# Income Taxes



## PauloPievese

I've been scanning the older posts and haven't seen a clear (to me) response to this. 

This article https://brighttax.com/blog/-us-expat-taxes-for-americans-living-in-italy-everything-you-need-to-know seems to indicate that "from 23 to 43%" of my income would be paid in Italian income taxes. That's a whack. uke: I get Social Security and whatever I withdraw from my IRA; no pension. A quarter to half of that disappearing would probably be unsupportable. What's the reality of this? I'm a U.S. citizen. I'm presuming that I would be a 100% Italian resident.

I think, I hope, I pray that this is my last snag.

:scared:


----------



## NickZ

https://it.usembassy.gov/u-s-citizen-services/irs/

start with that.

https://www.fiscoetasse.com/approfondimenti/12069-scaglioni-e-aliquote-irpef.html

It's in Italian but shows the current tax brackets.

The no tax zone for retirees is over 8K now. It's not a simple number. The more you make the less of that 8K you're allowed to use.

Your effective tax rate will depend on income.


----------



## Bevdeforges

Along with the Italian tax regulations, take a look at the IRS publication on Social Security. (Pub 915). Italy is one of the countries listed where US Social Security is subject to "special treatment" - but only if you are an Italian citizen resident in Italy. You'll have to check the US-Italy tax treaty, but I think that means that your US Social Security (and possibly your IRA withdrawals, though it depends on the treaty) is subject to US taxation first. How or whether you offset this in your Italian taxes, I can't tell you, but I do know that in Italy, they have a tendency to withhold taxes as money goes into your Italian bank account. 
Cheers,
Bev


----------



## PauloPievese

Thank you one and all. I hope that I have "liked" each response, presumably upping your "rep power".
.
I have reached out to an Italian accountant who reputedly has expertise in both U.S. and Italian tax law. As I get more information I'll post it here.
.
Just to be clear, I want to pay my way in Italy ... if I can afford to.


----------



## PauloPievese

Site Expat Exchange - Retiring in Italy: 7 Important Tips for Retirees in Italy - Retire Italy, Moving to Italy, Retiring to Italy says in part:
.
One law firm replied, "In compliance with the International Convention on Double Taxation of August 25th 1999 between USA and Italy, all pensions are only taxable-on in the relevant issuing country. The same thing applies to IRA withdrawals,whichcan only be taxed in the US" Another expat added, "I also have an Italian bank account to pay my rent and transfer money in every month from my stateside account. I am not an Italian citizen, only a legal resident. Just as the Italian Law Firm above states, you do not pay taxes in Italy on US pensions or IRAs. Let me repeat... your US Pension is only taxed in the US Pensions, IRAs, 401Ks are not considered 'earned income' as such are solely taxed in the country of origin."
.
... which is lovely if I trust it.


----------



## NickZ

Go to the US embassy link I posted. Your quote is incorrect or at least not 100% correct. 

The first block in the link I posted deals with US citizens resident in Italy.

But it's more then the tax treaty. You would have to look at the social security treaty. Of the top of my head I don't know if there are any special agreements between Italy and the US under the social security treaty.


----------



## PauloPievese

NickZ said:


> Go to the US embassy link I posted. Your quote is incorrect or at least not 100% correct.
> 
> The first block in the link I posted deals with US citizens resident in Italy.
> 
> But it's more then the tax treaty. You would have to look at the social security treaty. Of the top of my head I don't know if there are any special agreements between Italy and the US under the social security treaty.


Nick, be assured that I always read and follow the advice in your posts assiduously. 

In the first block on the embassy link I'm using the "U.S. CITIZEN/RESIDENT" row and the "Italian Tax Return" column. In that block we see "Reportable". The word "Reportable" is not further defined that I see. My wish-fulfillment view it that it might mean "let them know but there is no tax". However the adjacent block we see in the column "U.S. Tax Return" the note "Reportable usually not taxable if under certain limits. (If taxed in U.S. may take a tax credit for Italian taxes on U.S. return.)" which talks about "Italian taxes" which, while it talks about "Italian taxes" offsetting U.S. taxes on Social Security it does not directly state that these are Italian taxes on U.S. Social Security.

