Between the exquisite food, the rich history and culture, and the diverse landscapes — from big cities to seaside villages to rolling hills — who hasn’t dreamed of packing it all up and moving to Italy? Thanks to the rapid growth of remote work in recent years, that dream is more achievable than ever.
Of course, before making a transatlantic move, you’ll need to think about practical considerations, like taxes, first. While taxes for US expats can be complex, we have years of experience helping Americans all around the world navigate theirs — and we’re here to break things down for you.
Snapshot of Taxes in Italy
Primary tax forms: Modello 730, Modello Redditi PF
Tax deadline: September 30th for Modello 730, November 30th for Modello Redditi PF
Reporting website: SPID (Public Digital Identity System)
Administrative language(s): Italian
Tax treaty: Yes
Totalization agreement: Yes
Taxes in Italy for foreigners
Taxation in Italy varies depending on tax residency status. Italian tax residents are subject to taxation by the Italian government on worldwide income, while non-tax residents are only subject to taxation on Italian-sourced income.
If you are a tax resident, or a non-tax resident who earns Italian-sourced income, then you must file a tax return, unless:
You work for a single employer that withholds your income taxes from your paycheck
You earn less than €8,000 in employment income, or €7,500 in retirement income
Employees and retirees file Modello 730, while the self-employed and non-tax residents file Modello Redditi PF.
Related: US Expat Taxes in 2023: A 12-Step Guide to Filing Success
Who qualifies as a tax resident in Italy?
Italy defines tax residents as those who live in the country for more than 183 days in a year and have either:
Registered as official residents, OR
Established a habitual abode in Italy, OR
Made Italy the center of their business, economic, or social interests (e.g. having a family there)
To stay in Italy for longer than 90 days, you’ll need a long-stay visa, also called a D-Visa/National Visa. Some of the most common long-stay visas that Americans living in Italy hold include:
Italy Work Visa
For those who have been offered a job by an Italian employer.
Italy Self-Employment Visa
For freelancers, small business owners, entrepreneurs, independent contractors, and other self-employed individuals.
Italy Student Visa
For those enrolled at an educational institution in Italy.
Italy Family Reunification Visa
For the spouses, minor/dependent children, or dependent parents of Italian citizens or Italian residents.
Italy Elective Residence Visa (Italy Retirement Visa)
For those who earn enough in passive income (or have enough in savings) to financially support themselves.
Italy Digital Nomad Visa (pending!)
While not yet officially launched, Italy has approved a visa that would allow highly-skilled digital nomads to legally work and live in the country for one year, with the possibility to renew afterward.
Obtaining Italian Citizenship by Descent
Italy offers a pathway to citizenship for those who can prove via official documentation that they are directly related to an Italian citizen, which can be an option for Americans with Italian heritage (although it takes longer than getting a visa).
What’s the tax-governing authority in Italy?
Agenzia delle Entrate
The Agenzia delle Entrate, or Italian Revenue Agency, is Italy’s tax-governing body, primarily responsible for educating and assisting taxpayers, collecting taxes, and enforcing compliance.
Income tax rates in Italy
In Italy, there are three levels of income tax: national, regional, and municipal. The national income tax rates in Italy for the 2023 tax year are as follows:
Taxable Income (EUR)
Taxable Income (USD)
Tax Rate
€0 – €15,000
~$0 – $16,526
23%
€15,001 – €28,000
~$16,527 – $30,847
25%
€28,001 – €50,000
~$30,848 – $55,084
35%
€50,001+
~$55,085+
43%
Regional income taxes range from 1.23% to 3.33%, while municipal income taxes range from 0% to 0.9%.
There are a few different property taxes in Italy:
Buyers generally pay:
Imposta di registro:The tax for registering properties, ranging from 2% – 9% for properties bought from individuals, or €200 for those bought from IVA-registered businesses (e.g. developers, real estate companies)
Imposta catastale: The tax for registering land. Properties bought from individuals are charged €50, while properties purchased from businesses are charged €200.
