What US Expats Need to Know About Taxes in Italy

What US Expats Need to Know About Taxes in Italy

Italy’s Taxes at a Glance

  • Primary Tax Forms: Modello 730 or Modello Redditi PF 
  • Tax Year: January 1 – December 31
  • Tax Deadline: Modello 730 (September 30) or Modello Redditi PF (November 30)
  • Currency: Euro
  • Population: More than 58 million
  • Number of US Expats: Estimated over 15,000
  • Capital City: Rome
  • Primary Language: Italian
  • Tax Treaty with US: Yes 
  • Totalization Agreement with US: Yes

Living as an Expat in Italy

Americans have a love affair with Italy. American expats are attracted by Italy’s food, culture, history, and landscapes. Movies like ‘Roman Holiday’ and ‘Under the Tuscan Sun’ have romanticized life in Italy. In moving to Italy, you need to be aware of how taxes apply to you in Italy. Let’s review what a US expat needs to know about taxation in Italy. 

US Expat Taxes in Italy

US expats in Italy need to be aware of two different national tax systems. First, virtually all US citizens are required to file an annual US Federal tax return, regardless of whether they live in the United States or Italy.

Second, by living in Italy, American expats also can be subject to Italy taxation. These two national tax systems can create confusion for Americans living abroad in Italy, as they potentially can be subject to tax liabilities in both jurisdictions. Here’s an overview of how the Italy tax system affects US expats living abroad in Italy. 

Who Has to File Taxes in Italy?

Residents of Italy, for tax purposes, are subject to income taxation on their worldwide income. Thus, tax residents of Italy are also subject to taxation on foreign (“non-Italy”) sources of income. On the other hand, non-residents of Italy, for tax purposes, are only subject to taxation on income produced in Italy.

To understand taxes in Italy, it is essential to distinguish between individuals treated as residents for tax purposes and individuals treated as non-residents for tax purposes.

Who Qualifies as a Resident in Italy for Tax Purposes?

You are considered a resident in Italy for tax purposes if you have been for more than 183 days during the tax year and qualify in one of the following categories:

  • You are registered in the Records of the Italian Resident Population. An individual who moves to Italy must apply for registration with the Record of the Italian Resident Population in the municipality where the individual intends to reside; 
  • You have a residence (generally meaning you have established a habitual abode) in Italy; or
  • You have a domicile (generally meaning that you have established a principal center of business, economic, and social interests) in Italy.
Take Note

An individual who moves out of Italy must “de-register” with the Record of the Italian Resident Population.  Failure to do so can unnecessarily result in the individual being treated as an Italian tax resident for more than 183 days and more adverse taxation on worldwide income in Italy. 

The IRS tax code is 7,000 pages. Want the cliff notes version for expats? Let us help.

What Types of Taxation Does Italy Have?

National Income Tax

Italy will tax the income of Americans living abroad in Italy at graduated rates based on the following:

Taxable IncomeTax Rate
Up to 15,000 Euros23%
15,001 – 28,000 Euros25%
28,001 – 50,000 Euros35%
More than 50,000 Euros43%

There is an additional 10% tax on the net amount of certain “variable compensation” less base salary. This “variable compensation” relates to a bonus, stock option, or incentive plan paid to an executive or manager in the financial sector.

Regional Income Tax

American expats in Italy are also subject to regional income taxation. Regional income tax rates range from 1.23% to 3.33%, depending on the applicable region of residence.

Municipal Income Tax

In addition, Americans living abroad in Italy can be subject to municipal income taxation. Municipal income tax rates range from 0% to .9%, depending on the applicable municipality of residence. 

Value-Added Tax

Italy imposes a value-added tax on the supply of goods and services in Italy. The standard value-added tax rate is 22%. However, certain specific supplies of goods and services are subject to lower rates (for example, 4% for listed food, drinks, and agricultural products) or even exemptions (such as hospital and medical care, education, and insurance services).

Wealth Tax

Residents for tax purposes in Italy are subject to a wealth tax on both real estate properties and financial investments owned outside of Italy. For real estate properties owned outside of Italy, the applicable tax rate generally is .76% of the value of the real estate. For financial investments owned outside of Italy, the applicable tax rate generally is .2% of the value of the financial investments

Inheritance Tax

There is an inheritance tax in Italy, with a specific tax rate and applicable exemption dependent on the beneficiary’s relationship with the deceased person. For example, for inheritances by a spouse or direct line relatives, the inheritance tax is assessed at 4% of the value of the inherited assets above an exemption amount of 1 million Euros (per heir). 

Property Tax

Property taxes are assessed on real estate owned in Italy. The primary property tax rates are 0.5% for a principal home and 0.86% for another real estate purchase.   

Corporate Taxes

Corporate entities in Italy are subject to two standard taxes.

There is a corporate income tax (known as “IRES”). The IRES tax base is the worldwide income of an Italian resident entity or the Italian source income of a non-resident entity. The standard IRES tax rate is 24%.

There is also a regional production tax (known as “IRAP”). The IRAP tax base varies depending on the nature of the business of the Italian entity. As an example, for sales and manufacturing companies, the IRAP tax base is generally represented by the company’s gross margin in its financial statements. IRAP is assessed on a regional basis. The standard IRAP tax rate is 3.9%, but regions can increase or decrease the standard IRAP tax rate up to .92%.   

What Tax Forms Do Americans Living in Italy Have to File?

It is essential for US expats to remember that in addition to filing tax forms in Italy, they file tax forms in the United States, including:

  • IRS Form 1040 – Individual Income Tax Return.
  • IRS Form 8938 – Statement of Specified Foreign Financial Assets.
  • FinCEN Form 114 – Report of Foreign Bank and Financial Account (commonly known as “FBAR”).

Does the US Have a Tax Treaty with Italy?

Yes, Italy and the United States have a tax treaty. With this tax treaty, US expats living in Italy can avoid double taxation of the same income in both the United States and Italy.

Does the US Have a Totalization Agreement with Italy?

Yes, Italy and the United States have a totalization agreement. This totalization agreement can help American expats living in Italy by both eliminating dual taxation with respect to Social Security and Medicare taxes and permitting dual Social Security coverage for easier benefit entitlement.

Get Reliable Help With Your Expat Taxes

We hope this guide has provided you with more knowledge and a better understanding of Italy’s tax system and its effect on American expats in Italy. If you’d like to learn more about these issues, our team of expat tax experts would be happy to help you.

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