Residency VS Non Residency

07/23/2010 - 12:22

We will be closing on our property in Tuscany in November 2010. Can someone help answer some questions that we have? We are planning to apply for a resident permit and at this time I believe we have a good understanding of all the procedures & time it take for that process. The question in hand is if after our 18 month period, we are denied residency due to time scheduling conflicts, based on the municipality, we could be subject to tax penalties. My biggest financial concern is what my Realtor refers to as a discretionary tax penalty. IE a 10% penalty based on the overall purchase price of the property as explained below in my Realtor emails. This part is very confusing to me and financially not worth taking the risk, so the big question is: Does anyone know if this discretionary tax penalty really does exist? How rare is it and at whose discretion this decision is made? Is there an office or someone to contact on a local level that I can speak to about this? I have posted below the two emails we received from my Realtor, which explains in detail what the fines will or may be. Realtor Emails: --“property taxes for closing. If you are not able to registered residency within 18 months the tax office will write to you and ask for payment fo the outstanding 7% of property taxes (10% taxes that should have been paid minus 3% paid). Plus up to 30% penalty fee of the difference (so in this case of the amount corresponding to the 7%).” However, as penalty the tax office can also ask to pay 10% of the property price and not cadastral value - although this is extremely rare that happens. “ “With regards to the possible 10% tax penalty there is no office that can answer looking into your 'case' because it is basically discretionary of the tax office and therefore this means that they can decide to apply the 10% taxes of the price on the deed of sale (obviously minus the money you would have already paid) or not.” If anyone can help us with this, we would be very grateful. Thank you.

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Firstly, if you are going to apply for your residency straight away then there is no way it will take 18 months to process so try not to worry. Italian beaurocracy can be slow but not that slow! Personally I have never heard of the 10% discretionary fine (RAM have you?) but I had to pay the difference between the 3% and the 10% purchase tax for slightly different reasons. I had to pay the 7% difference plus a 30% fine plus interest. As your estate agent says, no-one can "look into" this for you and find out if you "would" be fined in this way. From what your estate agent is saying, I think s/he means the amount you would have to pay if you don't take residency within 18 months "could" be based on the purchase price instead of on the cadastral value (which is usually lower). I don't think s/he means you would pay the 7% difference plus 30% fine plus interest and then 10% of the purchase price on top but it might be worth checking with them.

Thank you again for your response & help. I have pasted our last response from our agent, regarding this so call tax penalty. In our last communication with our agent she did confirm that if we are denied with in the 18 month, we would have the pay the difference between the 3% and the 10% of the cadastral value of the property which allot less than the actual purchase price. The difference would come out to 7% plus a 30% fine Plus up to 30% penalty fee of the difference (so in this case of the amount corresponding to the 7%). She also again confirmed her understand of this tax penalty of 10%, this was 10% of the purchase price and not the cadastral value. Now she does admit that this fine is rare and in all her time as a agents she has never heard or know of anyone to be fined this 10% tax penalty. If you have the recourses and time to look into this we would be very appreciative. I look forward in hearing from you, Burt

I think your agent is covering all her bases. There area miriad of fines and penalties available to the tax office for late payments and so on. If you didnt succeed in getting your residence within the 18 months, and you put your hands up and go to pay the difference, i dont think they'd charge you. if on the other hand the taxman investigates you and discovers that you tried it on as tax evasion he may well decide to fine you as well as ask for his money. I have a client in this position at the moment, and I have told them to own up and go to the tax office just before the 18 months is up and offer to pay. I will know next week what the outcome was, but will ask my notaio on Monday and let you know what he says. 10% of the price paid seems absurd, it must be on the catastal value, and I have never heard of anyone being hit with a fine.

Thank you for your reply to this matter. If it is not much trouble, could post your clients out come? I hope it is good one. btw, If I may ask, what region is your client trying to get residency? Could you briefly explain why your client was denied residency? Thanks again, this is very helpful.

