[ameden]

Hello Expats!

My family and I are newly Italian citizens. We are planning to spend 6 to 12 months there starting soon, and plan to not work while there (other than possibly some consulting over the internet).

We were told to avoid establishing residency because of the related complications, but want to have health insurance while we are there.

Can anyone elaborate on what the best approach would be to be able to spend the time there, get access to some kind of health insurance, and not run afoul of official requirements?

Your help is greatly appreciated!

 

[NickZ]

All Italians are resident some place. Either abroad or in Italy.

If you intend to register with the Italian health service you'll need to register for residency.

Without residency you have the right to emergency aid. You also have access to the service for up to three months a year.

 

[BBCWatcher]

Agreed. There's no way to avoid tax residency in Italy with your proposed stay parameters. But...why is that a major concern? Yes, you'll have to file an Italian tax return or two (including Form RW), but you said you're not going to be working, and you're also U.S. citizens. It's fairly unlikely that you'll owe much if anything additional in taxes. Chances are you'll pay the U.S. rate on your unearned income and that will be that.

One possible exception is U.S. Social Security. Dual Italian-American citizens receiving U.S. Social Security could potentially see an increase in tax on those retirement benefits when living in Italy.

 

[accbgb]

One possible exception is U.S. Social Security. Dual Italian-American citizens receiving U.S. Social Security could potentially see an increase in tax on those retirement benefits when living in Italy.

BBCWATCHER, earlier this year I contacted a few of the commercialisti (accountants) listed here mailto:[email protected] concerning several taxation issues. I will quote, in part, one of their replies here:

US Social Security payments are not taxable in Italy (see Convention between Italy and USA).

So, which of you is correct?

 

[NickZ]

Go to the US embassey website. It has a chart.

Social Security Agreement | United States Diplomatic Mission to Italy

You need to file.

It not taxable if your total income is below the no tax level. IIRC for seniors that's around €7500. It's higher if above 80 (I think).

If you're income is above the limit then it's no different then other income for tax purposes.

 

[accbgb]

Go to the US embassey website. It has a chart.

Social Security Agreement | United States Diplomatic Mission to Italy

You need to file.

It not taxable if your total income is below the no tax level. IIRC for seniors that's around €7500. It's higher if above 80 (I think).

If you're income is above the limit then it's no different then other income for tax purposes.

Well, first of all, "Reportable" does not necessarily mean "taxable."

Secondly, the US has nothing to say regarding whether or not Italy taxes a particular form of income and, I am certain, there is nothing in the totalization agreement between the US and Italy which addresses that subject. The agreement mostly concerns the collection of social security taxes on income and the ways in which the two countries issue social security payments after retirement. I see nothing concerning the taxability in either country of those payments.

Finally, I have two Italian commercialisti in current practice who told me in very clear terms that US Social Security payments to dual citizens are not taxable in Italy. So, again, which is it?

 

[NickZ]

Reportable means it goes on your tax report.

The tax treaty does treat taxes .

My memory isn't that great at the moment but there is a whole article on pensions in the tax treaty. The only pensions not taxed in the country of residence are public service type pensions. Military,civil service and similar.

You'll notice the link states

usually not taxable if under certain limits. (If taxed in U.S. may take a tax credit for Italian taxes on U.S. return.)

For US citizens and US taxes.

Now why would anybody think a dual citizen would not have to pay Italian taxes while an US citizen would?

 

[accbgb]

Now why would anybody think a dual citizen would not have to pay Italian taxes while an US citizen would?

I suppose because two practicing Italian commercialisti told me that dual citizens residing in Italy do not pay Italian tax on US Social Security payments.

 

[NickZ]

The problem can be how you asked the question.

It could be they didn't understand what was being asked.

Instead of going to the expense that those guys will charge you go to your local CAF and ask. It'll be cheaper. They fill out countless personal tax forms.

 

[BBCWatcher]

Italian tax accountants are rarely experts on U.S. taxes and vice versa. If you want competent advice on international tax matters then you need to consult a specialist who knows both tax systems and how they intersect.

OK, here's the answer as I understand it. If you are a resident of Italy and a citizen of both the U.S. and Italy then you still have the U.S. tax reporting/filing obligations (including FBAR and/or FATCA) along with Italian tax reporting/filing (including the infamous Form RW). In terms of U.S. Social Security in this specific set of circumstances there is a treaty provision that exempts those Social Security benefits from U.S. income tax. Strange but true for dual citizens living in Italy. Italy has the right to tax those benefits. Whether it does or not depends on the circumstances. Italy doesn't have a particularly generous social security system, so Italian accountants would probably think they're tax free. But U.S. Social Security can often pay retirement benefits above the Italian tax free limits (7500 or 7750 euro depending on age), so yes, you may owe Italian tax (at ordinary rates) on your U.S. Social Security benefits.

Of course please double check all that, but just like you wouldn't expect a human pediatrician to understand geriatric veterinary medicine, you shouldn't expect an Italian tax accountant to understand everything about how U.S. Social Security benefits may or may not be taxed.

 

[accbgb]

Of course please double check all that, but just like you wouldn't expect a human pediatrician to understand geriatric veterinary medicine, you shouldn't expect an Italian tax accountant to understand everything about how U.S. Social Security benefits may or may not be taxed.

I don't necessary expect the Italian tax accountant to understand the US tax system, but I would expect him to know what constitutes taxable income under the Italian tax system.

 

[BBCWatcher]

You'd be surprised.

I've spent many hours educating the alleged expert(s) on tax matters. Unfortunately tax accountants rarely are able (much less willing) to pay taxes that you should have paid. You have to do a reasonable job looking into tax regulations since you're the one ultimately responsible, not the accountant.

 

[Bevdeforges]

Re the US Social Security benefits in Italy, you should get the IRS publication (Pub 915) on Social Security benefits and check it thoroughly on this matter. But I have been doing taxes for an Italian lady I know.

US citizens resident in Italy who are also Italian citizens are exempt from US taxes on their Social Security benefits. My Italian friend tells me that the bank apparently handles the applicable Italian taxes (for that and any bank interest) and she doesn't even have to file a "return" of any sort. The relevant amounts are deposited net of taxes into her account.

I don't know how the Italian tax system works, but I would check with your Italian bank to see what they are paying in taxes on your behalf.
Cheers,
Bev

 

[NickZ]

That assumes you're having the money sent to an Italian bank. It also assumes no other income.

It also assumes no deductions other then the base no tax zone.

 

[BBCWatcher]

That does bring up a good point that Italy (like the U.S.) requires making estimated tax payments, otherwise you pay much more. However, it's not up to the bank to decide how much those payments should be. You need to stay involved and do your homework.