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TAXES

Why moving to southern Italy with a foreign pension could cut your tax bill

Retirees with pensions from another country could benefit from a new flat tax that's designed to attract new residents to small villages in the south of Italy. Here's how it works.

Why moving to southern Italy with a foreign pension could cut your tax bill
Taormina in Sicily is one of the villages where you could claim a new tax rate. Photo: Patrick Herzog/AFP

We've all heard about the shrinking Italian villages offering houses for a euro. Now it's the government's turn to offer a carrot to those considering a move to the depopulated rural south – specifically, pensioners.

Italy's Revenue Agency has released the details of the 'Southern Flat Tax', a new scheme introduced in the government's latest budget. 

READ ALSO: Italian government approves overhaul of welfare and pensions

Whether you're a foreign national or an Italian citizen living abroad, as long as your pension is paid by another country, moving to a small community in the south of Italy could earn you a reduced flat tax rate.

Tempted? Here's what you need to know.

Why is Italy offering tax perks to move to the south?

Centuries of emigration, whether to northern Italy or abroad, have emptied out towns and villages across southern Italy. Historically deprived and without the opportunities that concentrate Italy's wealth in the north, the south ranks significantly worse on health, employment and poverty – thus fuelling the cycle. 

READ ALSO: 

Successive governments have tried all kinds of incentives aimed at drawing residents, investment and spending to the south. Last year the current administration was discussing a plan to offer pensioners a ten-year tax holiday if they moved to one of its three poorest regions; this flat tax scheme appears to have replaced that idea.

The government says it will use the revenues generated from foreign pensioners to invest in southern universities specializing in sciences and technical subjects, with the goal of improving opportunities for younger residents.

Who is eligible?

Both Italian and non-Italian pensioners are eligible, providing they meet three criteria:

  • They aren't already living in Italy.
  • They draw a pension outside Italy.
  • They're currently resident in a country that has a tax cooperation agreement with Italy. 

To benefit from the scheme, you must prove you've been living outside Italy by showing tax returns for the past five years. And if you're an Italian national, you'll also need to have been enrolled on the AIRE, the Registry of Italians Resident Abroad, for the last five years at least.

Bear in mind that this is a tax scheme, not a visa: you must already have the right to live in Italy legally.

READ ALSO: 'What I wish I'd known': An American's advice on getting residency in Italy


Photo: DepositPhotos

Where do you have to move?

You'll need to become a resident of one of Italy's Mezzogiorno regions: Abruzzo, Molise, Campania, Basilicata, Puglia, Calabria, Sicily or Sardinia.

But you can't settle just anywhere. Only towns with fewer than 20,000 residents are eligible, which rules out all the best-known cities.

In popular holiday destinations like Puglia and Sicily, you're more likely to find a town that fits the bill inland. But there are still plenty of seaside options on the Adriatic Coast or the Ionian 'sole' of Italy's boot, as well as in Sardinia.

Consult the latest population data from national statistics office Istat to find out which towns you can choose from.

What tax benefits do you get?

You'll pay a single flat tax of 7 percent on all your overseas income, starting with your pension.

Taking up the scheme also exempts you from declaring your assets outside Italy or paying the IVIE and IVAFE, taxes on the capital value of real estate and other assets held overseas.

READ ALSO: 


Photo: Christophe Simon/AFP

How do you pay?

Pensioners taking up the scheme should file a tax return to the Agenzia delle Entrate (Revenue Agency) documenting the following:

  • Proof of residence outside Italy for the past five fiscal years;
  • Last place of fiscal residence;
  • Source of foreign pension;
  • Amount of overseas income to be taxed at 7 percent. 

Once the Revenue Agency has accepted your return and calculated your taxes, you can pay in a single lump sum using the standard F24 payment form.

How long does the scheme last?

You can benefit from the Southern Flat Tax for a maximum of five years after you transfer your residence, so long as:

  • You don't move to the north of Italy or a bigger town (but you may be allowed to move between eligible southern towns).
  • You don't move overseas.
  • You pay your taxes in full and on time.

You can opt out at any time before the five years is up.

The Southern Flat Tax is effective from 2019 (i.e. starting with the tax return you file in 2020), but it's not yet clear how long it will be in place.

The government has indicated it will wait for 2021 to evaluate the take-up and value of the scheme, which presumably could be scrapped if it proves to be less of a boon than hoped.

Member comments

  1. ……..very interested in this benefit as retiring to europe would be a dream come true………..especially for us blue americans !

  2. The tax break the Italian government has offered to retires (those with foreign pensions) starting this year is helpful, but why isn’t the government marketing it more heavily?? First of all, they’re a little slow off the mark, but many people who might take advantage of it don’t even know about it. All the people in the US and elsewhere applying for recognition of their Italian citizenship by Jure Sanguinis should be told about this and other financial incentives by the Italian Consulates. It could be the motivator to get them to actually move to Italy.

    I didn’t find out until after I moved to Italy, but I almost didn’t come because I was going to take a huge hit on my taxes. I found out BY ACCIDENT just before establishing residency in the wrong place (not one of the areas included for the tax break). I quickly changed plans so I could take advantage of it, and I’m now spending my money locally, doing what the government needs people to do to help these towns.

    Instead of making the process of applying for recognition of citizenship so onerous, the Italian government should be wooing all these Americans of Italian descent to get them to consider buying property in Italy, if not moving permanently to Italy.
    At the local level, also, there needs to be a little more effort on the part of the comunes to help foreigners get settled and adapt to life in Italy. If I didn’t have a friend here who is bilingual, my move to rural Italy would very likely be a disaster. My Italian is still beginner level, and trying to navigate an unpredictable and heavily bureaucratic system is a nightmare, because very few Italians are willing to have a little patience, let alone make an effort to help. I am very stubbornly independent and don’t give up easily, but trying to get settled here has been utterly exhausting. It would be nice if the local town governments would recognize that most of us moving here from other countries want to contribute in some positive way and not just take their time and suck up resources. Many of us are professionals and have skills and experience we could donate in some fashion once we get a little settled. Some help at the beginning, Italy, would go a long way to generate good will among people who want to help you survive and thrive.