IVA: A sales tax applied only to properties purchased from businesses, charged at a rate of 4% for first-time homeowners, 10% for second homes or homes the owner won’t live in, and 22% for luxury homes
Imposta ipotecaria: The mortgage tax, charged at a rate of €50 for properties purchased from individuals or €200 for properties purchased from businesses
Owners generally pay:
Imposta Municipale Unica (IMU): The property ownership tax, charged at an average rate of 1.06%. Does not apply to primary residences unless they’re considered luxury properties
Tributo per i Servizi Indivisibili (TASI): The public services tax. Rates vary from municipality to municipality
Residents — whether or not they are also owners — generally pay:
Tassa sui rifiuti (TARI): The waste collection tax. Rates vary widely from municipality to municipality
Capital gains tax in Italy
Those who earn income from selling certain assets (e.g. real estate, stocks, dividends, etc.) are charged at a flat rate of 26% of the net gains.
Payroll tax in Italy
Employees have their income taxes withheld from their paychecks by their employers according to the rates mentioned above, while social security taxes are withheld at an average rate of 10%.
Those who are self-employed, however, have no employer to withhold these taxes, and must therefore make these payments proactively.
Do I have to pay social security in Italy?
A totalization agreement prevents American expats in Italy from paying social security taxes to both governments, but which country they pay social security taxes to depends on how long they will be living in Italy:
0-5 years: Pay US social security taxes
5+ years: Pay Italian social security taxes
VAT
The value-added tax in Italy — referred to locally as the Imposta sul Valore Aggiunto (IVA) — has a standard rate of 22%, although there are exceptions:
10% IVA: Power supplies, certain drugs, etc.
4% IVA: Certain food, drinks, etc.
Exempt from IVA: Educational/insurance/certain financial services, etc.
What are the filing deadlines in Italy?
Italy’s tax deadlines depend on which of two forms a taxpayer must submit:
Modello 730: September 30th
Modello Redditi PF: November 30th
Do US expats living in Italy also have to file US taxes?
Yes. All US citizens and permanent residents who meet the minimum income reporting requirements must file a tax return, even if they don’t live in the country. While they still must pay any taxes owed by April 15th, Americans abroad are granted an automatic filing extension until June 15th which can be extended further to October 15th.
Does Italy have a tax treaty with the US?
Yes, Italy has a tax treaty with the US designed to prevent double taxation on income and capital gains. However, it contains a clause that allows the US to tax its citizens as if the treaty didn’t exist, so its benefits are limited. The safest bet to avoid double taxation is by taking advantage of the tax breaks mentioned below.
Common tax breaks for expats in Italy
Foreign Tax Credit (FTC)
The FTC allows Americans abroad to claim foreign tax credits against US tax due, provided that the taxes are a) legal, b) made out in the individual’s name, c) based on income, and d) must be paid.
By claiming these credits, the vast majority of US expats in Italy won’t end up owing any US income tax. To do so, file Form 1116 along with your federal tax return.
Foreign Earned Income Exclusion (FEIE)
The FEIE lets US expats exclude the first $120,000 (as of tax year 2023) of their earned income from taxation. Those eligible for the FEIE can also write off qualified housing expenses (e.g. rent, utilities, occupancy taxes) through the Foreign Housing Exclusion. To be eligible for the FEIE, you must meet one of two tests:
Physical Presence Test
Americans who have been outside of the US for 330 days in a 12-month period meet the Physical Presence Test.
Bona Fide Residence Test
Americans who are official residents of another country and can prove it with official documents (e.g. residence cards, rental contracts, utility bills) meet the Bona Fide Residence Test.
The Child Tax Credit allows Americans — both stateside and abroad — to claim partially-refundable tax credits. Expats typically receive up to $1,500 per qualifying child/dependent.
Tax implications of renting out your US residence while in Italy
If you own property in the US, renting it out can help subsidize the cost of living in Italy — you’ll just have to report rental income and expenses on Form 1040. However, because this income is passive rather than earned, it can’t be excluded through the FEIE.
Rental income while living in Italy: Frequently Asked Questions
If I own a rental property in the US or outside of Italy, do I have to report it to Italy?
Tax residents in Italy are required to report worldwide income, which includes rental income from foreign properties. Because non-tax residents only have to report Italian-sourced income, though, they don’t have to report foreign rental income to Italy.
Which country do I pay taxes to on my rental property income?
Non-tax residents only pay taxes on rental income from a US property to the US government. Tax residents, however, would be subject to taxation by both governments. Fortunately, they can avoid double taxation by claiming the FTC.
US expats living in Italy may need to file an FBAR
If you have more than $10,000 in aggregate in foreign financial accounts at any time during the tax year, you must file FinCEN form 114, better known as a Foreign Bank Account Report (FBAR).
