There are countless benefits to being an Italian dual citizen, such as visa-free travel to over 160 countries, but many also wonder if they will be required to pay taxes in Italy.

Understanding that tax law in any country is often complicated and confusing, it’s a common concern that one’s tax implications may be more complex being a citizen of two countries. This article will outline the most important aspects of Italian taxation for dual citizens residing in Italy or abroad.

Who is considered a tax resident of Italy?

Residenza fiscale or tax residency in Italy is when an individual is recognized as being a fiscal resident in Italy for income tax purposes. To be considered a tax resident, an individual must be residing in Italy for more than 183 days during the year, which is calculated cumulatively and not consecutively. This includes being registered as a resident in a municipality with the ufficio anagrafe (municipal registry office). Additionally, those who domicile in Italy or are simply physically present in the country for more than 183 days are also considered tax residents. According to Legislative Decree No. 209/2023, a domicile is defined as a place where a person’s personal and family relationships are primarily developed. Additionally, there is tax liability for those who own assets in Italy, such as property owners who are subject to taxes even if living abroad.

Dual citizen living abroad

For Italian citizens by birth or those who have acquired citizenship by descent or through marriage and are living abroad are required to be registered with A.I.R.E., the Registry of Italian Citizens Residing Abroad. AIRE is a database that holds the personal information of Italian citizens living abroad and ensures they have access to the services they are entitled to as Italian citizens. It is a requirement to be registered in the database for any Italian citizen who is planning to live outside of Italy for more than 12 months or those who acquired Italian citizenship by descent at a foreign consulate and whose place of residence is not Italy. Therefore, registering as a citizen abroad ensures that you will not be listed on any local civil records in Italy and will not be subject to Italian taxes.

Additionally, it’s common for Italian citizens living abroad to own property in Italy. In these cases, the homeowner would be subject to annual property taxes called the IUC or imposta unica comunale, which includes the IMU or imposta municipale propria (local municipal tax). This tax does not apply if the home is the owner’s principal inhabitance or main home, but in the case of a citizen living abroad who owns a second home in Italy, this tax would apply. It is calculated as a percentage of the cadastral value of the property and generally varies between 0.46% to 1.06% depending on the rate determined by the municipality.

It's important to remember, however, that if the property is rented out and the owner earns income from the property, this income would be subject to taxation in Italy, regardless of where the property owner is residing. They would be required to file an income tax return in Italy, where the tax rate is based on the amount of income earned. Income tax, also called the imposta sul reddito delle persone fisiche or IRPEF, is calculated on a progressive bracket system, where the more money an individual makes, the more they are taxed.

Dual citizen residing in Italy

An alternative scenario would take place for those Italian citizens living in Italy. Relocating to Italy requires registering as a resident in the local municipality where you intend to live. Living in Italy also requires a codice fiscale (fiscal code). Despite its name, it does not automatically imply tax duty and is similar to a social security number in the US. The codice fiscale is used for many state and local agency purposes like opening a bank account, getting an Italian phone number, signing a long-term rental contract, applying for a mortgage, and accessing the health system. Additionally, a codice fiscale is necessary when filing an Italian tax return. After having resided more than 183 days as a registered resident, you will be subject to taxation on your worldwide income, whether or not the income is derived from Italy or abroad.

What is the income tax rate for Italian residents?

Italian tax residents are subject to a national income tax, regional income tax, and a municipal income tax. The national income tax rate is set on a progressive tax bracket system, where the more an individual makes, the more taxes they pay. According to Legislative Decree No. 216/2023, for the year 2024, individuals with up to €28,000 of taxable income are subject to a 23% tax rate, whereas those with between €28,001 and €50,000 taxable income are subject to a 35% tax rate. Finally, those with €50,001 and above of taxable income are subject to a 43% income tax rate. Additionally, regional income tax rates are set by the region where the individual resides and can range from 1.2% to 3.3%. Lastly, the municipal income tax is set by the municipality of residence and can range between 0% to 0.9%.

Individuals file their income tax return each year with the Agenzia delle Entrate or Italian Revenue Agency, by completing either the Redditi PF (persone fisiche) or the 730 form, depending on what type of income they have. The 730 form applies to employees and pensioners while the Redditi PF is applicable for those with business income, self-employment income or capital gains income, as well as others. Eligible deductions can be included, which are offered for a variety of types of expenses such as tuition expenses for secondary education, social security contributions, rent payments, medical and veterinary expenses, charitable contributions, and many others. Income tax returns must be filed by September 30 of the year following the previous tax year. The tax year runs in line with the calendar year, from January 1 to December 31.

Similar to how many Americans consult an accountant when they have a complex tax scenario, in Italy there are commercialiste or certified public accounts. These are experienced professionals who assist individuals and companies filling tax returns. In addition, there are tax assistance centers called CAF or centri di assitenza fiscale which provide individuals with assistance with tax-related issues.

What about double taxation?

A common concern for dual citizens who are required to pay Italian taxes is double taxation, because the US taxes their citizens regardless of where they are residing. However, the US and Italy have signed various tax treaties to avoid or prevent the issue of double taxation. Therefore, an individual would not be required to pay double tax on the same income. One example is the Foreign Tax Credit or the Foreign Earned Income Exclusion Treaty, which allows income earned in a foreign country, i.e. Italy, to be excluded from income reported on the US income tax return if deemed eligible. Also, there is the Italy-US tax treaty that sets out further provisions to avoid double taxation and prevent fraud or tax evasion.

Conclusion

This article has outlined what it means to be a tax resident of Italy and in what scenarios an Italian dual citizen would be required to pay Italian taxes. For more information on Italian dual citizenship, don’t hesitate to contact us at [email protected] or visit www.italiancitizenshipassistance.com.