Many Americans who visit Italy get captivated by the country’s culture, lifestyle, and beauty. It is not surprising that many choose to apply for dual citizenship through descent (jure sanguinis) as Italy is one of the few countries in the world that allow USA citizens to have an EU passport giving them access to the entire European Union (click here for a full list of benefits). We are commonly asked by clients when they apply for Italian dual citizenship tax questions such as:
“How do taxes in Italy work?”
“Do I have to pay taxes if I have dual citizenship?”
In this article, we will take an in-depth look at the topic of Italian dual citizenship taxes and provide answers to those questions and more.
Do Dual Citizens Have to Pay Taxes in Italy?
The short answer is that you have to pay taxes in Italy only if you are actually living there over 183 days of the year. There is a distinction between being an Italian citizen and an Italian resident, and it makes all the difference when it comes to tax liability. To be eligible for paying taxes as a dual citizen, you need to spend at least 183 days a year in Italy, or own assets situated in that country. Otherwise, you are not obliged to declare anything to Italian authorities. In other words, you can be an Italian citizen, spend most of your time in the USA, and not pay any taxes to the Italian government.
This method is in stark contrast to tax laws in the USA, which oblige you to disclose all your generated income. US citizens need to do so regardless of whether they actually reside in the USA at the moment or not. In Italy, all you need to do is declare you are not living in the country. In that case, you will be exempt from paying any taxes. If, however, you are registered as a resident in an Italian city, or you own property in the country, you will have to pay taxes as per law. Tax liability for assets and property applies even if you are living abroad. In order to avoid that, Italians who emigrate permanently remove themselves from any civil records. Additionally, they sign up with the register of Italians living abroad (AIRE).
The USA Italy Tax Treaty Explained
If you are living in the USA, it is highly unlikely that you will have to pay taxes in Italy as well due to the American tax laws for dual citizens and the tax treaty in place between the countries. Dual taxation can be a real issue for people with dual citizenship. In order to mitigate and prevent such problems, the USA and Italy have signed various tax treaties, such as the Foreign Earned Income Exclusion treaty. Additionally, there is an agreement that gives dual citizens credit on income based on taxes paid to a foreign state. Finally, income that is used for household expenses can be written off as tax-deductible in the USA.
If, however, you reside more than 183 days a year in Italy, you will have to file tax returns like an ordinary citizen. As in most other countries, you will have to pay tax based on your income, as well as disclose all your international assets when filing your tax documents.
Does Dual Citizenship Mean Double Taxes?
It is important to mention that you will not pay double the tax for the same income. The no double taxation principle is at the core of the US–Italy tax treaties outlined above. You can only be responsible for the difference in between your home country and Italy’s tax bracket.
Does Dual Citizenship Affect Social Security Benefits?
Assuming that you apply for dual citizenship and retain your USA citizenship, then having citizenship from another country will not have any effect on your Social Security benefits or options. However, if you choose to renounce your USA citizenship and move to another country then it can have a direct affect on your ability to receive Social Security benefits from the US.
Tax Rates in Italy
The percentage of tax you have to pay in Italy depends on the amount of money you have generated as income. In other words, the more money you have made, the higher the applicable tax percentage will be. There are also various regional and municipal taxes that you will have to pay as well — those can vary between 0.1% to 2.03%. Here is a rundown of the different state tax levels that Italian citizens have to pay per income bracket.
- €0–€15,000 — 23% tax rate
- €15,000–€28,000 — 27% tax rate
- €28,000–€55,000 — 38% tax rate
- €55,000–€75,000 — 41% tax rate
- over €75,000 — 43% tax rate
In Italy, taxes are due between May 1st and June 30th. You are required to pay at least 40% by May 31st — you can delay the payment of the other 60% until November 30th at the latest.
Possible Deductions
Italy has a lot of possible deductions you can take advantage of to decrease your overall taxes. If you are eligible for paying taxes in Italy, make sure you research the different deductions and see which one you can apply for. After all, this is the best way to ensure you pay the smallest possible taxes at the end of the tax year. Here are some of the most common tax deductions for Italian citizens:
- Charity payments
- Medical expenses above €129.11
- Family allowances
- Social security contributions
- Principal residence loan interest
- Tuition payments
Italian Residence and Tax Liability
Even though the above information might seem simple enough, there are interesting scenarios that can cause complications. For example, some Americans move to Italy while still working for a USA-based company, therefore continuing to pay their US taxes. This situation is similar to obtaining a working visa or a family visa, or to getting a residenza elettiva (elective residency), which is meant for people who wish to retire in Italy.
