Tax up-date

If you are not aware by now Enrico Letta has resigned as Prime Minister for Italy and the incumbent PD party leader Matteo Renzo is the likely to be the new PM. 

This is not what I am communicating today but something rather more urgent and if the piece of legislation is long lasting, it will have far reaching consequences, probably for you, me and every other expat that lives in Italy.   As I have explained in the past a drift net procedure is often applied to new tax rules and this is one of the most archaic and serious to date.  It will affect most: yound, old, strong, weak, rich poor, and the list goes on.  If you have read this far, I would urge you to read on. 

As of February 1st 2014 banks in Italy will be obligated to withold 20% of the amount relating to transfers coming into personal accounts from abroad.  The 20% will be witheld at source, by the bank, and unless an exclusion has been applied for it will be up to the tax payer to prove that the money is not 'income' from financial transcations abroad. The witheld tax will be assumed to be an advance tax on 'profit from investment' and that the tax will need to be declared and paid on it anyway on the end of year RW form.  The tax will be witheld every 16th of the month following the transfer and the accumulated amount can be used as a deduction against your end of year tax bill.  (Profit from investment includes 'interest from savings, income from property (i.e rentals, gains from the sale of property etc.  This is what they are trying to target!!!)

Even if an exclusion is filed for and granted (at the bank) your name and details will be submitted to the Agenzia delle Entrata.  In addition, you have until the 28th February following the year of the deduction (28th February 2015) to apply, to the bank, for an improper application of the witholding tax and request a refund. 

The exclusion will be granted by production of a self certification in the form of a letter sent to the bank.  It is likely that this self certification will cover a full tax year, in which the remittances were made, but as yet the rules are unclear. 

As you can imagine the banks have been caught a little bit on the hop and are not really ready for the implementation of this little piece of legislative wonder.    However, if you are remitting funds into Italy in the form of pensions, bringing cash in to renovate a house, income from running a business abroad etc then you must go and speak with your bank manager about how to self certify that the funds have not been generated from profit on investments abroad.  

The main aim of the witholding tax is obviously to flush out those who are avoiding paying tax on assets overseas.  The government is very cleverly avoiding the necessity of tax collection through third party intermediaries and instead going directly to the source of remittances into the country, the banks and other financial institutions.   Since the banks are wholly unprepared for this it could mean a messy period whilst it gets sorted out.  The banks are likely to be inundated with self certifcation letters and the hope is that they can administer this without problem.

As an example of the chaos, it is unclear at the moment whether remittances under a SEPA transfer will be subject to the witholding tax although it is just a matter of time before that is resolved.  

The whole idea seems rather counter productive to me, in that 20% on an amount remitted into Italy is not the same as 20% on the interest on funds that have been legitimately held abroad as savings.   Ultimately, the funds being remitted into the country are less than before and hence less funds to spend and use in the economy.  I have my sneaking suspicion that this is merely a way to generate more information for the Agenzia.  For those who are declaring their assets and incomes correctly and are 'in regola' it will be mostly a form filling exercise, lodging these foms with the bank and ultimately, the legislation will be of little concern. The only benefit being that the Agenzia has more ways of matching assets held abroad versus remittances from abroad and amounts declared on the RW (end of year tax declaration) and ensuring that 1+1+1=3

That does not deter from the fact that this interim period is likely to be rather stressful for those of us who need to remit funds into the country to pay our bills.  I would urge you to speak with your bank manager and commercialista as soon as possible. 

On a last note, I will be looking into some possible ways to plan around the witholding tax over the course of the next few days.  I will communicate these once I have any more information. 

If you would like to contact me to discuss this or any other matter you can do so on gareth.horsfall@spectrum-ifa.com  or call  me on +39 333 6492356. 

 

I would also urge you to send this information to every expat you may know to ensure that the word is received loud and clear before real damage can be done.