For Americans moving to or living in Italy, understanding the fundamentals of the Italian tax system is an essential aspect of financial planning. One particularly important aspect (and one that often surprises US expats) is that Italy taxes real estate and financial assets held outside Italy, so are effectively wealth taxes. In this article, we provide an overview of what Americans moving to or living in Italy need to know about Italy’s wealth taxes, including whom they affect, how they’re calculated, and tax optimization tips.
What is Italy’s wealth tax?
Italy’s wealth taxes are called IVIE (imposta sul valore degli immobili situati all’estero) and IVAFE (imposta sul valore delle attività finanziarie detenute all’estero). They are applied to foreign-held assets owned by Italian residents. They can be described as wealth taxes because they are based on the value of assets. In contrast, the US only taxes income or gains that assets generate. Italy’s system focuses on real estate and financial assets located outside the country. The aim of the taxes is to incentivize Italian residents to invest within the country rather than abroad.
Who is subject to Italy’s wealth tax?
Italy’s wealth tax applies to anyone who qualifies as a tax resident of Italy. American expats are considered an Italian tax resident if:
- You spend more than 183 days per year in Italy.
- You have a registered domicile or habitual abode in Italy.
- Your center of economic and personal interests is in Italy.
This means that spending significant time in Italy each year or moving to Italy permanently may subject you to Italian tax residency rules, including the IVIE and IVAFE wealth taxes on your real estate and financial assets held outside Italy, including US-based bank balances, investments and retirement savings.
IVIE and VAFE differences
The Italian IVIE foreign real estate wealth tax
The IVIE is a tax on real estate properties outside Italy owned by Italian residents. As of 2024 (so for filing in 2025), it is levied at 1.06% of the property’s taxable value. Previously, it was 0.76%. The taxable value is typically the property’s purchase price or assessed value in the foreign country, depending on which is higher. You can however deduct foreign property taxes paid on the same property, which may reduce or eliminate your IVIE liability.
The Italian IVAFE foreign financial assets wealth tax
The IVAFE applies to financial assets held by Italian residents outside of Italy, including bank accounts, investment portfolios, and other securities. The IVAFE is levied at 0.2% of the value of financial assets. The value is typically based on the year-end balance at the end of the previous year. There are exemptions for some foreign pension plans, and also if you have paid a wealth tax in another country on the same assets, you may be able to reduce the Italian wealth tax by the amount you’ve paid abroad by claiming a tax credit.
Your non-Italian financial assets must be listed either in the RW section of the income PF income reporting form, or in part W of the 730 form when you file your Italian taxes.
Reporting requirements for American expats in Italy
American expats in Italy must also continue filing US taxes while living in Italy, reporting their worldwide income on form 1040. If they are subject to Italian income taxes, they can file IRS Form 1116 to claim US tax credits to avoid double taxation on the same income. Furthermore, they may have to file:
- FBAR: Along with filing your US annual tax return, expats must report foreign bank accounts if your total balances exceed $10,000 in aggregate at any time during a year, using the Foreign Bank Account Report.
- FATCA: FATCA (the Foreign Account Tax Compliance Act) requires reporting your non-US registered financial assets if their total value exceeds $200,000 for single filers at the end of the year or $300,000 at any time during a year.
Tax treaties and double taxation
Italy and the US have a tax treaty to prevent double taxation, but it primarily covers income taxes rather than wealth taxes. However, American expats can often claim foreign tax credits on their US tax returns for certain taxes paid in Italy, including those on income earned from foreign assets. Unfortunately, wealth taxes like IVIE and IVAFE are not directly creditable under US tax law, which may result in a higher overall tax burden.
You can read the US-Italy Tax Treaty on the IRS website.
Strategies for managing Italy’s wealth tax
Evaluate your tax residency
If your time in Italy is limited, you may be able to avoid becoming a tax resident and, consequently, avoid the wealth tax. Carefully consider how long you stay in Italy and where your primary economic interests lie.
Restructure your assets
- Real estate: Consider transferring ownership of foreign properties to family members or holding them through foreign entities that may not be subject to IVIE.
- Financial assets: Consolidate accounts or restructure investments to minimize the IVAFE liability. For example, some expats move assets to Italian accounts to avoid the foreign asset tax altogether.
Leverage foreign tax credits
If you pay property taxes or other levies in the US on foreign-held assets, you may be able to apply for foreign tax credits to reduce your IVIE (Italian wealth tax on foreign property) liability. Italy allows residents to claim credits for foreign taxes paid, which can lower your overall tax burden. To claim this, report the foreign taxes on your Italian tax return. The credit offsets some of your IVIE liability, but it’s typically limited to the amount of IVIE owed. Consult a reputable cross-border tax professional to ensure you’re maximizing this benefit.
Exceptions for newly arrived expats: Expat tax regimes
Flat-tax regime for high net worth individuals
Italy offers a flat-tax regime for new high net worth residents. Under this program, you can opt to pay a flat annual tax of €100,000 on all foreign income and assets, which exempts you from IVIE and IVAFE, if you meet certain criteria:
- Applicants must not have been Italian tax residents for at least nine of the previous ten years before applying.
- They must establish Italian tax residency, which typically requires spending more than 183 days per year in Italy.
- The flat-tax regime is available for up to 15 years, with the option to include coverage for family members for an additional €25,000 annually per member.
This regime is ideal for high net worth Americans seeking a streamlined tax system for their overall income and assets while enjoying Italy’s lifestyle and business opportunities. Italy offers this tax structure to attract wealthy individuals and encourage foreign investment.
New residents’ exemptions
Italy also offers other tax incentives for new residents, including partial exemptions from wealth taxes like IVIE and IVAFE for a limited period. These exemptions are generally aimed at attracting foreign talent, investors, and entrepreneurs to Italy. While they can provide significant tax relief in the initial years of residency, they are typically temporary and vary based on local regulations. Unlike the more structured flat-tax regime, which offers long-term benefits for high net worth expats, the new residents’ exemptions are more flexible and often apply for just a few years to encourage new investment and residency.
Consult tax and financial planning professionals
Italy’s wealth tax is an essential consideration for Americans with existing assets planning a move to Italy, as well as those already living in Italy with assets in the US (or other countries). While the IVIE and IVAFE can pose challenges, careful planning and professional guidance can help mitigate Optimize their impact. Working with experienced cross-border financial planning and tax professionals not only helps ensure compliance, but helps to optimize your overall situation and identify potential tax-saving opportunities, allowing you to focus on enjoying life.
If you have any questions about financial planning as an American living in the EU, get in touch.
This article is for informational purposes only; it is not intended to offer advice or guidance on legal, tax, or investment matters. Such advice can be given only with full understanding of a person’s specific situation.
