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Foreign income and investments: how to manage them in Italy

Introduction

Many foreigners who move to Italy maintain an economic link with their country of origin: a family home, a current account, a share portfolio, perhaps some cryptocurrency. As long as you live abroad, these assets are subject to a different tax system. But once you become a tax resident in Italy, the situation changes: you must declare everything you own worldwide to the Italian Revenue Agency, not just what you own in Italy.

This article briefly outlines the main obligations relating to foreign income and investments: the IVIE and IVAFE wealth taxes, the RW monitoring section, and how to avoid paying tax twice on the same income.

The general principle: anyone resident in Italy pays tax on everything they own worldwide

Once you have acquired tax residence in Italy, the principle of worldwide taxation applies, as governed by the Consolidated Income Tax Act. In practice, all income received by an Italian resident, wherever it is generated, must be declared in Italy. This applies to rent received abroad, dividends from foreign securities, interest on an account held with a bank in another country, and capital gains realised on the sale of a property outside Italy.

IVIE: the tax on overseas property

The IVIE (tax on the value of property located abroad), introduced by Law 214/2011, is the overseas equivalent of the IMU. From 2024, the standard rate is 1.06% (it was 0.76% until 2023), calculated on the property’s cadastral value (if it is located in an EU or EEA country that guarantees an adequate exchange of information) or on the purchase price (for properties located elsewhere).

Some useful practical points to bear in mind:

IVAFE: the tax on foreign accounts and investments

The IVAFE (tax on the value of financial assets held abroad) works in a similar way, but applies to accounts, securities and financial instruments rather than property. The standard rate is 2 per thousand (0.2 per cent) of the market value as at 31 December, and applies to shares, bonds, funds, ETFs, insurance policies and even crypto-assets.

For current accounts and savings accounts held abroad, however, there is a specific rule: the tax is paid at a fixed rate, similar to the stamp duty on Italian accounts. Finally, particular attention should be paid by those holding assets in countries considered non-cooperative for tax purposes (the so-called blacklist): in these cases, the rate doubles, rising to 4 per thousand.

Section RW: monitoring of foreign assets for the tax authorities

In addition to the above, it is worth noting the existence of a second level of reporting obligations, distinct from income taxation. The mere fact of owning an asset abroad, even if it does not generate any income – such as a dormant current account or an unoccupied property – triggers an obligation to report to the tax authorities, regardless of whether this gives rise to taxable income. In Italy, therefore, there is a requirement to submit the RW section annually (or section W, for those filing Form 730), which constitutes the section of the tax return dedicated to so-called ‘tax monitoring’, governed by Decree-Law 167/1990. Essentially, it serves to inform the Italian Revenue Agency of any investments and assets held outside Italy.

This obligation applies to individuals who are tax residents in Italy and who, during the year, have held foreign investments, foreign financial assets or crypto-assets. Even holding such assets for just one day counts. If an account was opened and closed in the same year, it must still be declared for the period during which it existed.

Among the most common assets to be reported are property located abroad, current accounts and savings accounts, securities, bonds, funds, ETFs, financial policies and crypto-assets held on exchanges, whether Italian or foreign.

Not everything always needs to be declared; there are some exceptions. The most common relate to:

The RW section is submitted together with the income tax return, and therefore follows the same deadlines as the ‘Redditi Persone Fisiche’ form or the 730 form. The payment of IVIE and IVAFE, where due, follows the standard deadlines for IRPEF, the personal income tax.

Failing to complete or completing incorrectly the RW section exposes you to penalties that can be very costly, ranging from 3% to 15% of the undeclared value, doubled (6%–30%) for assets held in blacklisted countries. It is worth noting that, thanks to the automatic exchange of information between tax authorities (CRS and FATCA, which are now being supplemented by the tracking of crypto-assets), the Italian Revenue Agency is often already aware of accounts and investments held abroad. If you realise you have made a mistake or an omission, it is therefore advisable to take action before an audit takes place: voluntary disclosure allows you to regularise your position with reduced penalties.

The tax credit to avoid double taxation

It may seem that, due to the principle of worldwide taxation, the receipt of foreign income by an Italian resident could lead to double taxation (once in the country of origin and once in Italy as a result of re-declaration). In reality, there is a complex regulatory framework that provides for ways to avoid this situation.

Generally, if income has already been taxed in the country where it was earned and is subsequently declared in Italy, the TUIR grants a tax credit, up to the limit of the Italian tax due on that same income. This is complemented by double taxation conventions, bilateral agreements that Italy has signed with most countries and which can further allocate or limit the right to tax between the two states: it is always worth checking whether there is a convention with your country of origin.

Referring back to the previous in-depth analysis on tax regimes for those moving to Italy, we would like to highlight the special scheme for new residents provided for in Article 24-bis of the TUIR. Among its advantages, in addition to the flat-rate substitute tax on foreign income, there is also exemption from tax monitoring obligations (Section RW) and from the payment of IVIE and IVAFE on assets held abroad, for the entire duration of the option. For those with substantial assets outside Italy, this is a factor that can make a significant difference when choosing the most suitable tax regime, although this should always be assessed with the help of a professional on a case-by-case basis.

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