What are the connecting factors for the taxation of Italian source pension income for pensioners who have moved abroad? Is there a different treatment for “private” and “public” pensions? Is it possible to request the gross disbursement and the accreditation of the pension abroad by the INPS? We will answer these and other questions in our new article.
The idea of changing their lives, moving abroad and being able to take advantage of more favorable tax rates is the dream of many Italian retirees. Often, however, the information circulating is incorrect or only partially correct, even if it would be necessary to pay close attention to the procedures to be followed to avoid finding oneself in unpleasant situations.
In this article we will explain what are the advantages that can be obtained in relation to Italian taxation by moving abroad, what are the procedures to be followed and the potential risks, also passing through an analysis of the assessments by the Revenue Agency. At the end of the article it will be possible to find a link to get in touch with us for a personalized consultation.
Tax residency: persons resident and residing abroad
As you can imagine, moving abroad has very important tax consequences.
First, however, it is useful to review what is foreseen for residents in Italy.
The rules for the taxation of resident subjects are exhaustively described in article 3 of Presidential Decree no. 917/86 (TUIR)
The tax residents in Italy are required, under the principle of “Worldwide taxation” in Italy to declare all their income, wherever they are produced.
As for subjects not resident in Italy , they will have to declare in Italy only those income that has been produced there (except for the income explicitly declared in the various bilateral agreements created to avoid double taxation).
But how to be considered tax resident abroad?
The rules governing this aspect of international taxation are indicated in Article 2 of the TUIR, briefly listed below:
- Not to be registered in the register of persons residing in Italy for more than half of the year (183 days in normal years or 184 in the case of a leap year), and be regularly registered with AIRE;
- Not having been domiciled in Italy for more than half of the year;
- Not having had a habitual residence in Italy for more than half of the year.
Failure to comply with just one of these conditions is enough to automatically be considered fiscally resident in Italy.
Furthermore, one is considered tax resident in Italy, unless proven otherwise, if, after having canceled the resident population registers, one has moved to a State or a territory with a privileged tax regime, as indicated in paragraph 2-bis of article 2 of the TUIR.
Taxation of retirement income of expatriates
Having your pension taxed exclusively abroad is possible and perfectly legal, but to make this happen you need to make the correct transfer from a tax point of view.
The Italian legislation, with regard to the taxation of pension income paid by Italian entities, provides as follows
“Pensions paid to non-resident persons in the Italian state, by entities resident in the territory of the state or by permanent establishments in the territory itself, are generally taxable in Italy.
Even people who are not resident in the territory of the Italian State are obliged to pay the regional and municipal surcharges to the IRPEF. This is if, in the reference year, the IRPEF is due after having deducted all the deductions due and the tax credits for the income produced abroad that have suffered the definitive withholding tax. “
Generally speaking, the pension received from an Italian source must be taxed in Italy (Stato della Fonte). However, this income must subsequently be subject to further taxation in the state of residence.
As it is easy to guess, we are facing an example of legal double taxation.
Italy, however, has signed many international conventions that set out rules designed precisely to overcome problems of this type.
The general rule of the OECD conventions provides for a differentiation of treatment according to whether it is
- Private sector workers
- Public sector workers
Private sector workers
The private pension is essentially that which derives from the exercise of professional activity on behalf of “private entities”. In the agreements against double taxation stipulated by Italy, according to the OECD model, the article concerning the connection criteria is number 18, which in particular in the cases linked to the receipt of income of this type for a pensioner transferred abroad provides as follows:
” Without prejudice to the provisions of paragraph 2 of art. 19, pensions and other similar remuneration paid to a resident of a Contracting State in relation to a terminated employment are taxable only in that State “
This type of pension must therefore be subject to taxation only in the State of tax residence of the recipient, regardless of the country where he has worked or accrued the pension requirements.
To summarize, below are the conditions under which it is possible to obtain the credit of the gross pension abroad, to obtain the taxation of the country in which one is fiscally resident:
- The Italian pensioner must complete his transfer of residence abroad
- The pensioner must receive a private pension from Italy
- The pensioner must move to a country with which Italy has stipulated an agreement against double taxation which, for article 18, follows the provisions of the OECD
Public sector workers
The public pension is that which derives from the exercise of professional activities on behalf of “public bodies” In the agreements against double taxation stipulated by Italy, according to the OECD model, the article concerning the connection criteria is number 19, paragraph 2., which in particular in the cases linked to the receipt of income of this type for a pensioner transferred abroad provides for the following:
“2. a) Pensions paid by a State or by one of its political or administrative subdivisions or by one of its local authorities, (in the case of Italy), or by one of its territorial bodies (in the case of France), either directly or by means of withdrawal funds set up by them, to a natural person in consideration for services rendered to that State or to that subdivision or entity, are taxable only in that State.