If you intend to apply for residency, there is absolutely nothing to gain from delaying. It seems many people think "there's no rush, I've got 18 months" but bear in mind that until your application is in, you are considered non-resident so, for example, you each have to pay ICI tax. In our case (yes, we delayed ) that came to several hundred euros over the 18 months, quite apart from the panic that set in when we thought we were not going to meet the deadline to avoid the extra IVA. Terry

Thank for responding to out posting. I was hoping you could explain what these two taxes ICI & IVA and as non-residents how do they will apply to us on the purchase of our property and any contract work that we maybe doing . I look forward in hearing from you, Burt

ICI is an tax annual tax payable to the local comune & is the equivalent to Council Tax in the UK. Recent changes by Berlosconi mean that residents no longer have to pay it while non-residents still do pay this rather piddling amount. IVA is a tax of 20% charged on all goods & services (with some excluded categories) & was originally supposed to finance the European Union. God knows where the money goes. If you do not gain residency within 18 months you WILL be made to repay the tax break you recieved & you will be penalized. I helped a friend negotiate her way through this stressful process so I speak from experience. If you really DO intend to be resident, & you WILL be checked out & visited (depending on how tight or relaxed the people at the Comune are), visit them ASAP & make the application explaining your position. Ask them, if at all possible, to make a formal record of you requesting residency although they may claim that your application cannot be formally recognised without your supporting documentation. Shake hands & smile a lot. There are loads of eastern europeans & africans resident in Italy, even Brits, so I can't see them objecting to an American so long as you can clearly demonstrate that you have a very modest amount of money & health insurance. You'll need to show them your passport(s), a recent Italian bank statement showing you have €5k+ per person, a health insurance policy issued by an Italian insurer that will pay for all possible medical expenses & hospitalization. Pilch

Thanks some great Info. I was wondering if you could elaborate on the the heath insurance? We have our own heath insurance from the US. It was my understanding that I need to apply for a resident visa and I needed to show that I have full medical coverage. You mentioned that I need to have Italain health insurance when I apply. I am confused on this point. I was hoping for now, our US coverage would suffice when we apply for residency.?

I'm afraid that no Comune or ASL office will accept your US purchased Health Insurance, even if it is global & gold plated. Now that I've said that someone will quote an occasion when one did but, hey, this is Italy. From my experience they will insist that all documents should not only be written in Italian but have also initiated in Italy, which will effectively exclude your US insurance. The only chance you may have, in order to avoid purchasing another insurance from an Italian company, might be to get the ASL office or Comune to agree to you providing them with a government authorization/translation, fully stamped, signed, counter-signed & triplicated. It's an idea; maybe a bad one, but an idea. Talk to a US based Italian Embassy or the US Consulate in Italy maybe. Us Brits, being European Union members have all sorts of reciprocal rights within other EU states. We apply to the relevant government department in the UK (DWP or IR) & they send you the documentation that demonstrates you are a fully paid up member of the British state welfare system. The Brits screwed up & sent me the English version which is an exact copy of the Italian, German, French etc versions, even down to the layout, type-face & document code but, the Italians refused to accept it until the Brits sent me a fresh one in Italian. I got told by my Comune Anagraphe, a man who bore a remarkable similarity to Benito Mussolini, that he did not give a rats rear end if the documents had been personally signed by Berlusconi; if they were not in Italian & initiate in Italy, then he would not accept them. The ASL office had worked out, bless them, that although the UK did not use the Euro, we were, in fact, EU members & fortunately it is they that vet documentation relating to the issue of health cards. Phew. Pilch

This old thread may be of assistance regarding health insurance: http://www.italymag.co.uk/community/post/health-insurance-residency-ostuni-puglia Regarding residency, my advice would be to request it only if you are certain that you will be living in Italy for more than 6 months + 1 day in the year and that you wish to make income tax declarations, etc. The extra percentage that you pay as tax on your property if you are not a resident is small, as you will only be paying on cadastral value which is considerably less than purchase price. I do not think that your American Health Insurance will cover you if you become an Italian resident, but check with them. Good luck with all your future plans!

Also here: http://www.italymag.co.uk/forums/legal/9803-private-health-insurance-aga...

A question for the experts & ex-pats please. We have recently completed on our apartment and were intending to apply for residency. However the cost of private health insurance is astronomical and is making us reconsider our decision, especially if the commune insist on it's renewal each year. As the property was a new build we only paid 4% tax. If we do decide not to apply for residency how do we pay the difference? As an option, if only one of us were to take up residency do we have to pay the additional tax, and would this affect re-selling in 5 years time. Your views welcomed. Thanks.

