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 “effectively” 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
A table of reporting codes can be found here.
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 to 300,000 flat tax regime applicable to non Italian source income.
Even if a taxpayer is not otherwise required to file an annual Italian tax return, e.g. because they are under the income threshold limits or all their income has been taxed at source, they still need to file a 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.
It is a sister tax to IMU. IMU applies on the value of property located in Italy.
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. The tax is a fixed amount and is not a percentage of the closing balance, which still needs to be reported. Note that in this context we are talking about standard current and deposit accounts. A variable rate of tax may apply to accounts which are “wrappers” for underlying investments, i.e. deposits with other financial institutions, bank accounts where funds are invested in financial securities or foreign currency trading /investment accounts.
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. If multiple accounts are held with the same financial institution totalling more than (the equivalent) of Euro 5,000 then, according to the Tax Agency instructions for compilation of the annual tax return, the Euro 34.2 is due for each of the accounts.
The requirement to report 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 anyway need to be reported in the RW.
The value in Euro at the beginning or the Italian tax year (the calendar) and at the end needs to be reported on an asset by asset basis (or at least on the basis of crypto assets held in the same wallet or trading account) needs to be reported. Tax will be applied on the year end value (or on the date of disposal for assets that have been sold in the course of the year at the rate of 0.2% (or 0.4% where the wallet is held, or an account is held, in a tax haven jurisdiction). The Tax Agency appear to take the view that if no country is, or can be reported as the country in which the assets are held then the higher 4% rate will apply. If Crypto assets are held for only part of a year, the tax is reduced for the period of ownership.
Accurately reporting ownership of Crypto assets (and transactions during the year that may give rise to taxable income or gains), and sometimes difficulties in obtaining the certification of income, gains and values, necessary to comply with Italian tax reporting obligations, the recommendation is, generally (as it is for other financial investments, for Italian tax residents, to invest in Crypto assets via an authorised, regulated Italian financial intermediary who will handle the tax reporting on their behalf.
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.
The calculation according to the Tax Agency of the average annual balance is determined by dividing the sum of each daily balance by 365, regardless of the number of days the deposit/account is active. The daily balance for non Euro currencies is determined currency by currency separately.
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)
11 responses
Is there an exemption or reduction if a co-owning spouse has remained resident in the uk property being declared to the Italian tax authorities?
If you are tax resident inn Italy for any Italian tax (calendar) year you need to report any foreign real estate. You do this in Section RW of the annual tax return showing the tax value of then property (in this case probably the purchase price of the UK property, if you have documentary evidence of the price paid, otherwise market value). You need to indicate your share of ownership and the Italian fiscal code number of any co-owner if they have one. The IVIE tax is then applied to the purchase price multiplied by your percentage share of ownership.
The co-owner needs to do the same, if they too are tax resident in Italy within the meaning of Italy’s statutory test of tax residence.
The question therefore is, whether the co-owner is tax resident or not in Italy per the Italian test of tax residence. If so they will need to file their own return. Note that a recent change to the Italian tax residence rules means that if your center of family affections, is Italy for more than 183 days in any tax year, then you are defined as Italian tax resident, even if not registered as resident in Italy or spending less than 183 days on Italian soil. Thus having a spouse who is tax resident in Italy can make you Italian tax resident. Guidance from the Tax Agency or from the Courts is limited on this topic, but we would like to think that the Tax Agency would be flexible in cases where spouses are tax resident in two countries, especially where one spouse has not given up previous Italian tax residence to move abroad, allowing a spouse who is tax resident in another country which has a DTA with Italy, if applicable, and where the tie-breaker clause in the DTA, designed to avoid double tax residence, resolves in favour of them being tax resident outside Italy. However the Treaty is expressed only applies to income taxes and not wealth taxes. So, technically, the Italian Tax Agency would be entitled to claim the IVIE tax, for an Italian tax year where a spouse falls within the definition of Italian tax resident under Italy’s statutory test of tax residence. If the spouse occupies the property as their principal residence (and in particular is not registered as resident in Italy) then they may be able to claim the reduced rate of IVIE (0.4%) rather than the full rate.
If you are a tax resident of Italy for any year you must report foreign real estate in Section RW of the return, the section for reporting foreign assets. You insert the tax base of the property in full. You also insert your percentage share of ownership and the tax code of the co-owner, if they have one. The IVIE tax is therefore calcuated by applying the rate (usually 1.06% to the purchase price in full, multiplied by your percentage share of ownership. The tax base for UK property is the lower of purchase or market value. if you wannt to use the purchase price you need to be able to provide documentary support (e.g purchase/transfer deed). If you want to use market value you will need third party certification of the value.
