American Expats in Italy need to file their taxes in both countries.

Italy is a popular destination for many expats, and their new life abroad does impact them on several levels, not only from a cultural point of view!

It’s important to keep in mind that US citizens living in Italy need to declare their income in Italy and the US.

It doesn’t matter what country they live in, US citizens or permanent residents are obliged to file taxes with the federal government every year. In some cases, they also need to file an informational return on their assets held in foreign bank accounts.

There are some provisions to protect US citizens, residing overseas, from double taxation. An expert professional will help with the planning and tax preparation to avoid or minimize double taxation.

The Foreign Account Tax Compliance Act (FATCA), requires U.S. taxpayers (living abroad or in the US) owning financial assets outside of the United States to declare the value of those assets each year to the IRS.

FATCA also requires foreign financial institutions (banks, brokers, insurance companies, and mutual funds for example) to report information about financial accounts held by U.S. taxpayers.

Hence the need for accurate and up to date information from skilled professionals to comply with Italian tax laws and FATCA regulations and obligations.

When are expats considered residents in Italy for tax purposes?

Expats are considered residents in Italy when even just one of the following situations applies for more than 183 days:

• They are registered in the Italian Resident Population database.

• They are classified as Italian residents (place where the person has established an abode)

• They are domiciled in Italy by the Italian Civil Code (place where the person has established the main center of business and interests)

In any of the above cases, Italian income taxes will apply. Several deductions can be applied, for example:

– Charitable contributions (recognized by Italian law)
– Family allowances
– Social security contributions
– Medical expenses
– Interests paid for loans (real estate, for principal residence)
– And more…

But it is fundamental to ask for help of expert professionals who can provide up to date and detailed information to file taxes (and deductions) correctly.

In addition to income tax, Italy applies other forms of taxation, like regional, municipal taxes, and real estate taxes, which vary according to the tax rate implemented by each municipality, and the value of the property itself.

The US and Italy have signed a tax treaty, to minimize double taxation of both categories of expats (Americans living in Italy and Italians living in the US). This treaty is fundamental to determine which country’s taxes apply.

When tax resident conditions apply to expats living in Italy, they will be taxed on their worldwide income. They need to report all their assets including properties and savings accounts, even if they are not held in Italy.

Another important fact to underline: regarding the estate and gift taxes, US citizens living abroad don’t benefit from the 5,490,000 dollars exemption. These expats are treated as non-residents, and in this case, the exemption amount is USD 60000. Above this amount, in case of death, their heirs should file taxes and pay an estate tax of up to 40%.

To avoid running the risk of not complying with Italy and FATCA regulations and obligations, it is advisable to reach out to competent and expert professionals in this delicate field.

Thanks to our professional network, we help US expats, providing optimal tax advice and solutions fitted to each client’s specific needs. Please feel free to contact us.