All this having been said, Social Security is only half of my question. Are my IRA deductions taxable in Italy? The third-party quote we're referencing says "no". I've sent a note to the Italian lawyer who originated this reference some five years ago via the discussion board where I saw it. If my some miracle I get an answer I'll post it here. It is however a big issue. I withdraw so much that my U.S. Social Security IS taxable for instance. I have seen some posts on the always reliable Internet which state that Italy want's a percentage of one's total assets every year. This may or may not be true. If true the fact that an IRA is tax-deferred in the U.S. may not be equally true in Italy.

I will dig into the Social Security treaty (for which I've seen a link somewhere) which I'm sure is clear and lucid in every detail. Any suggestions about where to look for information on the IRA?

As always I deeply appreciate the thoughtful responses.

Paul
:flypig:


----------



## PauloPievese

If the point of the first part of that isn't clear (and it wasn't to me on re-reading it) the Italian column says "Reportable". The U.S. column says "Reportabe ... not taxable". I would be nice if the Italian column said either "Reportable taxable" or "Reportable not taxable".
:flypig:


----------



## NickZ

The reason the US states reportable and non taxable is normally if you report the income you pay taxes on it. 

The Italian states only reportable because you fill in your tax form and pay whatever taxes are due.

There are some pensions that are taxed in the issuing country. Military,government employees and similar.But everything else is taxed in the country of residence.


----------



## PauloPievese

NickZ said:


> The reason the US states reportable and non taxable is normally if you report the income you pay taxes on it.
> 
> The Italian states only reportable because you fill in your tax form and pay whatever taxes are due.
> 
> There are some pensions that are taxed in the issuing country. Military,government employees and similar.But everything else is taxed in the country of residence.


From this I take it that my hopeful quote above is _entirely_ wrong.

The Italian tax sites I've read said that you pay taxes on your income less "allowances". "Allowances" are never defined. I presume that these are like U.S. deductions; where can I find them described?

Thanks as always.
:flypig:


----------



## NickZ

Yes. 

Agenzia delle Entrate - Cittadini - 730 2018 - Modello 730 2018

It's in Italian but it's the official source. The Italian version of the IRS.

At the moment the basic no tax zone for retirees ( I can't remember what this is called in the US basic exemption?) is over 8K but it's also income based. If your actual exemption can go down with your income going up. 

Everything else is on top of the no tax zone.


----------



## Bevdeforges

There isn't quite the same sort of "basic exemption" for US taxes - though, there are threshold limits for having to file at all. 

It sounds as though the Italian system is more "declarative" - i.e. you fill out the forms, giving the tax people all the necessary information, but it's the tax authority that calculates what you have to pay. (Doesn't the Italian tax authority also withhold/take many taxes at the source? Particularly when funds are deposited into an Italian bank.)

Because Americans have to calculate their taxes themselves on their returns, there is a tendency to try to work all the angles (i.e. to find any and all options that might lead to a lower tax bill). It takes a while to get used to the notion that you just declare things to the tax office and let them figure out the bill. <g>
Cheers,
Bev


----------



## NickZ

Bevdeforges said:


> It sounds as though the Italian system is more "declarative" - i.e. you fill out the forms, giving the tax people all the necessary information, but it's the tax authority that calculates what you have to pay. (Doesn't the Italian tax authority also withhold/take many taxes at the source? Particularly when funds are deposited into an Italian bank.)


Only if the income is earned in Italy. But I think the OP won't have anything that will be taxed at the source by the Italian government. He might have US withholding that he can then use to offset things.


----------



## PauloPievese

I just spent a little over an hour composing a response to the recent posts that included links to and discussion of various of the resources available from the links provided by recent respondents. When I clicked "Submit" my Internet connection had died. Some days I feel like I just can't go on. I'm re-composing this response in a text editor just in case.

This typing was interrupted while I went off to my volunteer job. In the meantime I've received responses from an Italian lawyer and an Italian accountant summaries of which, after I've decrypted them, I will post.

------
Like Like Like Like Like Thank you one and all for your considerd responses.

Below you will find commentary on what I've learned from the links provided. But first a ittle about me and a little about you.