If the co-owner is not tax resident in Italy for the same year, they have no liabilty to IVIE. That means checking carefully that a co-owning spouse is not Italian tax resident, especially since the Italian statutory test of tax residence was updated end 2023 to include having close family who themselves are tax resident in Italy.
Are distributions taken from a Roth IRA held in the USA taxable in Italy? These distributions are not taxable in the USA and some of the assets held in these accounts were taxed at some time in the past.
Thorny question. First of all the tax rules of a foreign (non Italian) jurisdiction which offer specific tax exemptions for certain retirement savings schemes, are not applicable under Italian rules. If you are tax resident in Italy for any year in which you receive a distribution from a Roth IRA, then you are liable to Italian tax, according to Italian rules and without regard to any specific rules under foreign (non Italian) law, on the amount received unless exemption is applicable under the terms of the Italy US treaty.
Assuming that exemption from Italian tax is not available under the DTA for Roth IRA drawdowns, the question is then rather how drawdowns from a Roth IRA should be taxed under Italian law. The Technical Note accompanying the DTA provides specifically that the plans encompassed by the definition of “pension” include qualified plans under, amongst others, Roth IRAs per section 408A of the U.S. Tax Code, a primary interpretation would be that drawdowns are taxable as pension (as defined under Italian rules) income. If so, that means that all amounts drawn down from a Roth IRA during a year in which the taxpayer is tax resident in Italy, are liable to Italian tax at scale rates (unless the recipient is the beneficiary of the 7% regime). Our view is that the Treaty should really only operate to determine the place of taxation, not how income should be taxed following that determination. If that analysis is correct, then the amount withdrawn should be taxed only as to the income, and not as to the capital element – just like any “normal”, non “pension”, investment. However this view is not supported by any specific guidance either from the tax authorities or the Courts. Further in case of partial drawals it may be difficult to obtain certification of income and capital elements from the IRA provider, which would anyway be a condition for the Tax Agency to even contemplate an income-capital split.
This means that transferring to Italy with a Roth IRA means necessarily entering an uncertain tax position, with the prudent approach, if nothing is done ahead of the move, being to apply scale rates (or 7% if the recipient is the beneficiary of the 7% regime) to the full amount withdrawn in any Italian tax year.
The message is clear. If you can withdraw sums from a Roth IRA prior to transferring tax residence to Italy, seeking an alternative investment that may, under Italian law, offer the same tax deferral advantages, and a certain Italian tax position on withdrawals, this may, after appropriate U.S. tax and wealth management advice, be a better approach. The problem for U.S. citizens moving to Italy is in finding an appropriate investment strategy that presents an opportunity for tax deferral under both countries’ sets of tax legislation. At any rate any strategy which can rebase assets in the fund, tax free, to current values, ahead of the move, is probably a good idea.
Does the “taxable base” of the foreign property take account of the mortgage which is secured on it? So do I pay ivie on my property equity or the top line value of the property?
IVIE is calculated for property outside the Eu on the purchase price, provided you are able to show documented support, if asked, for that value. Otherwise it goes on the market value property and we do not think that the Tax Agency would readily accept a reduction for the value of any mortgage loan – the concept of market value means, in our view, the value that independent buyer would pay, independently of any loan secured by the property.
Hi,
About IVIE tax, in your sentence “The rate is reduced to 0.4% for buildings used as a main residence.”
Does this mean that if someone is resident in Italy and in England spends only 85 days per year and does not rent the propriety in Uk, he/she can have a reduced IVIE of 0.4%?
Thanks
If you are registered as resident in Italy, having declared that your Italian address is your residence and habitual abode, it is difficult to see how the Tax Agency could accept a claim that you also had a main residence in the UK. This especially if your benefiting from the exemption from IMU, the Italian local property tax, for your Italian home (on the grounds that it is your main residence). The reduction might apply for part of year in which you move to or from Italy (updated your registered status with the “anagrafe”, and in some other limited situations. Under the Italian concept of residence, on the whole, your main residence, your home, remains where it is, even if you are spending part of the year elsewhere. It is difficult, possibly impossible, to have two “main residences” at the same time, since one of your homes is the main one and one not. The concept of residence (in this case defined as the centre of your vital interests (especially thanks to recent changes in the legislation where your family is located) and habitual abode – is different from where you might be physically at any time. In simple terms it is not a question of where you happen to be “residing” at any time, but where you have your “home”, in the sense of habitual abode and close family.
And while it might be possible to de-register and register with the anagrafe each time you go back and return from to the UK (and what a palaver, potentially with loss of pre Brexit rights), I would still think the Tax Agency, smelling a wrong’un, would define your habitual abode as your address in Italy, ignoring your temporary de and re-registration.