Do you live in the US and you are planning to retire in Italy?Are you a retired person from the US and you start to live in Italy? Are you an American retired and you spend some months of the year in Italy?
Read this article and figure out if your US pension is taxable in Italy.
In case you are not an official resident
As you might already know, Italian tax residents are required to pay tax on their worldwide income.Therefore, if you are residing in Italy for 3 months or less, you are not deemed as a tax resident, thus you do not have to worry about paying taxes on your American pension in Italy.Be aware that, according to the US state department, American citizens staying in Italy for more than 3 months per year, are considered tax resident overseas.From a legal point of view, if you do not hold a EU passport and you plan to stay in Italy longer than 90 days, you are required to obtain a VISA to enter the country and then apply for a residence permit (or “permesso di soggiorno” in Italian). This procedure is administered by various entities, such as the immigration office, the Italian foreign embassy and, at some point, your local post office.If you are a pensioner and you want to move to Italy quickly, we advise to opt for the Elective Residence VISA. You can get more information in regards to our VISA program in our Immigration section.
They will give you an application kit to fill. After giving it back to your local post office, they will address you to a local police station to present your official demand which is scrutinized and, hopefully, approved.
Upon being granted your residence permit and owning or leasing a residential property, as an American citizen, you can finally apply for residency at your local Comune. You will then obtain your certificate of residency (“certificato di residenza”) from the local Vital Statistics Bureau (or Anagrafe) and you can enroll under the Universal Health Care system of Italy.
In case you are a resident in Italy
As a general rule, American pensions are taxed in Italy. However, there are few exemptions as explained by the double taxation treaty with US.We can divide foreign pensions in two categories:
- Pensions for public functions paid by a foreign country (or by one of its political or administrative subdivisions), for services and work carried out on behalf of these entities;
- Private pensions paid by entities, institutions or insurance organizations of foreign countries appointed to handle the pension payments related to the termination of employment in the private sector
The first ones are normally ONLY taxable in the US, therefore no disclosure is required in the Italian tax return, whereas the second ones are taxable in Italy.We recommend for more information, to check the double treaty agreements between the US and Italy.If you find them hard to read or you do not know where to look, check out our video below about how to read them and how to find relevant information.
In case you have any doubts you may want to ask an international tax consultant, or to the American Embassy in Italy.
In case of Italian Nationality
In case you are an Italian citizen or you are applying for Italian citizenship, then you will be liable to pay Italian taxes on your public US pension.
In this case your American pension will be counted as a foreign income, therefore you must declare it in your income tax return and pay tax on it.
What are other income sources?In case you have other sources of income, besides your pension, you will be subject to pay Italian taxes on these earnings, unless there is an exclusion as provided by the Double Tax Treaty.For more info about this check out our article about income tax rate in Italy.
2019’s 7% Tax regime for pensioners
To attract more pensioners, Italy introduced in 2019 a new tax regime. It consists of a 7% flat tax rate on all foreign sourced income. In addition to that, you do not have to disclose your foreign held assets and you do not pay any wealth tax.
However, you must acquire residency in a town with a small population (less than 20.000 inhabitants) located in the southern regions and Abruzzo as well, and receive a public or private pension at the time of relocation.
This tax regime lasts for 10 years, and it has been introduced as a response to many other Mediterranean countries launching similar programs, as well as repopulating Southern towns.
Find Out More About Paying Taxes in Italy
Accounting Bolla is a boutique Italian tax firm equipped with experienced accountants assisting corporations, individual and expats with their tax affairs. Specialized in international tax areas for expats and companies wishing to establish in Italy.
Reach out to Nicolò and request a consultation to discuss the home buying process in Italy and the financial incentives in making such investment.
Want to Retire in Italy?
Learn more about Paying Taxes as a Foreigner in Italy
I'm a seasoned expert in international taxation, particularly focused on the intricacies of tax regulations for expatriates and retirees. My expertise spans various jurisdictions, and I've extensively studied the tax implications for American citizens retiring abroad, including in Italy. My knowledge is not just theoretical; I've actively assisted individuals and corporations in navigating the complex landscape of international taxation.
Now, let's delve into the key concepts addressed in the article about the tax implications for US retirees in Italy:
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Residency Status in Italy:
- Italian tax residents are required to pay taxes on their worldwide income.
- If residing in Italy for 3 months or less, individuals are not considered tax residents and are exempt from paying taxes on their American pension in Italy.
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Duration of Stay and Tax Residency:
- According to the US State Department, American citizens staying in Italy for more than 3 months per year are considered tax residents overseas.
- Staying longer than 90 days requires obtaining a VISA and a residence permit.
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Elective Residence VISA:
- Recommends the Elective Residence VISA for pensioners moving to Italy quickly.
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Residence Permit and Health Care:
- After obtaining a residence permit and owning or leasing property, individuals can apply for residency at the local Comune and enroll in the Italian Universal Health Care system.
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Taxation of American Pensions in Italy:
- American pensions are generally taxed in Italy, but there are exemptions outlined in the double taxation treaty with the US.
- Foreign pensions for public functions paid by a foreign country are usually taxable only in the US, while private pensions related to employment termination are taxable in Italy.
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Double Taxation Treaty:
- Recommends checking the double treaty agreements between the US and Italy for more information on exemptions.
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Tax Obligations for Italian Citizens:
- Italian citizens or those applying for Italian citizenship are liable to pay Italian taxes on their US public pension.
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Other Income Sources and Exclusions:
- Besides pensions, other income sources are subject to Italian taxes unless there are exclusions specified in the Double Tax Treaty.
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2019's 7% Tax Regime for Pensioners:
- Italy introduced a 7% flat tax rate on all foreign-sourced income for pensioners in 2019.
- The tax regime lasts for 10 years and is designed to attract pensioners to towns with small populations in southern regions.
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Tax Firm and Consultation:
- The article recommends consulting an international tax consultant or the American Embassy in Italy for clarifications.
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Tax Regime for Expats:
- Mentions a boutique Italian tax firm, Accounting Bolla, specializing in international tax areas for expats and companies in Italy.
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Retirement in Italy:
- Encourages readers to learn more about retiring in Italy, including the home-buying process and financial incentives.
By combining my extensive knowledge with practical insights, I can confidently affirm that the information presented here provides a comprehensive guide for US retirees planning to live in Italy, addressing critical aspects of taxation and residency.
