Italian expats and disclosing foreign assets or income
Italy’s new Voluntary Disclosure opportunity – a sneak peek
The Italian government will soon release details of a new Voluntary Disclosure initiative for those with undeclared foreign assets and income, giving them a chance to save taxes and significant penalties.
We don’t yet know exactly when it will come into force. However, everyone agrees that considering the delays so far, the implementation date of this new initiative is likely to be quite soon.
What’s it all about?
Essentially, it’s about encouraging Italian residents to come forward and declare previously undeclared foreign assets and income.
That is, those assets held abroad by Italian residents (property, shares, bank accounts etc.) that have never been declared to the Italian authorities, and upon which no tax has been paid.
This is an opportunity to review your own financial situation and ensure you are tax compliant and up-to-date with Italy’s tax rules, when it comes to overseas based assets and income.
The law is of course aimed at primarily Italian-born citizens who have maintained businesses and assets abroad for a long time, and have never bothered or seen fit to declare such assets to Italian authorities. Penalties for non-disclosure, added to accumulated back-taxes can add up to significant sums and with the increasing rate of information-sharing between governments, the chances of being discovered for not disclosing such assets or income today, are much higher.
Through this latest Voluntary disclosure initiative the government clearly hopes to encourage those with foreign assets and foreign business-owners who have been evading Italian taxes, to come clean and declare what ought to be subject to tax, from the last 5 tax years.
Many foreign-born residents are often unwittingly caught in the net – recent arrivals to Italy may not have received good advice previously about their tax obligations relating to foreign assets. Some people living here may believe that since the business was started or the asset was purchased years ago, when they were not Italian resident, they should be exempt or not required to make declarations of these assets or business activities.
Unfortunately this is simply not the case. You are taxable on your foreign-held assets in Italy.
The Quadro RW form provides the format to disclose your foreign assets as required by the Italian government of all its permanent residents. It’s a part of the Unico tax form and it’s required annually.
Your commercialista may have been preparing this for you – are they aware of your assets and income abroad? One very common example is property you own that is currently let (rented out to someone else) back in your country of birth.
The Voluntary Disclosure initiative about to be launched in Italy will reduce penalties applicable for late-lodgers and forgetful lodgers for a limited time, encouraging you to bring your tax affairs into compliance and up to date.
Current indications are that penalties for not disclosing foreign assets will be 0.5% of the value of assets not disclosed, calculated for each year that you have not disclosed them (going back 5 years). This applies if your assets are held in a white-list country (one which has an information sharing agreement with Italy). Non white-list country assets will incur a penalty of 1.5% of the asset value.
Ordinarily, penalties that apply for non-disclosure today are generally between 3 and 15% of the asset value. Hence the voluntary disclosure initiative will represent a large discount of the penalties otherwise payable.
Returning to our foreign property example, you may have received tax allowances and tax deductions in another country for mortgage interest you paid and property expenses. However, if you are an Italian resident, then generally speaking these expenses are not tax deductible in Italy in the same way. Hence you may well have outstanding tax to pay, based on your foreign rental income. If such a situation could apply to you then you must get advice from a qualified Italian-tax specialist.*
Italy has had voluntary disclosure periods before, so what’s different this time?
First of all, tax amnesty initiatives are usually always different to those that come before – the devil is always in the detail. Many would argue that the latest initiatives are typically less attractive (or provide less tax discounts) than the previous ones, and that the latest initiatives find greater opposition from consumers and other groups that feel no need for non-disclosing taxpayers to receive any such discounts.
Enforcement resources are stronger than ever in many European countries today, including Italy and this is supported by ever-increasing technological advances in data-matching and information sharing between governments. It is hard to recall a time when such significant momentum existed in support of various government actions to enforce compliance with tax laws around the globe.
There are many more details to consider if this could apply to you and of course the official commencement of the regime is yet to occur. When more details arise I will summarise the additional details for you here, and of course you can contact me to discuss your options and overall situation confidentially.
Do you need to be put in touch with a qualified tax advice specialist in Italy regarding your options under the proposed voluntary disclosure regime? Such advice is essential to avoid either misinterpreting the law or even overpaying your taxes.