Italian resident taxpayers who own real estate and certain kinds of financial assets outside Italy are required to deal with IVIE and IVAFE which are both asset taxes due on the capital value of assets held outside Italy. The intention of the legislator in introducing these taxes a few years ago is to avoid any discrimination against the ownership of assets situation in Italy (which is subject to stamp duties and other indirect taxes) in favour of investment in assets abroad.
These taxes apply even where assets are beneficially owned via an agent, through a trust or other entity (for example, a foundation) acting as nominee.
The two taxes are close linked the to the Form RW in the Italian tax return. This is the section of the tax return in which a resident taxpayer (who does not have the benefit of a statutory exemption) needs to disclose the ownership of real estate and certain financial investments such as securities,
The payment of IVIE and IVAFE must be made at the same time as personal income tax. Therefore, in general, on/before June 30th of each year the taxpayer needs to pay the balance of the tax due for the previous year plus a payment on account of the current year liability (approximately 40% of the prior year liability. The second instalment equal to approximately 60% of the prior liability must be paid on or before November 30th. Note that the deadlines for payment and the actual amounts can be subject to last minute change. IVIE is not due if the tax payable is less than € 200.
IVIE – real estate
IVIE is payable at the rate of 0.76% of the value as defined below. The rate is reduced to 0.4% for buildings used as a main residence. There is also a deduction of a maximum of € 200 per annum.
The tax is payable pro rata according to the share of ownership and the number of months that the property has been held during the year.
IVAFE – financial assets
The tax is calculated on the value of financial products in proportion to the taxpayer’s share of ownership and the length of time the assets are held over the year. The rate is € 2 per thousand (0.02%).
For current accounts and savings accounts held abroad the rate is a fixed € 34.20 per foreign account. No tax is due if the average liquidity over the year shown in the bank statements does not exceed € 5,000 taking into consideration all accounts held abroad by the same financial institution.
Tax value of real estate abroad – IVIE
The taxable amount varies according to the State in which the property is situated.
Properties located in the EEA
For properties located in countries outside the European Economic Area the value to be used is the land registry value, as determined under the rules of the country in which the land is situated. In the UK the value to be taken is the Council tax band applicable to the proper (lower end). If there is no land registry value (e.g. in the Republic of Ireland then reference must be made to the cost as shown in the deed of purchase and if there is no information regarding the cost then market value should be used.
Properties situated in other states
For other countries, the taxable amount is the cost as shown in the deed of purchase or by agreement or, failing that, by the market value.
Lesser Rights Over Land
If the resident taxpayer has a right over property other than full legal title e.g. a long lease, or licence to use), the value should be based on the value shown in any purchase contract or the relevant regulations or criteria established by the legislation of the country where the property is located.
Real estate acquired by gift or donation
For property acquired by inheritance or donation, the value to be used is the value shown in the declaration of inheritance or in a deed of gift in the manner provided for under foreign rules. In the absence of evidence of the acquisition value the market value must be used.
Credit for foreign taxes
If a similar capital tax is paid in the foreign country it is possible to claim credit for the tax. The credit cannot in any case exceed the tax payable in Italy.
By similar the legislator intends a wealth tax but not a tax payable on account of the provision of services by any governmental or local authority. So for example the Italian authorities have determined that UK council tax is not a wealth tax but a tax paid in consideration of the provision of services.
No credit is available if the country in which the financial asset is held has a an agreement with Italy for the avoidance of double taxation which covers (which also covers wealth taxes) and which provides that this kind of tax is due only in the country in which the taxpayer is resident. In such cases the Italian resident taxpayer should have a right of refund from the country where the asset is located.