Italian Citizenship by Descent: Tax Responsibilities

Claiming Italian citizenship by descent (jure sanguinis) offers rich cultural benefits, but it also comes with tax obligations.

Italian citizenship by descent allows individuals with Italian ancestors to reconnect with their heritage and gain the benefits of being an Italian and EU citizen (European Union). However, being a dual citizen means navigating the complexities of tax obligations in Italy and the US.

Understanding these tax responsibilities is essential to avoid potential legal and financial pitfalls. The Greenback Expat Tax Services team is your best source of information on this topic, offering expert guidance and support to over 18,000 US expats worldwide.

We are experts on the tax implications of holding Italian dual citizenship, focusing on income tax, tax treaties, and residency requirements. This article will provide valuable insights to help you manage your tax obligations.

What Is Italian Citizenship by Descent?

Italian citizenship by descent, or jure sanguinis (right of blood), is the right to citizenship based on having Italian ancestors. This principle allows individuals to claim citizenship through their lineage, even if they were born outside of Italy.

To be eligible for Italian citizenship by descent, you must meet specific criteria:

• You must have at least one Italian ancestor who was a citizen after the unification of Italy in 1861.
• The ancestor did not renounce their Italian citizenship before the birth of the next person in the lineage.
• You must provide documents proving your lineage, including birth certificates, marriage certificates, and naturalization records.

The importance of Italian ancestors and birth certificates cannot be overstated. Accurate and complete documentation is necessary to establish your eligibility and successfully obtain Italian citizenship. Birth certificates are essential for tracing the family line and proving your connection to an Italian ancestor.

For more detailed information, please refer to the official website of the Italian Ministry of Foreign Affairs and International Cooperation.

How To Get Italian Citizenship as a US Expat

There are several pathways to obtaining Italian citizenship as a US expat beyond descent. Naturalization is the most common method, but other routes include marriage to an Italian citizen or exceptional contributions to Italy.

Requirements for Naturalization

• Residency requirements and permanent residence: To apply for naturalization, you generally need to have legally resided in Italy for at least 10 years. This period can be reduced for specific circumstances, such as being an EU citizen or having Italian heritage.
• Language proficiency and integration tests: Demonstrating proficiency in Italian is mandatory. Applicants must pass a language test at the B1 level or higher. Additionally, integration tests may be required to show knowledge of Italian culture and civic life.
• Marriage to an Italian citizen: Spouses of Italian citizens can apply for citizenship after two years of legal residence in Italy or three years if living abroad. These periods are reduced by half if the couple has children.
• Exceptional contributions to Italy: Individuals who have significantly contributed to Italy in areas such as culture, science, or economics may be eligible for citizenship through naturalization. This pathway is discretionary and requires a recommendation from the relevant Italian authorities.

Steps To Apply for Naturalization

• Necessary documents and application process: Applicants must gather various documents, including a valid passport, proof of residence, birth certificate, and language proficiency certificate. If issued outside of Italy, these documents must be translated into Italian and legalized with an apostille.
• Role of the Italian government and consulates: The application process involves submitting your documents to the local Italian consulate or the Ministry of Interior. The Italian government will review your application, which can take several months to a few years.
• Legal advice and citizenship assistance: Navigating the naturalization process can be complex. Seeking professional legal advice is highly recommended to ensure that all citizenship law requirements are met and the citizenship application is correctly submitted.

Tax Responsibilities for Dual Citizens

Dual citizens are required to fulfill income tax obligations in both the US and Italy. The US taxes its citizens on worldwide income regardless of where they live. Italy, on the other hand, taxes residents on their global income and non-residents on income sourced within Italy. As a dual citizen, you must understand and comply with the tax requirements of both countries.

In Italy, you are considered a tax resident if you meet any of the following criteria: 

• You have a registered residence in Italy for more than 183 days in a calendar year.
• You have your main center of interests (economic, social, and family) in Italy.
• You are registered in the AIRE as an Italian citizen living abroad.

Dual citizens must report their worldwide income to both the US Internal Revenue Service (IRS) and the Italian tax authorities (Agenzia delle Entrate). This includes income from employment, investments, and any other sources. Failure to report worldwide income accurately can result in significant penalties.

To comply with tax laws, dual citizens need to file tax returns annually in both countries. In the US, you must file a Federal Tax Return; in Italy, you must file a dichiarazione dei redditi (income tax return). Knowing each country’s filing deadlines and requirements helps you avoid penalties.

Italian and US Tax Laws

Italian and US tax laws have significant differences. The US uses a progressive tax system with rates based on income brackets, while Italy also employs a progressive system with different brackets and rates. Additionally, Italy offers tax credits and deductions specific to residents that differ from US tax benefits.

