Income Tax Liability

Who is liable to pay income tax?

Your liability for Italian income tax depends on where you’re domiciled. Your domicile is normally the country you regard as your permanent home and where you live most of the year.

Income Tax Liability

A foreigner working in Italy for an Italian company who has taken up residence in Italy and has no income tax liability abroad is considered to have his tax domicile (domicilio fiscale) in Italy.

A person can be resident in more than one country at any time, but can be domiciled only in one country. The domicile of a married woman isn’t necessarily the same as her husband’s but is determined using the same criteria as anyone capable of having an independent domicile. Your country of domicile is particularly important regarding inheritance tax, as there’s no longer any inheritance tax in Italy. Double taxation treaties (see below) contain rules that determine in which country an individual is resident.

Generally, you’re considered to be an Italian resident and liable to Italian tax if any of the following applies:

  • Your permanent home (i.e. family or principal residence) is in Italy;
  • You spend over 183 days in Italy during any calendar year (Note that many countries, e.g. Britain, limit visits by non-residents to 183 days in any one year or an average of 91 days per tax year over a four-year period);
  • You carry out paid professional activities or employment in Italy, except when secondary to business activities conducted in another country;
  • Your centre of vital economic interest, e.g. investments or business, is in Italy.

If you’re registered as a resident ( residenza anagrafica) in your comune, you’re automatically liable to income tax in Italy.

If you intend to live permanently in Italy, you should notify the tax authorities in your present country (you will be asked to complete a form, e.g. a form P85 in Britain). You may be entitled to a tax refund if you depart during the tax year, which usually necessitates the completion of a tax return. The authorities may require proof that you’re leaving the country, e.g. evidence of a job in Italy or of having purchased or rented a property there.

If you’re in doubt about your tax liability in your home country, contact your nearest embassy or consulate in Italy.

If you move to Italy to take up a job or start a business, you must register with the local tax authorities soon after your arrival. This is done at your local tax office ( intendenza di finanza).

Double Taxation Treaties

Italian residents are taxed on their world-wide income, subject to certain treaty exceptions. Non-residents are normally taxed only on income arising in Italy. The US is the only country that taxes its non-resident citizens on income earned abroad (American citizens can obtain a copy of a brochure, Tax Guide for Americans Abroad, from American consulates). Citizens of most other countries are exempt from paying taxes in their home country when they spend a minimum period abroad, e.g. a year.

Double taxation treaties are designed to ensure that income that has already been taxed in one treaty country isn’t taxed again in another treaty country. The treaty establishes a tax credit or exemption on certain kinds of income, either in the country of residence or the country where the income was earned. Where applicable, a double taxation treaty prevails over domestic law.

Italy has double taxation treaties with over 60 countries, including all members of the EU, Australia, Canada, China, the Czech Republic, Cyprus, Estonia, Hungary, Iceland India, Israel, Japan, Latvia, Lithuania, Malaysia, Malta, Mexico, New Zealand, Norway, Pakistan, the Philippines, Poland, Romania, RSA, Russia, Singapore, the Slovak Republic, Sri Lanka, Switzerland, Turkey, and the US.

A foreigner working in Italy for an Italian company who has taken up residence in Italy and has no income tax liability abroad is considered to have his tax domicile (domicilio fiscale) in Italy.

A person can be resident in more than one country at any time, but can be domiciled only in one country. The domicile of a married woman isn’t necessarily the same as her husband’s but is determined using the same criteria as anyone capable of having an independent domicile. Your country of domicile is particularly important regarding inheritance tax, as there’s no longer any inheritance tax in Italy. Double taxation treaties (see below) contain rules that determine in which country an individual is resident.

Generally, you’re considered to be an Italian resident and liable to Italian tax if any of the following applies:

  • Your permanent home (i.e. family or principal residence) is in Italy;
  • You spend over 183 days in Italy during any calendar year (Note that many countries, e.g. Britain, limit visits by non-residents to 183 days in any one year or an average of 91 days per tax year over a four-year period);
  • You carry out paid professional activities or employment in Italy, except when secondary to business activities conducted in another country;
  • Your centre of vital economic interest, e.g. investments or business, is in Italy.

If you’re registered as a resident ( residenza anagrafica) in your comune, you’re automatically liable to income tax in Italy.

If you intend to live permanently in Italy, you should notify the tax authorities in your present country (you will be asked to complete a form, e.g. a form P85 in Britain). You may be entitled to a tax refund if you depart during the tax year, which usually necessitates the completion of a tax return. The authorities may require proof that you’re leaving the country, e.g. evidence of a job in Italy or of having purchased or rented a property there.

If you’re in doubt about your tax liability in your home country, contact your nearest embassy or consulate in Italy.

If you move to Italy to take up a job or start a business, you must register with the local tax authorities soon after your arrival. This is done at your local tax office ( intendenza di finanza).

Double Taxation Treaties

Italian residents are taxed on their world-wide income, subject to certain treaty exceptions. Non-residents are normally taxed only on income arising in Italy. The US is the only country that taxes its non-resident citizens on income earned abroad (American citizens can obtain a copy of a brochure, Tax Guide for Americans Abroad, from American consulates). Citizens of most other countries are exempt from paying taxes in their home country when they spend a minimum period abroad, e.g. a year.

Double taxation treaties are designed to ensure that income that has already been taxed in one treaty country isn’t taxed again in another treaty country. The treaty establishes a tax credit or exemption on certain kinds of income, either in the country of residence or the country where the income was earned. Where applicable, a double taxation treaty prevails over domestic law.

Italy has double taxation treaties with over 60 countries, including all members of the EU, Australia, Canada, China, the Czech Republic, Cyprus, Estonia, Hungary, Iceland India, Israel, Japan, Latvia, Lithuania, Malaysia, Malta, Mexico, New Zealand, Norway, Pakistan, the Philippines, Poland, Romania, RSA, Russia, Singapore, the Slovak Republic, Sri Lanka, Switzerland, Turkey, and the US.

This article is an extract from Living and Working in Italy from Survival Books.

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