Five essential tips to maintain good financial health as an expat in Italy

Italy is a fantastic destination to enjoy life, with its stunning natural beauty, unique modern and ancient art and world-famous design and food culture. The scope of travel and lifestyle experiences in Italy are some of the best you will find in the world.

However, have you considered the financial aspects of moving to Italy? The administration? How can you find your way around the myriad financial and taxation laws and regulations in Italy and stay on top of your financial affairs?

Daniel Shillito, an independent adviser, has provided us with five essential financial planning tips to help you prepare for your new life as an expat living in Italy. Please note that the information provided represents general advice and does not represent personal financial advice, for expats moving to or living in Italy. Personal advice that is directly applicable to you can only be provided after your precise personal situation has been taken into account.

1. Start your financial planning before you leave (if possible)

Ideally you will come to understand the tax and financial environment in Italy before you arrive. However let's face it, winding up your affairs and completing unfinished jobs at home, at the same time as planning a new career move or managing your relocation project, is time consuming enough!

It's probably more realistic to aim for a general understanding at first, coupled with finding out what changes you need to make or contemplate prior to leaving or just after arriving in Italy. Any changes needed or recommended will also be influenced by the timing of your move, in relation to the UK and Italian tax years, and of course how soon you plan to relocate.

Knowing how Italy will treat your assets and income before you arrive will help you to consider the financial impacts of your move, and potentially help you and your advisers determine if there are appropriate ways in which you could change or restructure your financial situation (if required) before you arrive to live in Italy permanently. Usually you will need to contact an adviser who is based in Italy and understands the laws and the environment well.

2: Understand your tax residency status in Italy.

This is probably the most important starting point when planning a country move to Italy, and often a source of confusion or dismay! So let's focus on it in a little more detail for a moment here.

It may sound simple enough, however there is certainly conflicting information out there about tax residency rules.

Your tax residency status will depend on the individual facts of your situation. The law appears clear enough, however it has to be carefully applied to your own situation. The facts and circumstances of your situation are likely to be different to another expat making a similar move - albeit subtly, and hence you ought to be very wary of making assumptions based on someone else's situation or advice, or in giving your tax residency status only a fleeting consideration, or very little attention.

It's quite possible you could assume or interpret your tax situation incorrectly with respect to Italy, regardless of how long you intend to stay. This can lead to unnecessary disappointment and frustration later on, possibly when you receive an adverse notice from Italian tax authorities or you otherwise discover your actual tax status is different to your original understanding. There are more reasons to consider your tax status than simply the desire to avoid an unwelcome future tax bill (although that must be a compelling one!), and they include the opportunity to be active and actually plan for the impacts of any changes in your tax residency status.

Knowing your tax situation with clarity will help remove any doubts and give you confidence about your financial situation before you arrive.

So are you tax resident in Italy, according to Italian law?

An individual is considered resident for tax purposes in Italy if for most of the calendar year (183 days) they are resident or domiciled in the country; or if they are simply registered with the Registry of the Resident Population (local Anagrafe office).  In addition the authorities will treat you as tax-resident in the event you have your 'habitual abode' or essentially your principal place of business and social and family interests, in Italy.

If you conclude, possibly with the help of your adviser, that you are tax resident in Italy, then essentially you are taxable in Italy on your worldwide income and assets, with few exceptions. Italy has no concern that another country may already tax your income or assets (for example rental income of a UK property). However, you are entitled to any benefits arising from double-tax treaties agreed between Italy and other countries.

Despite what may appear as strict or onerous regulations, it's important to note there is a potential opportunity to implement tax planning strategies or ways of treating your assets and income more favourably, regardless of where your income is earned. One of the benefits of planning financially before you leave is to become aware of any such opportunities or strategies, so you can make the choice of whether to implement any changes (and save tax), or not.

If you are unsure of your residency or the impacts on your overall financial situation it will pay to seek advice from a tax or finance professional ideally before you arrive or soon after arriving in Italy. 

3: Take your move to Italy as an opportunity to review or create your financial goals.

How long has it been since you assessed whether you are on track to meet your long term financial goals? Moving country and starting afresh is a great opportunity to ask yourself questions like, What are my longer term goals?

Am I saving enough for life after work? How will I know when I am financially secure? What plans are in place to make sure my family is secure and comfortable, if something unforeseen were to happen to me?

Have you considered whether you will have the funds to live comfortably the day you retire from work? If you have lived life as an expat in other countries you may have accumulated pension and personal savings in different countries and different currencies. How will moving to Italy affect their tax status and effectiveness?

In nearly all cases the tax treatment of some of your assets and investments will change in some way.

Whilst you are planning your move and considering life as an expat in Italy, take the opportunity to review your overall savings and pension situation, and consider discussing your plans and longer term goals with an independent adviser you feel you can trust.

4: Don’t fall for an investment scam or the promise of high returns!

Expats moving to a new country can become the target of scammers and unregistered advisers, who lure in those looking for above-average returns or fast returns on their money.

If someone is offering you a promise or guarantee of high growth - for example suggestions of 10% growth every year or more, then this should be a red flag to you – it's likely a scheme that is worthy of a lot more investigation.

It’s important to remember that high returns usually accompany high-risk investments or schemes! So be prepared to risk losing your investments when dealing with such high-return promise schemes. Recent scams being promoted that have caught the attention of authorities include investing in diamonds, fine wines and carbon credits. 

5: Maintain flexibility with existing bank accounts and a currency transfer strategy

You need not close down and leave behind those assets from your current financial life when you leave for Italy. In fact, maintaining flexibility and keeping some cash aside and in a different currency, can be a hedge or form of protection from currency risks and from new laws aimed at taxing money saved and kept in Italy. The Italian authorities have demonstrated willingness to tax bank accounts and money movements without first concluding the amounts you own are in fact taxable in nature. The same holds true for 'not keeping all your eggs in one basket', when you move between any 2 countries essentially.

If you are relocating with your employer to Italy then they may provide some financial assistance (beyond simply setting up a bank account) or refer you to a local specialist who can help. However the financial advice you seek should consider all the same elements of a good financial plan that you would find in your own country.

That is, it ought to provide pension planning and investment advice, education-savings strategies if required, family insurances, and an ongoing financial review. Financial advice for expats in Italy may include advice about transferring your home pension abroad (where available), guidance about inheritance taxes, mortgages, foreign currency transfers, and even specialist advice for unique industries like the yachting community.