Tax rates in Italy range from 23% to 43% based on income brackets. Dual citizens must also contribute to Italian social security if employed or self-employed in Italy.

Agenzia delle Entrate is the Italian government agency responsible for tax collection and enforcement. It ensures that taxpayers comply with Italian tax laws, conducts audits, and imposes penalties for non-compliance. Dual citizens must interact with this agency to fulfill their Italian tax obligations.

Double Taxation and Tax Treaties

Double taxation occurs when the same income is taxed by both the US and Italy. To mitigate this, dual citizens can use the Foreign Tax Credit and the Foreign Earned Income Exclusion in their US tax returns. These mechanisms help reduce the tax burden by offsetting taxes paid in Italy.

The tax treaty between Italy and the US aims to prevent double taxation on income earned by residents of both countries. This treaty allows dual citizens to claim credits for taxes paid in one country against their tax liability in the other, ensuring they are not taxed twice on the same income.

The tax treaty between Italy and the US provides several benefits, including relief from double taxation, reduced tax rates on certain types of income, and mutual agreement procedures to resolve tax disputes. These benefits make it easier for dual citizens to manage their tax liabilities in both countries.

To ensure compliance, dual citizens should:

• Maintain detailed records of income and taxes paid.
• Consult tax professionals familiar with US and Italian tax laws (such as those at Greenback).
• Regularly review tax treaties and regulations for updates.
• File timely and accurate tax returns in both countries.

Specific Tax Obligations for Italian Residents and Non-Residents

Italian residents are taxed on their worldwide income, while non-residents are taxed only on income sourced within Italy. This distinction significantly impacts dual citizens, who may have diverse income sources in both countries

Non-EU citizens and American citizens living in Italy must report their income to Agenzia delle Entrate. This includes income from employment, investments, and other sources within Italy. Additionally, they must comply with reporting requirements for foreign assets and bank accounts.

Minor children and family members may also have tax obligations in Italy, especially if they have income or assets in the country. Understanding these implications helps ensure compliance and proper financial planning for the entire family.

• Income tax for minors: If minor children earn income in Italy—such as from investments, property rentals, or employment—they are subject to the same income tax rules as adults. Parents or guardians must report this income on the child’s behalf and ensure they pay the appropriate taxes.
• Gifts and inheritances: Italy imposes taxes on gifts and inheritances. If minor children receive significant gifts or inheritances from Italian relatives, these assets may be subject to Italian gift or inheritance tax. The tax rates vary depending on the relationship between the giver and receiver and the value of the assets.
• Wealth tax: Italy has a wealth tax (Imposta sul valore degli immobili situati all’estero or IVIE) on real estate properties located abroad. If a minor child owns property abroad, this tax must be reported and paid annually. Similarly, the Imposta sul valore delle attività finanziarie detenute all’estero (IVAFE) applies to financial assets held outside Italy.
• Financial accounts reporting: Under Italian tax law, families with minor children who hold financial accounts outside Italy must report these accounts. This requirement ensures transparency and helps prevent tax evasion.
• Educational funds and trusts: If educational funds or trusts have been set up for minor children and generate income or dividends, they must be reported on the child’s tax return.
• Compliance and penalties: Failing to report income or assets accurately can lead to penalties and interest charges. Parents and guardians are responsible for ensuring that minor children comply with all Italian tax obligations. Proper financial planning and seeking advice from tax professionals can help avoid these issues.

Managing Financial Matters as an Italian Dual Citizen

Dual citizens can open a bank account in Italy to manage their finances more efficiently. This requires proof of identity, residency, and a tax code (codice fiscale). Having an Italian bank account simplifies transactions and compliance with Italian financial regulations.

Italian social security contributions are mandatory for employed and self-employed individuals. These contributions fund pensions, healthcare, and other social benefits. Dual citizens must understand their obligations to avoid penalties and ensure access to healthcare services.

Navigating Italian financial regulations can be complex. Dual citizens should stay informed about regulations affecting bank accounts, investments, and other financial matters. Consular services can provide assistance and information to help manage these responsibilities effectively.

Succesfully Navigate Tax Responsibilities in Italy

Understanding the tax responsibilities that come with Italian citizenship by descent is crucial. We’ve covered eligibility, application steps, and tax obligations for dual citizens in both the US and Italy. From worldwide income reporting to tax treaties and financial management, staying informed is key.

Given the complexities, seeking professional help is highly recommended. Tax professionals can ensure you meet all legal requirements and make informed financial decisions.

Holding Italian dual citizenship offers benefits like living and working in the EU but also comes with responsibilities.

The Greenback team provides expert, hassle-free tax services for US expats. Our mission is to offer transparent and accurate tax solutions, helping you navigate your tax responsibilities with confidence.
For personalized support and professional guidance, work with Greenback to handle your tax matters efficiently. Contact us today to learn more.