If you have financial assets registered outside the US worth over $200,000 on the last day of the tax year, or over $300,000 at any point in the tax year, you must declare them on Form 8938. Note that this threshold is much lower for those who reside in the US.
I’m a US expat who’s lived in Italy for years. Do I owe past US tax returns?
Yes. A US citizen or permanent resident must file a tax return for any year they reach the minimum income threshold. If you failed to file any in the past, you should do so as soon as possible.
Catch up on US taxes with the Streamlined Procedure
Thankfully, the IRS offers an amnesty program called the Streamlined Procedure that lets expats who weren’t aware of their previous tax obligations catch up on them with no penalties. To qualify, you must a) not have already been notified about outstanding taxes, b) not currently be under IRS investigation, and c) certify that your earlier failure to file was unintentional.
US expat taxes made easy for Americans in Italy
When you’re moving to a new country (especially one as enchanting as Italy), you want to be spending your time exploring the area and meeting new people — not scouring the IRS website for information, or knee-deep in tax forms.
At Bright!Tax, we’ll partner you with a CPA that specializes in your needs, so you can get your taxes done on time, accurately, and with as low of a bill as possible — all without having to do the heavy lifting yourself.
Reach out today to schedule a free consultation with one of our CPAs!
US expats in Italy need to be aware of two different national tax systems. First, virtually all US citizens are required to file an annual US Federal tax return, regardless of whether they live in the United States or Italy. Second, by living in Italy, American expats also can be subject to Italy taxation.
In conclusion, Italy does tax retirement income, including US social security benefits, but there are tax treaties and agreements in place to avoid double taxation. As a retiree in Italy, you may also be subject to Italian social security contributions if you work or have income in Italy.
The new double taxation agreement allows the United States to tax US branches of Italian companies. The new treaty also allows Italy to tax a foreign company on a dividends equivalent amount. The agreement also changes the way pensions and other benefits are taxed.
An individual who is registered with the Registry of the Resident Population for less than 183 days in a calendar year is generally considered a non-resident for tax purposes (although other factors have to be taken into consideration) and is thus subject to taxation only on Italian source income.
If you decide to retire in Italy, income tax is charged at 7% per annum for up to 10 years. Additionally, other foreign-sourced income can be disregarded for tax purposes as long as a Dual Tax Treaty or Tax Information Exchange Agreement exists between Italy and the other country.
In order to be among the lucky ones who can enjoy promising tax breaks, certain requirements must be met: first, the 7% flat tax applies to nonresident, foreign pensioners, regardless of whether they are foreigners or Italians residing abroad.
If you have savings of at least €175,000 ($200,000) and a steady source of income from social security, a pension or investments of around €1,750 ($2,000) to €2,300 ($2,650), you can afford to retire here comfortably.
The Italian system provides a range of benefits for workers, which the government and health agencies manage. These include employment-related benefits such as sickness, disability, and unemployment payments, maternity and family allowances, and survivor pensions.
You Can Reduce or Eliminate US Taxes for Expats with the Foreign Earned Income Exclusion. For the 2022 tax year, you may be able to exclude up to $112,000 of foreign-earned income from US taxation with the Foreign Earned Income Exclusion! This is the most common way expats reduce or eliminate their US tax liability.
You should not have been a resident of Italy in the last 5 tax years prior to moving to Italy. This means that you may have been a tax resident of Italy 5 years ago or more and still qualify. Finally, you must settle in a qualifying municipality.
Tuscany. If your retirement plan involves sipping local wine, then Tuscany is the perfect region for you. Expats who have already moved to this part of Italy are in love with its rolling green landscape, extensive vineyards and unbeatable chianti wine.
Well, if you qualify for the Foreign Tax Credit, the IRS will give you a tax credit equal to at least part of the taxes you paid to a foreign government. In many cases, they will credit you the entire amount you paid in foreign income taxes, removing any possibility of US double taxation.
While yes, U.S. citizens file a yearly tax return even if they live abroad, U.S. expats don't usually end up owing anything. While there is no overarching tax exemption for U.S. citizens living abroad, there are a variety of mechanisms in place to prevent Americans from being double taxed on foreign-earned income.
How Benefits Can Be Paid. If you have Social Security credits in both the United States and Italy, you may be eligible for benefits from one or both countries. If you meet all the basic requirements under one country's system, you will get a regular benefit from that country.
LONG TERM SCHENGEN TOURIST VISA (V.S.U.) (5 YEARS)
Anyone wishing to make a real estate investment in Italy who does not intend to transfer residence can obtain a long term Schengen visa (5 years), if the requirements of their stay in the country do not exceed 90 days every 6 months.
