How To Successfully Move From The US to Italy

Many Americans who want to move abroad choose Italy as their destination, attracted by the more relaxed pace of life, cheaper cost of living, excellent public healthcare system and relative ease of obtaining a visa.

What’s more, many Americans with Italian heritage will be able to obtain Italian citizenship by descent.

In a recent webinar, we were joined by two experts in Italian relocation and US tax to give an overview of:

• The types of visas available to American citizens wanting to move to Italy 
• How to apply for Italian citizenship by descent 
• The need-to-knows of buying a property in Italy  
• The tax implications you need to be aware of when moving from the US to Italy 
• The key tax-planning and financial-planning measures you need to take before your move 

The below article is a summary of our discussion between Daniel Shillito, an Italian property and finance broker and advisor and Josh Katz, a US accountant and CPA and an expert in US expat taxes.  

Watch the full webinar here and read the summary below:

What types of visas are available to American citizens wanting to move to Italy?

When you first come to Italy, you're entitled to a tourist visa. This allows you stay in Italy and the Schengen area for 90 days successively or continuously within a 180-day period before needing to leave the country. To stay beyond 90 days, you will either need to have citizenship or a visa.

For US citizens who will continue to work after they move to Italy, the type of working visa needed will depend on whether they are employed or self-employed. 

Employer sponsored visas

The easiest way to get a working visa in Italy is to have an employer sponsor you – otherwise, it's not going to be easy to arrive in the country and attempt to find a work visa. 

Self-employed visas

For those who are self-employed, visa options are quite limited, and the specific categories can change from year to year. The allocation of available self-employed visas also changes from year to year, and when they are announced, people will rush to get their visa from the limited number available.

Digital nomad visa

Italy also recently announced their digital nomad visa. They're still working through the application of all the conditions required for this, which means digital nomad visas are currently not as easy to negotiate as the visas which have been around for a long time.

As with all visas, you will have to apply to the foreign consulate for the digital nomad visa. You'll additionally have to prove you're in a qualifying profession, with eligible qualifications, earning a minimum income level and that you have existing contracts in place to support your digital nomad activity in Italy.

Elective residence visa

For US citizens who will not be working after they move to Italy, the elective residence visa is the most popular. This is a one-year, renewable visa designed for retirees. There are specific requirements around this which will be specified by your foreign consulate when you apply, but the main ones are:

• Evidence of an existing Italian address
• Health insurance in place for at least one year
• Evidence of financial security

Investor visa 

Italy also has the investor visa (known as the Golden Visa) for those who are able to make a significant investment in Italy. This two-year renewable Schengen visa can be obtained by investing:

• €250k in an Italian startup
• €500k in Italian listed companies
• €1m in philanthropic projects, or
• €2m in Italian government bonds

Which US citizens are eligible to apply for Italian citizenship by descent?

To obtain Italian citizenship by descent, you must be able to demonstrate descent. A person acquires Italian citizenship when they're born to an Italian father or mother – it’s that simple. The father or mother may even lose their citizenship as a minor, but that’s not a problem. As long as they were Italian citizens originally, you would be entitled to Italian citizenship by descent.

People born to Italian citizens who emigrated in countries like the USA are entitled to Italian citizenship following a law which originated in 1912. However, this applies to Italian fathers only, meaning that in your ancestry you would need to have a male parent who was born in Italy. Gaining Italian citizenship from the mother's side only became possible after a law passed in 1948 recognized the right to citizenship through the female side of the family. Essentially, this means that where Italian descent relies on a female Italian ancestor, only children born to Italian mothers after 1948 (and their descendants) are entitled to Italian citizenship.

If you want to take advantage of your Italian heritage and gain Italian citizenship through your ancestry, first you will need to provide proof that your citizenship is uninterrupted, and that no failed naturalization process occurred. For example, if someone emigrated from Italy to the US and their formal naturalization process failed for any reason, that is considered interruption. Therefore, their descendants won't be entitled to citizenship. Additionally, if you or anyone in your family has renounced their Italian citizenship, you won’t be entitled to citizenship by descent.

To obtain evidence of your entitlement to Italian citizenship, you will need to go to the US Citizenship and Immigration Service. They will check their records and provide certificates or statements to evidence past family naturalizations and all related birth and death certificates if available. They will also provide evidence of any failed naturalization and produce relevant certificates. Once you have all of these, you can start the application process for your Italian citizenship online. You will then be referred to the consulate for in-person appointments to take the process forward. 

What are the need-to-knows of buying a property in Italy for US citizens?

The most important thing to understand is that the Italian property market is completely different to the US. In particular, one aspect that is fundamentally different is the selling culture. Many Italians have a very close relationship to their property. You could almost say their home or property is a member of their family. Therefore, letting go of their home is not always easy because it feels very personal – especially if the property has been in their family their whole life. Consequently, the seller will often be present for viewings, even if an agent is involved. Therefore, we would always recommend seeking expert advice before you start negotiating on Italian property, as the responses you will get – and the methods of negotiating – are very different in Italy compared to the US.

