Declaring your tax position in Italy (and post-Voluntary Disclosure program)
This article could have been called “Tax Disclosure post Voluntary Disclosure..” but maybe that’s just too many disclosures!
From time to time I receive enquiries regarding the foreign assets and income of expatriates or new immigrants to Italy.
How should these incomes or assets be disclosed to Italian tax authorities? and how will they likely be taxed now and in the future? In some cases questions also arise about assets and income of previous years, and the taxes or penalties that might apply.
The Italian government’s Voluntary Disclosure program that provided reduced penalties for undisclosed foreign income and foreign assets may be over; however we continue to work closely with selected Italian commercialista to help you manage your financial situation and keep you informed of your general tax responsibilities.
We can certainly refer you to competent commercialista who have experience dealing with foreign-held assets and complex tax situations.
The followiing guidelines have been prepared with the help of our commercialista partners, and may help if you are in a situation where you have questions about your foreign assets or income, and you reside in Italy today.
If you are an Italian tax resident, then you are taxable on your worldwide income and assets. This includes not only business or salary income, but also income earned on all assets you own that exist outside Italy, such as interest on bank accounts, rental income on property, private pension income, dividends and capital gains from shares or bonds and other such financial instruments.
Failure to disclose income or assets related to the past will still require payment of calculated taxes outstanding, as well as penalties for non-disclosure and late payment.
In general you are required to disclose all such foreign assets in the annual Quadro RW form – regardless of whether you received cash income from them or if you paid tax in another country already.
A rare few investments benefit from an exclusion to personally disclose (That is, disclose yourself in your own annual tax lodgement), including select Life Insurance Policies, however you need to request advice to be sure in these cases. Be sure to get in contact for more information.
Penalty for non-disclosure of foreign assets
The penalty for not disclosing your controlled foreign assets on your annual RW tax form is 0.75% of the undisclosed amount, for every year it is undisclosed going as far back as the Statute of Limitations time period allows.
Statute of Limitations (Tax)
The Italian tax authority’s Statute of Limitations indicates that you cannot be brought to account and taxed in relation to undisclosed income or assets (relating only to whitelist countries) once 5 full tax years have passed. This law does not apply to assets held in non-whitelist countries.
So, for example, any undisclosed income or assets relating to the 2009 calendar year and whitelist-only countries, will no longer be assessable for tax by the authorities, as from 1 January 2016.
As countries around the world implement the OECD’s Automatic Exchange of Financial Account Information Sharing Agreements, it is ceratinly an important time to consider your overall tax situation and review disclosures where necessary.