If you meet the requirements and willfully fail to file an FBAR you can be fined up to the greater of $124,588 or 50% of the total balance in all your overseas accounts. If you meet the requirements and fail to file FATCA Form 8938 you can be fined from $10,000 up to $50,000 if you don't act timely.
While a visa is unnecessary if you're merely visiting Italy from the U.S., you'll need to apply for one in order to gain permanent residency. You will also have to provide proof of sufficient retirement funds with which you can support yourself.
The special tax regime is applicable to employment income, self-employment income and personal business income produced in Italy and provides a 70% exemption for five years (50% for professional athletes).
Does Italy Tax Foreign Income? Taxpayers who are considered residents of Italy will pay taxes on their income worldwide. Those who are not tax residents of Italy will pay taxes only on their income from Italian sources.
You are entitled to old age benefits if: you have accrued at least 20 years of contributions; you have met the new minimum age requirements (adjusted over time based on life expectancy) which is 67 years for both men and women (applying till 2026); you have stopped working.
To answer this question, let's take a quick look at the average basic living expenses in Italy per month. Based on this, we can say that the average cost of living in Italy per month is around €1,600 (US$1,730). Sadly, that's pretty high compared to the average salaries!
You'll need to maintain your investment as long as you want to keep your visa. After 5 years, you can apply for permanent residency in Italy which will no longer oblige you to maintain your investment level. Cost: Free.
Ecuador. If you're looking for a country where you can retire outside the US comfortably with $800 per month and experience one of the most ecologically diverse places in the world, then Ecuador might be for you. The go-to city for US retirees in Ecuador is Cuenca, which also happens to be a UNESCO World Heritage site.
All legal residents, both Italians and foreigners, have the right to public healthcare. These services are usually free-of-charge or subject to a symbolic cost and are provided by the Servizio Sanitario Nazionale (SSN).
Universal coverage is provided through Italy's National Health Service (Servizio sanitario nazionale, or SSN), established through legislation in 1978. The SSN automatically covers all citizens and legal foreign residents.
The codice fiscale is a personal identification number (similar to the Canadian Social Insurance Number) assigned by the Agenzia delle Entrate (Italian Revenue Agency), and serves to identify every Italian citizen (or eligible foreign citizen) in their interactions with Italian government offices and agencies, no ...
Further, expatriated individuals will be subject to U.S. tax on their worldwide income for any of the 10 years following expatriation in which they are present in the U.S. for more than 30 days, or 60 days in the case of individuals working in the U.S. for an unrelated employer.
Expatriation is the process of relinquishing U.S. status. It includes both U.S.Citizens and Green Card Holders (aka Legal Permanent Residents) who meet the definition of a Long-Term Resident (LTR). The baseline perspective is that formal expatriation rules apply to US Citizens and Lawful Permanent Residents.
Most US expats will not owe US taxes thanks to certain expat tax benefits such as the FEIE (Foreign Earned Income Exclusion), FTC (Foreign Tax Credit), and international tax treaties. As US taxpayers abroad may deduct or exclude tax debt, qualifying expats may see a payment for refundable tax credits.
Italy generally runs a progressive tax system with rates fluctuating between 23% and 43% on personal income tax. However, corporate income tax is fixed at 24%, although there are add-ons, such as a 3.9% regional production tax.
Reduced rates are provided for specifically listed supplies of goods and services, such as 4% for listed food, drinks, and agricultural products, and 10% for electric power supplies for listed uses and listed drugs.
Taxation of an individual's income in Italy is progressive. In other words, the higher the income, the higher the rate of tax payable. In 2023 the tax rate for an individual is between 23%-43%, In addition to direct taxation (IRPEF), there is also a regional tax of 0.7%-3.33% and a municipal tax of 0%-0.9%.
Con: The cost of living can get quite high in the main cities. The high cost of living is a common problem associated with living in major cities throughout Italy. Many people who are moving to the country have no idea how much it'll cost them, and they can be caught off guard by some unexpected expenses.
Filing Taxes with the IRS While Living in Another Country
United States citizens who work in other countries do not get double taxed if they qualify for the Foreign-Earned Income Exemption. Expats should note that United States taxes are based on citizenship, not the physical location of the taxpayer.