    I also get the feeling that the anger and hatred being generated by Salvini and others towards “illegal” immigrants is spilling over onto all immigrants. Maybe Salvini et al should take a little care to see the broader effect of what they are doing. Americans who can may choose to emigrate elsewhere rather than to a country that is in some ways mimicking American politics. Intolerance is not attractive.

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For members

TAXES

What freelancers in Norway need to know about tax

If you’re ready to venture out on your own as a freelancer, then it is essential to brush up on the tax rules and regulations in Norway.

People going over their taxes and finances.
Here's what freelancers in Norway need to know about taxes. Pictured are people going over their finances. Photo by Scott Graham on Unsplash

Are freelancing and being self-employed the same thing?

According to the Norwegian website for government dialogue, Altinn, “A freelancer receives payment for individual assignments without being a permanent or temporary employee of the organisation he or she is carrying out work for, but does not need to be self-employed.”

This is helpful to clarify. Because when you decide to work for yourself in Norway, you can do this in a matter of two ways. The two most common methods to register your freelance work or self-employed business is as an enkeltpersonforetak, or as an AS, which is an acronym for aksjeselskap. 

In English, an enkeltpersonforetak means “sole proprietorship”. And an aksjeselskap means “Private Limited Company”. 

Both enkeltpersonforetak and AS come with their own set of positives and negatives. Technically, you are NOT considered a freelancer if you have set up an AS. 

If you have set up an AS, then you are considered an employee of your own company. 

The two may often be compared to one another. But in the eyes of tax law and the rules that apply to your freelance work, they are very different. If you are setting up an AS, it is highly recommended that you hire an accountant as the tax rules are intricate and very specific to what type of business you run.

If you are a freelancer working as an enkeltpersonforetak 

For a sole proprietorship, you need to pay advance tax quarterly – or four times a year in Norway. This is done by the freelancer calculating how much profit they expect their work to earn within the taxing quarter. 

It may be difficult to predict, which is why you shouldn’t worry if you make more or less than your original registered claim.

For example: Let’s say freelancer Petter registered with skatteetaten, the Norwegian Tax Administration, that he would make 50,000 kroner in the first quarter of the year. Suddenly, Petter unexpectedly gets five new clients and happily makes double, earning 100,000 in the first quarter instead, all Petter has to do is log into his skatteetaten account and adjust his original tax claim so the amount he pays in taxes will be accurate. 

The Norwegian Tax Administration determines how much tax is to be paid based on the expected profit. 

In addition to quarterly registers, freelancers are responsible for sending invoices, keeping track of their accounts, and creating their own pension scheme. They are also responsible for the value-added services, or VAT.

What is VAT?

This is where it can get a little confusing with the terms. The Norwegian VAT officially uses the acronym MVA, for merverdiavgift. And if that wasn’t confusing enough, Norwegians have developed a slang word for this type of tax called moms

So, VAT = MVA = merverdiavgift = moms. All four terms refer to the same type of tax.

For freelancers that have earned more than 50,000 kroner over the course of a year, they need to register their VAT, which is the sales tax on goods and services.  

Again, this is when you should double-check to see if your line of work can be VAT exempt. Specific industries, such as education and arts and culture, are exempt from registering their VAT. This is because they don’t have to pay VAT. But most importantly, they are not allowed to charge their clients VAT for their services or goods.

However, freelancers who work in VAT exempt industries can electively register their VAT so they can both charge VAT and receive VAT deductibles. 

The VAT tax rate has held steady at approximately 25 percent over the past decade. When you have registered the tax on your goods and services, it is possible to request a VAT refund on purchases made up to three years back in time.

This is, again, a really good time to know what you can deduct or get back with VAT. 

For example: Let’s say Anna works as a freelance PR agent and takes a potential new client out for a “working lunch”. Unfortunately, she cannot register the lunch receipt as a work-related deductible as it is not allowed to apply for a VAT deductible on foods. 

However, let’s say Anna bought a printer that was necessary for her PR services. She could apply for a 25 percent VAT deduction on the printer’s costs as it is deemed necessary work equipment.

To register VAT for your goods and services, look here

Programmes and accountants can help with this.

Accounting programmes and actual accountants can help ensure you are managing the administration side of your business correctly. And even if you have both of these helpful options, you should still give yourself enough time each week, or month, to keep your accounts up to date if you are a freelancer. 

Managing your own accounts and taxes can be overwhelming. Luckily, there are some different options available.

Having an overview of your accounts with an accounting programme is cheaper than hiring an accountant and a great way to keep a 24/7 overview of your business.

If you are intimidated by the math side of things, or worse, making an honest tax mistake that is still illegal, don’t worry. The newest programmes have a reputation of being easy to learn and user friendly. 

Here is a list of the top accounting programmes recommended for small businesses in Norway. 

Remember, Google Docs and Word are not an option for creating your own invoices, as all invoices must be auto-numbered. 

There is peace of mind in letting a professional handle your accounts, but you will have to pay for it. The average price for an accountant in Norway is around 500 kroner per hour plus VAT (value-added tax). 

If you choose to hire an accountant to manage your firm’s books, here is a list of what the average accounting services can cost you. 

If you’re still unsure

Learning your adopted country’s tax laws is both time-consuming and filled with small intricacies and loopholes. If ever you come across a new billing or taxing situation you’re not completely sure about. You can reach out to the Norwegian Tax Authority for more clarity.

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