I am, by the standards of someone considering a retirement home in a foreign country, relatively poor. If it appears that I will have enough money left after taxes to support myself in Italy I will have to go to the Italian Consulate to see if they agree with me and will therefore issue me a national (long-term) visa. The point being that even a few euros of taxes could sway the balance.

As to you, I am certain that I am not the first American who retired to Italy and paid taxes on his/her Social Security and IRA. Someone out there has gone through this before. If you are a USAsian retired in Italy who has an Italian accountant familiar with this topic I would appreciate your replying with some contact information. Thanks.

-------------
Documents from the "Agezia Enrate" (Italian IRS) and "Departmento Finanze"
-------------

Conventions for the avoidance of double taxation
Agenzia delle Entrate - Individuals - Conventions for the avoidance of double taxation
A listing (available in Englist, note upper right corner of page) listing links to various documents relating to national agreements for avoiding double taxation. This includes both a link to a list of the actual agreements as well as links for forms used to claim refunds for situations like dividends, interest, etc.

Convenzioni per evitare le doppie imposizioni
Dipartimento Finanze - Convenzioni per evitare le doppie imposizioni
The list of national agreements on the avoidance of double taxation noted above including one in Italian and English for the U.S.A.

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
http://www.finanze.gov.it/export/sites/finanze/it/.content/Documenti/Varie/USA_1999-Testo_IRS_en.pdf
Text of the agreement between Italy and U.S.A. in regards the avoidance of double taxation.

Claim for the refund, exemption or application of the reduced tax rate on income
paid to non-residents. other income(FORM D)
http://www.agenziaentrate.gov.it/wp...ouble+taxation/Form+D-Other+income/FORM_D.pdf
As noted above for refunds of double taxation on dividends etc., this is one for "other income" which may or may not apply to IRA disbursements.


----------



## PauloPievese

Having read a posting by a lawyer for an organization specializing in expatriate Italian taxation I sent him an email. In this I opened the kimono, listing all my assets, and requested a quote for consulting services. In reply I got an analysis free of charge. Perhaps it was pity; I note, as now I can see the name of the organization, that they specialize in "high net-worth individuals" which I pointedly am not.

Before continuing, a note for fellow USAsians who might be making similar inquiries. The word "pension" is typically used in the U.S.A. for pensions provided by non-governmental organizations, not for Social Security or IRA distributions although the latter clearly are pensions in the broader sense of the word. In Italy both Social Security (state pension) and IRA distributions (private pension) are considered and called pensions. Saying I had Social Security and no pension caused considerable confusion. 

To make sense of his reply I will further open the kimono with you. I have approximately:
* € 310,00 in a tax deferred investment account (IRA) from which I typically withdraw annually € 16,000
* € 18,000/year from Social Security (state pension)
* A home worth about € 105,000

The analyst replied:
* On bank accounts (?) € 32 
* On investments, 0.2% of the amount, € 620
* On foreign real estate, € 525
= TOTAL: € 1,177

This of course now seems ridiculously low. Note that he includes tax on "bank accounts" which I didn't mention and no reference to Social Security.


----------



## Bevdeforges

Not sure what the US-Italian tax treaty has to say on the matter, but in general, the US tends to retain its rights to tax your US Social Security and IRA withdrawals wherever and whenever it can. Having worked to help an Italian friend of mine with her US taxes, I can affirm that the exception (i.e. that Italy taxes US SS) is limited to Italian residents with Italian citizenship. From that, I have always assumed that for those US citizens "merely" resident in Italy, their US SS is taxable only by the IRS. What you heard from the Italian tax expert seems to correspond with this approach.
Cheers,
Bev


----------



## PauloPievese

Bevdeforges said:


> Not sure what the US-Italian tax treaty has to say on the matter, but in general, the US tends to retain its rights to tax your US Social Security and IRA withdrawals wherever and whenever it can. Having worked to help an Italian friend of mine with her US taxes, I can affirm that the exception (i.e. that Italy taxes US SS) is limited to Italian residents with Italian citizenship. From that, I have always assumed that for those US citizens "merely" resident in Italy, their US SS is taxable only by the IRS. What you heard from the Italian tax expert seems to correspond with this approach.
> Cheers,
> Bev