Do I still need to file a U.S. tax return? Yes, if you are a U.S. citizen or a resident alien living outside the United States, your worldwide income is subject to U.S. income tax, regardless of where you live. However, you may qualify for certain foreign earned income exclusions and/or foreign income tax credits.
If your employer hired you to work in an agreement country, you generally will pay social security taxes only to that country. This also applies if you are in a country to work for more than five years. You will be exempt from paying U.S. Social Security taxes1.
The United States and Italy have several tax agreements in place, including a FATCA Agreement and a Totalization Agreement. The purpose of the tax treaty is so Taxpayers can determine what their tax liability is for certain sources of taxable income.
If you are a resident of both the United States and another country under each country's tax laws, you are a dual resident taxpayer. If you are a dual resident taxpayer, you can still claim the benefits under an income tax treaty.
If you're an expat and you qualify for a Foreign Earned Income Exclusion from your U.S. taxes, you can exclude up to $108,700 or even more if you incurred housing costs in 2021. (Exclusion is adjusted annually for inflation). For your 2022 tax filing, the maximum exclusion is $112,000 of foreign earned income.
In conclusion, Italy does tax retirement income, including US social security benefits, but there are tax treaties and agreements in place to avoid double taxation. As a retiree in Italy, you may also be subject to Italian social security contributions if you work or have income in Italy.
If you spend more than six months a year in Italy, or if Italy is the center of your personal or professional interests, you must file your taxes in Italy. If you are a resident in Italy for 183 days (about 6 months) in a year, you will likely need to file Italian taxes.
during the extension period, the tax exemption drops to 50%, but can increase to 90% for impatriates who purchase real estate in Italy in the first five year period and who at the end of that period have at least three dependent children under the age of 18.
Do I still need to file a U.S. tax return? Yes, if you are a U.S. citizen or a resident alien living outside the United States, your worldwide income is subject to U.S. income tax, regardless of where you live.
Foreigners who are resident in Italy are subject to the same income tax laws as Italian citizens. This means that they must pay taxes on all income earned in Italy, including employment income, self-employment income, real estate investments, capital gains, wealth tax, and inheritance and gift tax.
In general, yes — Americans must pay U.S. taxes on foreign income. The U.S. is one of only two countries in the world where taxes are based on citizenship, not place of residency. If you're considered a U.S. citizen or U.S. permanent resident, you pay income tax regardless where the income was earned.
If you are an American living abroad, you must file a US federal tax return and pay US taxes on your worldwide income no matter where you live at that time. In other words, you are subject to the same rules regarding income taxation as people living stateside.
Being a dual citizen means that a person is considered a citizen/national of two countries at the same time, and is subject to both country's tax laws. Something to remember is that each country has its own laws dictating who qualifies as a citizen.
Filing the 1040 is generally due each year on April 15th (April 18th in 2023) with an automatic extension to June 15th for Americans residing abroad, but if any taxes are due, interest is calculated starting April 15th up to payment date. You can request an additional extension by filing Form 4868.
What is the flat tax for income from abroad? Individuals who transfer their residency to Italy can benefit from a substitute tax on income produced abroad, by paying a fixed tax of 100,000 euro for each tax period in which the option is valid, regardless of the amount of income received.
Some American expats who work abroad may also need to pay US social security and Medicare taxes on their earned income, especially if they are self-employed or work for a US-based employer. For the 2022 tax year, the rate for expat employees is 7.65%. For self-employed expats, however, the total is double, at 15.3%.
The expatriation tax provisions (prior to the AJCA amendments) apply to U.S. citizens who have renounced their citizenship and long-term residents who have ended their U.S. residency for tax purposes, if one of the principal purposes of the action is the avoidance of U.S. taxes.
When a business is organized as a pass-through entity, profits flow directly to the owner or owners. In turn, these are not taxed at the corporate level and again at the personal level. Instead, the owners will pay taxes at their personal rate, but double taxation is avoided.
However, you may qualify to exclude your foreign earnings from income up to an amount that is adjusted annually for inflation ($107,600 for 2020, $108,700 for 2021, $112,000 for 2022, and $120,000 for 2023).
The most convenient way to maintain a functional U.S. address while living abroad is to use a virtual mailbox service that you can activate online. This service scans, holds, and offers mail forwarding services for a few dollars per month.
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Introduction: My name is Foster Heidenreich CPA, I am a delightful, quaint, glorious, quaint, faithful, enchanting, fine person who loves writing and wants to share my knowledge and understanding with you.
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