- b) However, such pensions are taxable only in the other State if the beneficiary is a resident of that State and is a national of that State without having the nationality of the State from which the pensions originate “
In practice, therefore, in the case of pensioners who have been employees of the Public Administration, the possibility of obtaining taxation exclusively in the foreign state is not valid, and they are forced to suffer double taxation. So, for example, a state, a former soldier, a firefighter, etc. .. are not entitled to tax relief from their pension if they were resident abroad. It is an important difference that should be remedied directly by the government, but since it is a Conventional provision it is very difficult that it can be changed without intervention at the OECD level
Procedure for obtaining the tax exemption of the Italian pension
From the criteria previously analyzed it was highlighted how, if you are an INPS pensioner in the private sector, you can obtain an exemption from the application of the withholding tax through a request to INPS for the application of the Conventions to avoid double taxation.
As foreseen by article 18 of the OECD model, it is possible to request exclusive taxation of the country of tax residence or of the most favorable tax treatment (for example, the imposition of the Italian tax treatment only in case of exceeding certain thresholds)
To do this, in addition to respecting the conditions indicated above, it will be necessary to submit a specific request for the accreditation of the gross pension. The form for the aforementioned request can be found on the INPS website, in the Forms> International Conventions section .
This is a model unilaterally prepared by Italy but accepted by most of the partner countries
It is possible to download the module in 4 versions:
- Model CI531-EP-I / 1 Italian-English module;
- Model CI532-EP-I / 2 Italian-French module;
- Models CI533-EP-I / 3 Italian-German module;
- Model CI534-EP-I / 4 Italian-Spanish module.
The model must also contain the certificate of foreign tax residence by the foreign competent authority and can only be delivered in paper form.
It is therefore of fundamental importance to be in possession of a certification attesting to the effective tax residence issued by the competent authority of the State where one has immigrated.
Request for payment of pensions abroad
Obviously, obtaining the tax exemption is not immediate, but due to the ritual checks by INPS it is possible that there are time delays between the request and obtaining the relief.
For this period of time, the pensioner has the possibility of obtaining a refund of the Italian taxes applied, through a request that must be presented to the following address:
Operations Center of the Pescara Revenue Agency, Via Rio Sparto 21, 65100 Pescara
This application must be submitted within the deadline of 48 months from the date of collection of the tax (Article 37 and 38 of Presidential Decree No. 602/73) and must contain
- The certificate of residence for tax purposes in the foreign country, issued by the competent tax authority;
- The declaration of the existence of any other specific conditions provided for by the agreement
Payment of the pension abroad
Once the pensioner has completed his tax residence abroad, he has the possibility to ask the INPS for the payment of the pension on a foreign current account.
In particular, in the event that the new residence is in a country of the European Union, the payment of the pension can be requested in one of the following ways:
- On a foreign bank account, indicating the bank details;
- On a foreign postal current account, indicating the coordinates of the postal current account;
- By issuing a bank check in euros.
In the event that you decide to establish your residence in a state outside the European Union, the conditions may vary
The frequency of payments respects the classic due dates of pensions paid in Italy, namely:
- Monthly, if the amount of the pension is greater than 65.00 euros;
- Six-monthly, if the amount of the pension is greater than 5 and less than 65.00 euros;
- Annual, if the total amount is less than 5.00 euros.
Final remarks
As we have seen, enjoying your retirement abroad is possible, but the risk of making a mistake is real. The Revenue Agency has significantly increased the controls and investigations aimed at identifying the subjects who:
- They have not correctly applied these regulations on transfer of residence abroad
- They made the transfer abroad for the sole purpose of evading the taxable matter, that is, those subjects who changed their tax residence while maintaining their effective residence in Italy.
The tax issue is therefore notoriously complex, which is why we recommend that you turn to specialists who know how to guide you towards the most appropriate solutions to your personal condition.
Savino has been dealing with these matters with seriousness and professionalism for more than 30 years and will be happy to create a tailor-made tax planning for every need.
For more information, just visit the website https://axevera.com/servizi/area-tributaria-contabilita-e-bilanci/
Source: www.fiscomania.com
