Increase in IVIE and IVAFE
Starting from FY 2024, the rate of IVIE, the tax on the value of foreign (non Italian) real estate located abroad, will increase from 0.76% to 1.06%. This increase applies generally to all real estate situated outside Italy by a Italian tax resident.
IVAFE, the tax on the value of financial assets held abroad, increases from 2 per thousand to 4 per thousand (0.2% to 0.4%), but the new higher rate will only apply on the value of financial products held in States or territories with a privileged tax regime – “black list” jurisdictions and again will apply from FY 2024 onward.
The changes are made by paragraph 91 of Law No. 213 of 30 December 2023, the 2024 Finance Law, amending Article 19 of Decree-Law No. 201 of 6 December 2011 governing the two wealth taxes, IVIE and IVAFE.
Table of Contents
Italian Reporting Obligations and Wealth Taxes on foreign (non Italian) property
Italian resident taxpayers who own real estate, bank accounts, valuables and financial investments outside Italy are required:
- to report these assets in their annual tax return (the Section RW); and
- account for the two wealth taxes:
- the real estate wealth tax – IVIE (Imposta sul valore degli immobili situati all’estero); and
- the tax on financial investments – IVAFE (Imposta sul valore delle attività finanziarie detenute all’estero)
which are both taxes due on the capital value of assets held, or deemed to be held, outside Italy.
The objective of the legislation
The intention of the legislator in introducing these taxes is:
1) to track foreign assets held by residents of Italy in order to combat tax avoidance and other financial crimes through the use of offshore (non Italian) structures and investments;
2) to reduce the scope for any discrimination against the ownership of assets situated in Italy (which are subject to stamp duties, property ownership tax and other indirect taxes) in favour of investment in assets abroad, which might be exempt such taxes.
These reporting obligations and taxes apply even where assets are beneficially owned via an agent, through a trust or other entity (for example, a foundation) acting as nominee.
Tax return reporting and compliance
Reporting Foreign Assets
The two taxes are closely linked the to the foreign asset reporting requirements contained in Section RW in the annual Italian tax return (Form 730 or PF “Unico”). This is the section of the tax return in which a resident taxpayer (who does not have the benefit of a statutory exemption) needs to disclose the ownership and value of foreign real estate, bank accounts, and “foreign assets of a financial nature”.
The term “foreign assets of a financial nature” is interpreted widely by the Italian Tax Agency as evidenced in the tables of codes to be used for reporting the asset in the instructions to the annual tax return. These are the various categories to be reported:
- Shares In The Capital Or Equity Of Non-Resident Companies
- Foreign Bonds And Similar Securities
- Foreign Securities And Certificates Issued By Non-Residents
- Foreign Currencies On Deposit And Current Accounts
- Italian Public Securities Issued Abroad
- Contracts Of A Financial Nature Concluded With Non-Resident Counterparties
- Life Insurance And Capitalisation Policies
- Derivative Contracts And Other Financial Transactions Concluded Outside Italian Territory Of The State
- Precious Metals In Unwrought Or Monetized State Held Abroad
- Participations In Trusts, Foundations Or Other Legal Entities Other Than Companies
- Pension Funds Managed By Foreign Entities
- Other Financial Instruments, Including Those Of A Non-Participating Nature
- Other Foreign Financial Assets And Virtual Currencies
- Immovable Property
- Registered Movable Property (e.g. Yachts And Luxury Cars)
- Works Of Art And Jewellery
- Other Assets
- Foreign Immovable Property Used As Main Residence
- Foreign Securities Deposit Accounts
- Cryptocurrencies
Reporting Exemptions
Assets which are held via an Italian intermediary such as an Italian resident bank or authorised financial institution do not need to be reported in the owner’s annual tax return, since the bank or financial institution will report the ownership information directly to the Italian Tax Agency.
Exemption from the obligation to disclose the assets and pay the tax applies, inter alia to individuals to whom, for any tax year, either of the two following regimes apply:
- the 7% flat tax regime for pensioners who transfer their residence to a qualifying municipality in Regions of the South or Central Italy, or
- the annual Euro 100,000 flat tax regime applicable to non Italian source income.
If a taxpayer is not required to file an annual Italian tax return, e.g. because they are under the threshold limits or all their income has been taxed at source, they still need to file an return – section RW – to report any foreign assets and account for any tax.
Payment Deadlines
The payment of IVIE and IVAFE must generally be made at the same time as personal income tax liabilities arising from an annual tax return.
Therefore, in general, on or before the 16 of June each year the taxpayer needs to pay the balance of the IVIE/IVAFE tax due for the previous year plus a payment on account of the current year liability (approximately 40% of the prior year liability. The second instalment equal to approximately 60% of the prior year liability must be paid on or before 30 November. It is possible to reduce payments on account where assets have been disposed of thus reducing the potential tax liability.
Note that the deadlines for payment and the actual amounts can be subject to last minute change. Certain threshold and exemptions for small amounts apply.
Penalties
The Italian penalty regime is complex, and penalties for failing to report and pay any tax due are steep. Given that the reporting and payment obligation arise each year, it is possible that penalties will be applied for each year that remains open to assessment. This could mean penalties are applied for up to seven tax years.
For any year that an asset that should have been reported but has not, a penalty of up to 3% of the value of any asset not disclosed can be applied. The rate is 6% for assets held in tax havens.
For unpaid tax the penalties can be as much as 100% of the tax not paid, although it is usually possible to reduce these penalties by prompt payment following a Tax Agency audit or enquiry.
Further penalties can be applied where no tax return has been filed or where the Tax Agency consider that a return that has been filed is “untrue”.
Where a taxpayer realises that for prior years foreign assets have not been reported correctly or tax not paid, it is worth considering voluntary disclosure under the “ravvedimento operoso” rules.