Another need-to-know about buying property in Italy is that the role of an agent is quite different compared to the US. The agent is required to mediate a successful set of terms and conditions, including price between buyer and seller. However, in reality, most agents in Italy start their businesses by obtaining listings of available properties and initially, will act more like a listing agent. We always advise that anyone purchasing a property in Italy obtains independent advice and assistance throughout the purchase process. It is also important that you do your due diligence and arrange an inspection of the property by an independent professional to get an understanding of its technical history and legal status.

You will also need to appoint a notary for every property purchase in Italy. The notary is responsible for the conveyancing law, including checking and making sure the title is secure and correct, that it's transferred appropriately to the buyer, and that it adheres to all Italian laws. The notary can be chosen by the buyer, and it is essential to find someone who you trust and and who can help take you through the entire legal process. One of the main differences between Italy and many other countries is that lawyers are not necessarily required, because the notary takes responsibility for the property conveyancing. However, many people like to choose a lawyer as well, for additional peace of mind and to draft clauses to help protect them – especially when there are complex transactions involved. However, this is not a requirement for the purchase process.

Often, expats are looking for a mortgage when they first come to Italy. Once again, Italy is a very different market when it comes to mortgages. Fewer than 50% of Italians have a mortgage on property, the mortgage market is not as competitive as it is in the US, and it is subject to different influences.

For example, there are European mortgage directives requiring European countries to adhere to certain conditions which protect borrowers. One of these directives relates to the loan currency. Typically, the currency of the borrower’s income needs to be the same currency as the mortgage. This is to protect borrowers earning income in other currencies from being disadvantaged by exchange rate fluctuations. If you're coming to Italy from America, you're likely to be holding or earning US Dollars, which means you will need a specific type of mortgage – and not every bank in Italy is able provide that.

We recommend engaging a broker who understands all the products across the Italian mortgage market, as they will find a mortgage that suits your specific circumstances. It’s not a case of going to bank, explaining your situation, and receiving a pre-approval voucher – those don't exist in the same way as other countries. You will need specialist assistance and advice.

Buying a property in Italy also isn’t a fast process. Most sellers aren’t in a rush to sell their property, and the average transaction may take six or seven months.

What are the key tax implications US citizens moving to Italy need to be aware of?

The first thing to remember is that even though you’re moving to Italy, and you may be cutting ties with the US, you are still required to file a US tax return. All US citizens and green card holders must file an annual tax return if they earn over a certain threshold and they must report their entire worldwide income, whether that’s passive income or wage income.

However, just because you must file a US tax return, it doesn't mean you’re going to be double taxed. There are a few ways to reduce the amount of tax you owe, the first being the Foreign Earned Income Exclusion (FEIE), which allows Americans living abroad who meet certain requirements to exclude $120,000 of their income – perhaps more with the foreign housing deduction.

The second way is Foreign Tax Credits (FTC), which means taxes paid in Italy can be used as a credit towards what you pay in the US. This means most Americans who live in Italy will pay no tax, or a very small amount of tax in the US. Just because you need to file a US tax return, it doesn’t mean you will need to pay any taxes.

Other obligations you’ll need to be aware of are the Report of Foreign Bank and Financial Accounts (FBAR) and other FATCA compliance forms. If you have over $10,000 in aggregate across all your bank accounts, you’ll need to file an annual form called FBAR. While your tax return is submitted to the Internal Revenue Service (IRS), the FBAR is filed with the US Department of Treasury. The FBAR will list all your bank, financial and pension accounts outside the US, and there are big penalties if you do not file this. There's also the form 8948 which is very similar to the FBAR, which is submitted as part of your tax return.

Your tax situation and obligations will be different depending on whether you are retiring in Italy or moving to Italy to work. If you're going to be working in Italy, your wages are most likely going to come from Italy and will be taxed in Italy first. In this case you can use the FEIE when filing your US return. If your income is higher than $120,000, you can combine FTC with FEIE.

If you're retiring in Italy and receiving passive income from the US, this will be taxed first in the US. In this case, it’s important to work with an Italian tax advisor and review your tax situation before you move. 

If you are self-employed and running a business in Italy, this is when lot of planning tax planning is required. If you are a US owner of a foreign corporation, you will have additional forms to file and could also be subject to additional taxes. However, these taxes can be mitigated with proper planning.

You also need to know your tax filing deadlines. If you live in the US, you will usually file a tax return each year by April 15. If you live in Italy, it's not that simple. For example, you might be waiting on your Italian accountant to prepare your Italian tax return before you can file your US tax return. Because of this, most Americans living in Italy will file for an extension before April 15. There is an automatic extension until June 15, but once you file the first extension, you will have until October to file your taxes – possibly even longer.

