved, by the labor office.

Thanks again for all your help!


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## BBCWatcher

OK, thanks for clarifying! If your "compensation" is structured as training/educational reimbursements and approved by authorities as such, that's OK. Just be sure your activities actually match the description. If you're "learning" how to wash dishes for a pizzeria 40+ hours per week, that's most probably illegal.

Anyway, provided your activities are genuinely educational in nature, no problem. And yes, the U.S.-Italy tax treaty seems to allow you to avoid Italian taxation on that income. Moreover, the U.S. tax code might treat that income favorably.


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## jackfrost9p

Yes, I am an engineering grad student in the US and my activities in Italy are research/school related.

When you say "And yes, the U.S.-Italy tax treaty seems to allow you to avoid Italian taxation on that income," do you mean if and only if my payments "arise" outside Italy? 

Thank you so much for all your help! It is really hard to feel confident everything is legal when I am not fluent in Italian and have trouble reading/translating official documents.


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## BBCWatcher

Take a look at the 1999 U.S.-Italy tax treaty, Articles 20 and 21. The technical explanation is posted here.

It appears that you will be able to take advantage of the tax treaty and avoid Italian tax on the income from your activities, but read the treaty and technical explanation carefully.

If that's correct (no Italian tax) you may owe some U.S. tax on that income, but you're probably already familiar with how that works.


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## jackfrost9p

Thanks for the links!

After talking with my Italian employer, I was told that even though a US company is the primary share holder, it is still an Italian company and I am also being compensated by a Italian company. So as I see it, I would not be able to take advantage of the tax treaty because my compensation arises from Italy, correct? Therefore, I *think* I should pay Italian taxes. I really don't know. Maybe my problem is that I am assuming that if the tax-treaty does not apply, I pay Italian taxes. However, maybe their is something in the Italian tax code for students/trainees making less than a certain amount. 

My employer still insists I do not pay Italian taxes for two reasons. First, it is an internship and second, I am not being paid enough. However, from what I read, you are taxed 23% on income up 15,000 EUR.


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## BBCWatcher

As I read the tax treaty you're exempt from Italian taxes, but I don't have personal knowledge of all the facts. Check the technical explanation I linked to also (if you haven't already) since it's an easier read.


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## jackfrost9p

As I understood the documents, it seems like if my compensation arises outside Italy, I don't pay Italian taxes. However, I am being paid by an Italian company.


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## BBCWatcher

That's not how I read the treaty.


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## jackfrost9p

From the technical explanation: "A payment will be considered to arise outside the host State if
the payer is located outside the host State." My employer is an Italian company in Italy. 

How do you read it then? What am I missing? Can you refer to specific lines?

Thanks again!


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## BBCWatcher

Break it down: Who's _funding_ this endeavor (not which bank account is getting paid from), for how long (less than 90 days I assume given your visa status), what activities are you undertaking (research, studying, etc.), and how are you getting compensated (free tuition, room and board, textbooks, stipend, etc.)?


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## Nononymous

Once again...

Look, if you're going to Italy as a student on some kind of internship, and your employer keeps telling you that you don't need to pay Italian taxes, why the hell are you trying to come up with reasons for paying Italian taxes? 

It's Italy - who pays taxes? Donate 23 percent of your earnings to an Italian charity if it makes you feel better.

In my limited experience, in Germany, there are all kinds of exemptions for anything related to students. Including foreign students being allowed to work a certain number of hours without a work visa, and stipends being tax-free. I expect this is also true in your case.


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## BBCWatcher

I suspect so also, but since he's the one ultimately legally responsible I can sympathize with getting a second opinion. I'll try to offer an educated opinion, but I need more information to understand the nature and scope of the activities.


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## Bevdeforges

The other factor to remember is that, as a US citizen, the OP will pay US taxes on all earnings, no matter what. It may just be that the tax treaty with Italy recognizes this and exempts a short-term internship like this accordingly. The fact that the OP will spend significantly less than 183 days in the year in Italy means that s/he doesn't become subject to Italian taxation. As long as the visa the OP is on allows for remunerated work of some kind, I think it's pretty safe to just assume you'll have to declare it on your US taxes and let it go with that.

From my limited exposure to Italian taxes, they have a tendency to withhold at the source and just leave it at that. If they aren't withholding taxes, then they aren't expecting taxes from you. That's certainly how it works in Italy for bank interest - they simply pay your interest net of the tax and there's no need to file anything at the end of the year.
Cheers,
Bev


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## jackfrost9p

BBCWatcher, are you saying that because my Italian company's primary share holder is a US company, the funds do not arise within Italy? My employer said yesterday, my internship is funded by European projects/research, not only Italian. 

Nonomyous, thanks for your experience in Germany. Basically, I just want to be confident everything is done correctly. In the past after reviewing and amending my US tax returns with TurboTax and HR Block, I have questioned them on things that don't make sense to me. Upon questioning them, they have said, "Oh yeah, your right, this doesn't make sense, you should be an accountant." I am a math and science minded person. I want to understand the process and be sure it is correct, even if it is taxes, and I am asking a second opinion because I can't speak or read Italian. You are probably right, will the feds be knocking on my door to claim my minimal taxes, probably not. They have much more important issues. 

Thanks for the information, Bev.


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## BBCWatcher

I ask my questions for reasons. Usually. 

If you read the technical explanation for the treaty, it specifically describes that the source of the funds is not automatically considered to be the account from which those funds are paid. So read that section again, carefully.

But it's not only the treaty that is potentially relevant. As Bev suggests, Italian tax law may independently waive tax liability in these circumstances. And I'm finding suggestions that indeed it does, although Italian tax law is not as well documented on the Internet as U.S. tax law. (Yes, I read, write, and speak Italian rather well, but it's still difficult to find things.)

Bev, Jack doesn't have a visa. But Italy has an interesting quirk in its visa policies. Students/interns (broadly speaking) can study in Italy for up to the 90 day Schengen limit for the visa waiver program -- they changed that fairly recently. Students also have limited "working" privileges (has to be educationally relevant, in particular), and I'm pretty sure those privileges are still intact within 90 day stays. Anyway, to net it out, I can believe Jack is OK on the visa, and I can also believe there's no Italian tax liability -- either through operation of the U.S.-Italy treaty or through Italy's own tax laws which seem favorable to short-term students/researchers/interns. Or both. But if you press me to find the specific tax code references right now (in Italian) I'm still struggling to find them. Lots of clues, but nothing really directly on point.


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## jackfrost9p

Thanks for the clarification, BBCWatcher!

I agree about the treaty. Initially, I mistakenly assumed if the treaty did not apply, I should pay Italian taxes. However, in reality, if the treaty does not apply, I am just subject to Italian tax law, which may not require me to pay taxes due the circumstances (i.e. short-term internship).

Thank you so much for all your help!!! I truly appreciate your time and effort!!


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## Bevdeforges

Technically, it sounds like Jack will be on a "Schengen visa" (i.e. the 90 day stamp in the passport). If Italy allows students to work during their time in Italy on a Schengen visa, then he's fine. From everything I've seen about Italian taxes, the obligation is mainly on the employer to withhold taxes (if they are due), so yeah, it makes sense that he'd owe no taxes, especially if he isn't "resident" in Italy.

Just don't forget to include that income on the old 1040 come tax time...
Cheers,
Bev


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