I have a BIG question mark on the value of being 'resident', other than it being the 'right' thing to do. The extra tax that you allude to would become payable 18 months after the acquisition of your property if you remain non-resident. The health insurance is (I believe) only required for two years, I'm not aware of it being an annual hit? The 'only one of you' option of taking up residency would work I think ONLY if that one person is the sole owner, if the property is jointly owned, I would assume that the other half would have to pay the extra taxes. If you were to agree to change from joint ownership to single ownership, there would be significant costs associated with that. The half a house would have to be sold from one to the other at the 'going rate' and therefore you would have notary fees and taxes associated with that !! As mentioned earlier, I am an ex-pat, not an ex-pert ! Good luck! S

Sprostoni is right. If you buy in both names, you get half the tax break each - so both of you must be resident to not pay ICI and take advantage of the 3% instead of the 7% imposte at act. Health insurance must be valid for each year, until you have a right of permanent residence after 5 years. The Court of Cassazione has passed a law this summer which absolutely denies any way of getting out of the tax breaks if you dont get your residence within 18 months. I now advise most clients to not bother with claiming prima casa, because the costs are so high to qualify for residence - unless you are actually planning to live in ITaly, it is rarely worth the bother.

Just to be clear though, medical insurance is NOT required if you are a UK citizen and were a UK tax payer for the 2 years previous and until you left the UK. You will be covered by your UK contributions for 2 1/2 years in Italy. It is only during the period after this until you reach 5 years for your permanent residency that you will need to pay for cover. If you are a UK pensioner then you are covered from the UK and don't need insurance either. There are various forms from the DWP that state your entitlement (used to be E106 etc). The names of the forms have all changed I'm afraid so a lot of info is out of date. The new form is an S1.

Thank you Sprostoni, Ram & Penny for your input. As I said earlier, all advice is welcomed. We are still UK tax payers and will remain so for a while yet. Does this mean that the private health insurance will not be necessary? Thanks

However, if you are not planning to be really resident, but are doing the residence thing to save a few bob, and use your British entitlement, you will of course have no entitlement to use the NHS in the UK as according to the UK govt you have emigrated. It isnt worth trying to play both games. If you get residence in Italy, and are not living there for more than 183 days a year, get private health insurance - or you will just end up a NHSless limbo...

I have read some threads on this topic but none quite reflects our situation and I could do with some advice. We have owned a house in Italy for a number of years but have just moved here. The plan is to do a 'year out' - ie we are probably not going to work during that time, and if we do, it will be for Uk companies. Our children are enrolled at the local school. Of course, there's always the possibility that we might decide to stay longer but for the moment the plan is 1 yr. we are renting our house in the Uk. My instinct is not to take out residency but I am not at all clear on the implications of this. I know that we pay more to ENEL etc but other than cheaper electricity, I am not sure what the advantages would be and it might just complicate things tax wise. Am I legally obliged to become a resident if I am here for a year? Even if we are just 'on holiday', so to speak? I have the S1 forms from the DWP in the Uk and they say we are eligible for Italian healthcare, paid by the nhS, until Jan 2014 - but do I have to be a resident to qualify?

Yes, you will need to have residency to be able to use the forms from the DWP. Most commune will not enrole your children in school unless you are resident either. If you stay longer than 3 months then you must claim residency. Having said that I know people who haven't but then they have private health insurance. I think you'll find it has tax implications for you too so you will need some good advice on that. What happens if you leave Italy every 2 1/2 months I don;t know but may be worth looking into.

Really? They have enrolled the children without a problem (so far! I had to apply back in Feb, before we were here). The only thing that has come to light so far is that I need to get codici fiscali for the children, but nobody could tell me how to do it. I have spoken to someone at the comune and also the admin office for school and they both said that it is not obligatory to become residents. The alternative was domicilio...?

You all need codici fiscali - go to the local Agenzia dell'Entrate with passports and photocopies, fill in the green form and get your cf's. You must have one if you have already bought a house. If you are here for more than 3 months, you should have residency, and if you are here for more than 183 days a year, it is also techincally required fiscally.