Another scenario that can be concerning for USA citizens is when you are obtaining Italian citizenship while still living in your home country. Will you not be taxed for Italian residency even though you live abroad? In the following paragraphs, we will take a closer look at the specifics surrounding residency and tax liability in Italy.
Worldwide Taxation and Residenza Fiscale
As we already mentioned, your tax liability as a dual citizen in Italy is directly related to the amount of time you spend in the country. If you have spent more than 183 days in a tax year in Italy, you need to pay the taxes on your worldwide income there, regardless of whether you have registered as a resident or not. Italy would then be your legal tax residence, or residenza fiscale in Italian. However, if you have lived in Italy for less than 183 days in a tax year, the only thing you need to pay is the income tax on the money you have earned in the country for that period. Depending on the time you have spent in the country, you might or might not be obliged to file your taxes in the designated time period.
Even if your income is generated entirely outside of Italy, worldwide tax law states that you have to declare your earnings in the country you have spent the most time in during a tax year. In case you have spent more than 183 days in Italy, you have to declare all your income to the authorities, even if you have already paid taxes for it in the USA. This does not mean that you will be taxed once again in Italy — you are simply required to declare it. In this way, you are essentially informing the Italian government about the taxes you have already paid abroad. You will be tax liable only for the difference between the tax bracket in the USA and Italy, provided you have generated some income or have assets in the latter.
The Italian Tax ID — Codice Fiscale
Each Italian citizen gets a unique alpha-numeric identifier — the Codice Fiscale. It is essentially the equivalent of the social security number for US citizens. The Codice Fiscale is a combination of your name, date, and place of birth. It is an important identifier that has many purposes, with perhaps the most important of them being necessary to deal with Italian state and local agencies. People born in Italy get issued a Codice Fiscale as soon as they are born. However, non-Italians who wish to become citizens need to personally request one.
If you are an American citizen who wishes to obtain a Codice Fiscale, you will need to present a valid passport. In some cases, you might need to also present a visa — for example, if you plan to stay in Italy for more than 90 days.
As we already mentioned, a Codice Fiscale is necessary for many important aspects of living and working in Italy. Here is a list of some of the activities that require you to have a valid Codice Fiscale.
- Creating a bank account
- Getting an Italian phone number
- Applying for an Italian dual citizenship (also for Italian dual citizenship by descent)
- Acquiring or inheriting property in Italy
- Signing a contract for purchase of property or assets
- Renting a property for more than 30 days
- Applying for a mortgage
- Installing utilities such as water, gas, and electricity in an Italian property
- Using the Italian law system to file a legal dispute
What Should an Italian Tax Report (Denuncia Dei Redditi) Include?
If you need to file an Italian tax report, there are some key items that need to be included. First of all, you need to declare your worldwide income — this means all money you have generated, no matter the country where you did it. Next, you need to write down your entire portfolio of assets, not just the ones located in Italy. If you have overseas property and bank accounts, you need to include them in your Italian tax report as well. In the majority of cases, you will not have to pay extra taxes for any of your foreign assets.
We must point out that you need to be very careful and thorough when filling in your Italian tax report. If there are inconsistencies or misinformation in your filing, you might come under the scrutiny of the Italian tax police. Keep in mind that the Agenzia delle Entrate gets automatic notifications about any foreign capital that enters an Italian bank account for the first time. If you have not disclosed all your financials properly, you might trigger an alert that can result in an investigation. As with any tax authority, you can face serious consequences if you have broken any laws, even by mistake. We recommend hiring a tax consultant if you are not sure how to properly file your tax report in Italy.
Conclusion
Applying for dual citizenship in Italy comes with its own set of rather complex tax laws and requirements. While there are many advantages of dual citizenship for USA citizens, you must assess your situation before making the move. Indeed, there are treaties in place that help you avoid extra taxation because of your dual citizenship. However, there are also several technicalities you need to be mindful of.
If you are a dual citizen who does not spend most of their time in Italy, you do not need to worry about paying taxes. Of course, if you own any Italian assets, you will be taxed accordingly. Generating income in Italy is also taxable per the percentages we have outlined above.
If you have questions about applying for Italian citizenship, you can contact our IDC professionals at (213) 277-8705.
This article has been written to provide general information and is not presented as legal advice or to be taken as legal advice. The information in the article is subject to change without notice. We always recommend consulting with an international Italian tax lawyer who specializes in the field.
This page was last updated by Jason LoPresti