The process of filing your US tax return also becomes more complicated when you live in Italy, because you need to file in coordination with an Italian accountant. It’s not always as simple as waiting for an Italian tax return, because you might need to provide estimates for your Italian accountant so they can prepare your Italian tax returns, or vice versa.

If you’re working with a US tax advisor, you’ll want them to talk to your accountant in Italy and discuss what income will be filed where first to ensure you’re not paying tax twice. In general, wages earned in Italy would be filed first in Italy, but and US passive income would be filed first in the US, but this is usually a decision to be made between your US tax advisor and your Italian accountant.

What are the key tax planning measures US citizens should take before they leave the US for Italy?

Tax planning will be less important for Americans who will be working in Italy as opposed to retiring. There will be some steps to take, but many people will move to Italy without advance tax planning and be fine. However, in some cases, making certain decisions beforehand will put you in a better situation.

One of those decisions might be severing state residency. When it comes to tax, every state is very different. Some states, such as Florida, don't have any taxes. However, California is at the other end of the spectrum. If you're moving to Italy from California, and you’re not planning on coming back, there are ways to sever your state residency to avoid any additional tax obligations or problems with the California Tax Board.

If you’re retiring to Italy from the US, you might have a lot of savings from different US sources, and you’ll want to establish the right time to withdraw those to ensure tax efficiency.

Another thing to consider is that if you want to claim FEIE in the US you would need to have lived in Italy for a full year. Because of that, you might plan to move on January 1 so that you’ll be covered for the entire year, or at least understand what tax planning measures to take if you are only resident in Italy for part of the tax year. To be deemed to be living in Italy for a full year, you either have to pass the bona fide residence test or the physical presence test. Physical presence means you're in a country for 330 days out of the year. This means, you’ll want to carefully plan your trips back to the US. For example, you can't move to Italy and then go back to stay in the US every other month and still be able to claim that the FEIE.

If you are self-employed, you’ll also want to consider your business structure and whether you open your business in Italy or the US. There is no simple answer or right decision here. If you open a US business, you will have some Italian tax implications and vice versa. You’ll want to ensure you speak with a US and Italian tax advisor to understand what your tax situation would look like in either case.

If you have gift tax, state tax or capital gains and investments tax obligations you will also want to plan for those as they will all become more complicated when you’re also subject to Italian taxes. 

From an Italian tax perspective, it is important to understand exactly when you will become an Italian resident for tax purposes. Whether you move to Italy in the first or second half of the year will influence when your first tax returns are due to be filed in Italy. You don’t want to find out that if you’d moved to Italy three months later, there are taxes you wouldn’t have had to pay.

There are also three main tax concessions available for new residents in Italy:

• The new tax resident scheme is available for people with a certain level of wealth, enabling them to pay a limited amount of tax annually and not have to declare their foreign income and assets to the Italian government. This scheme allows a flat amount of 200,000 Euros paid to the Italian government each year, for 15 years, without needing to declare anything else from around the world, including your American assets.
• The “lavoratori impatriati” tax scheme was originally designed for working Italians returning to Italy to try and attract them back, but Americans are now eligible as well. If you come to Italy and become newly tax resident, if you meet the requirements of this scheme, you will get a deduction in the amount of your employment income that is taxed.
• The 7% pension tax concession scheme if you move to an area of Italy with fewer than 20,000 people in the surrounding area, you can apply for this reduced tax on your pension income when you move there to retire, which could save you a lot of money.

What financial planning measures should US citizens take before moving to Italy? 

There are three main things to consider before relocating to Italy: 

1. Your living situation – are you buying or renting?
2. Immigration – what visa do you need and what are the requirements?
3. Tax and financial planning – how will you look after your investments and how will they translate to a life in Italy?

 Financial planning includes taking a strategic tax approach and understand how Italy is going to tax your assets, including your 401(k), managed funds or direct shares. No matter what assets you have, Italy will tax them in some way because, in Italy, you're taxed on your worldwide income once you become Italian tax resident.

Therefore, it is very important to look at all your finances before you leave and be prepared to get professional advice. While it’s an additional cost, it always pays to get the right advice from professionals and determine whether it would be best to sell or consolidate any assets before you leave because there would be a better tax result for you overall.

From an investment point of view, there are some investments in Italy that Americans might want to invest in, but they may not be appropriate according to the US tax rules. This is where speaking to a US tax advisor is essential before you invest any money in Italy. 

For example, as a US citizen, you would not want to invest in certain kinds of foreign mutual funds known as PFICs as these can be taxed heavily in the US. These are grouped funds – the equivalent of an ETF or index fund – and they can be very problematic. If you work with a financial advisor, they would be able to recommend more appropriate options such as single stock funds or real estate.

You may also want to exchange larger amounts of US dollars into Euros a while before you leave to reduce the risk of getting a bad exchange rate. It is also a good idea to transfer some cash into Italian accounts ready for your living expenses, perhaps even some savings as well.