Rates of Tax
IVIE is payable at the rate of 1.06% starting from FY 2024 (0.76% prior to that) of the value as defined below. The rate is reduced to 0.4% for buildings used as a main residence. There is also relief if the total tax (calculated on a 100% ownership share) is less than Euro 200 per annum.
The tax is calculated on the value of “financial products” in proportion to the taxpayer’s share of ownership and the length of time the assets are held over the year. The rate is Euro 2 per thousand (0.2%). A higher rate of 0.4% applies to financial products situated in tax havens.
For current accounts and savings accounts held abroad the rate is a fixed Euro 34.20 per foreign account, regardless of the amount held on the account.
No tax is due if the average balance over the year shown in the bank statements is lower than Euro 5,000 taking into consideration all accounts held abroad with the same financial institution.
The requirement to declare the existence of the bank account in the RW section of the Italian tax return only applies if the maximum value during the year on the account exceeds 15,000. However if there is a liability to IVAFE (due to exceeding the Euro 5,000 threshold described above, then the bank account will need to be reported in the RW.
The Taxable Base – the “Value” for Tax Purposes
Tax base/value of real estate abroad
The taxable amount varies according to the State in which the property is situated.
Properties located in the EU/EEA
For properties located in countries inside the European Economic Area the value to be used is the land registry value, as determined under the rules of the country in which the land is situated. If there is no land registry value (e.g. in France, or the Republic of Ireland) then reference must be made to the cost as shown in the deed of purchase and if there is no information regarding the cost, then market value should be used.
Properties situated in other states
For other countries, the taxable amount is the cost as shown in the deed of purchase or by agreement or, failing that, by the market value. If the taxpayer is not able to demonstrate what the purchase price actually was, for example because deeds or title documents have been lost then the Tax Agency can apply the current market value.
Lesser Rights Over Land
If the resident taxpayer has a right over property other than full legal title (e.g. a long lease, a registered licence to use or occupy), the value should be based on the value shown in any purchase contract or the relevant regulations or criteria established by the legislation of the country where the property is located.
Real estate acquired by gift or donation
For property acquired by inheritance or donation, the value to be used is the value shown in the declaration of inheritance or in a deed of gift in the manner provided for under foreign rules. In the absence of evidence of the acquisition value the market value must be used.
Excluded assets
From 1 January 2016, IVIE will not apply to the possession of the main and appurtenances thereto and the marital home assigned to a spouse, as a result of legal separation, annulment, dissolution or termination of the civil effects of marriage.
Tax value for financial products
The value for purposes of IVAFE will generally be the market value. As the tax applies to financial products (ie. investments managed by banks or other financial intermediaries) this will generally be a relatively easy matter for single assets or portfolios of assets. The value to be reported is the year end value (and the opening value also needs to be shown. Where assets are bought and disposed of during the year the value to be shown by way of opening value is the value at the date of purchase and the closing value is the value at the date of sale. Where a taxpayer has an investment in an actively managed portfolio of shares with acquisitions and disposals during the course of the year then the administrative task become difficult as values need to be pro-rated during the year. The Tax agency have confirmed that it is possible to lump all the investments together and just report the opening value and closing value of the portfolio.Exclusions and Exemptions
There are a number of investments which are not subject to the tax, such as certain kinds of occupational pension funds.For current accounts and savings accounts held abroad the rate is a fixed Euro 34.20 per foreign account, regardless of the amount held on the account. No tax is due if the average liquidity over the year shown in the bank statements is lower than Euro 5,000 taking into consideration all accounts held abroad with the same financial institution. Note that the requirement to declare the existence of the bank account in the RW only applies if the maximum value during the year on the account exceeds 15,000. However if there is a liability to IVAFE (due to exceeding the Euro 5,000 threshold described above, then the bank account will need to be reported in the RW.
Credit for foreign taxes
If a “similar” capital tax is paid in the foreign country, it is possible to claim credit for the tax. The credit cannot in any case exceed the tax payable in Italy.
By “similar” the legislator intends a wealth tax – a tax on the ownership or possession of property but not a tax payable in consideration of the provision of services by any governmental or local authority. So for example the Italian authorities have determined that UK council tax is not a wealth tax but a tax paid in consideration of the provision of services.
No credit is available if the country in which the financial asset is held has an agreement with Italy for the avoidance of double taxation which covers (which also covers wealth taxes) and which provides that this kind of tax is due only in the country in which the taxpayer is resident. In such cases the Italian resident taxpayer may, according to the Italian Tax Agency, have a right of refund from the country where the asset is located.
Relevant Legislation and Guidance
Legislation
The reporting obligations (for the purposes of “monitoraggio fiscali“) are contained in art. 4 of Decree-Law No 167 of 28/06/1990 published in the Official Gazette no. 151 of 30 June 1990 enacted by law n. 227 of 04/08/1990.
IVIE & IVAFE were introduced into Italian law by Art. 19, paragraphs 13-21, D.L no. 201/2011 (“Monti Decree”) converted into law by L. 214/2011.
Article 8, paragraphs 16 and 17, of Decree-Law No. 16 of 2 March 2012 with further amendments made upon conversion by Law No. 44 of 26 April 2012 enacted further changes to the rules.
Tax Agency Guidance
Order of the Director of the Revenue Agency of 5 June 2012
Tax Agency Circular 28/E of 2 July 2012 – Main circular explaining the functioning of the two taxes
Tax Agency Circular 48/E of 21 December 2012
Resolution 27/E 19 April 2013 – tax payment codes
Tax Agency Website (in Italian) – IVIE
Tax Agency Website (in Italian) – IVAFE
Tax Agency Instructions for the compilation of the annual income tax return (FY 2022×2021)