The accountant's response (part of which contradicts the preceding of course):

* € 310,00 in an IRA from which I typically withdraw annually € 16,000
Accountant: "0.2% and therefore 310,000 € 620"
TAX: € 620
* € 18,000/year from Social Security
Accountant: "the tax is in installments (first installment 23%) with deductions therefore € 3099 and you can remove any taxes paid in America"
TAX: (my calculation) € 3,428 (less U.S. tax paid)
* A home worth about € 105,000
Accountant: "0.76% therefore on 105.000 are € 798"
TAX: € 798
* A checking account with varying balance
Accountant: "On any current accounts fixed taxation 34.20 each."
TAX: € 34.20
TOTAL: Approximately € 4880

This seems reasonable and about what I expected; as they say in poker "ya gotta pay to play". The fact that I expected it does not make it correct however. I'm not sure if Italian tax offsets USAsian tax or vice versa. I'm assuming that my "fiscal residence" would be in Italy.

None of these resources have offered, despite repeated inquiry, any mechanism for remuneration. The "high-wealth individuals" lawyer probably doesn't need it but the accountant's getting flowers. I'm going to wait until she gets them before I go back with the citizen/non-citizen thing.

I have some names (and more personal references) for an accounting firm local to where I'm looking at housing. I'm going to see if they can validate these numbers.

Saluti,
Paulo
:flypig:


----------



## PauloPievese

In another similar thread Super Moderator Bevdeforges provided a suggestion to check IRS pubication 54, "Tax Guide for U.S. Citizens and Resident Aliens Abroad". While that document is obviously focused on U.S. taxes and not Italian taxes, the subject of this thread, it does have relevant sections on "Taxes of Foreign Countries and U.S. Possessions" and "Tax Treaty Benefits". The 2017 edition can be found at: 
https://www.irs.gov/pub/irs-pdf/p54.pdf


----------



## PauloPievese

*Summation*

The following is (edited) from an accountant in Italy who works exclusively with foreign clients. I take it as authoritative and conclusive to this thread.
---

You would be subject to making a tax return in Italy for assets you hold overseas. However *IRA accounts are monitored only and therefore there is no tax liability in Italy for this*. Likewise *your SS pension is a liability only in the USA* under the dual taxation agreement in place between the two countries

Your property holding would be subject to a taxation called IVIE which needs to be declared here in Italy. If you pay rates/property taxes in the US this taxation that can be deducted from the amount due. We have clients in the US who live in various states, and to date none of these clients have had to pay IVIE here as the taxation in the US covers the amount due to the Italian authorities.

Finally, I would point out that the above applies if only you become a resident here. If you become an Italian citizen then the social security payments are taxable in Italy.

----

At the accountant's request I have (I hope) elided all specifics as to my holdings as, he notes, "the specifics of every client are different" but that I should "feel free to mention IVIE ... and the monitoraggio fiscale only of IRA accounts and Social Security being taxed in the US under the dual taxation agreement for residents that are not citizens of Italy."

This incredibly helpful information came from:
Studio Graziani
Via Palmiro Togliatti 1/C
Tavernelle (PG)
Tel. 075 8355765

Thanks to all who participated in this discussion.
Paul
:flypig:


----------



## PauloPievese

I spontaneously (what nice people) received a correction from the first accountant who (edited) said (translated by machine on her end):

I looked further into the question of the US state pension and actually the taxation in Italy takes place in the presence of residence and nationality, so *if you are not an Italian citizen your pension will be taxed only in the USA*.​
This confirms the statements made by the second accountant.


----------



## Bevdeforges

I see that RetireinRome has started a new thread to try to consolidate and clarify the information - so I'm closing this one and will refer you to the newer thread: http://www.expatforum.com/expats/it...425482-italian-income-taxes-u-s-retirees.html

Let me just add one caveat - most advice is worth exactly what you pay for it. So please check out any legal or tax advice you see here before acting on it. Your situation may or may not correspond to that of the person who is posting the advice.
Cheers,
Bev


----------

