Pay what you owe

Pay what you owe

Now that the sun is finally shining and spring has arrived, how sad and boring (you may think) it is to discuss taxes. But believe me, an incomplete tax declaration could make your summer and fall much drearier! Because if you live and work in Italy, with few exceptions, you

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Thu 21 Apr 2011 12:00 AM

Now
that the sun is finally shining and spring has arrived, how sad and boring (you
may think) it is to discuss taxes. But believe me, an incomplete tax
declaration could make your summer and fall much drearier! Because if you live
and work in Italy, with few exceptions, you must pay taxes in Italy. Who takes
care of your income tax report, la dichiarazione dei redditi?
What it is the ‘CUD’? If part of your income comes from investments or work
abroad, in which country do you pay taxes?

 

Individual situations vary, and the Italian tax system
is very complicated, but there is some basic, general information that every
foreign employee who works in Italy should know about how employee taxes are
paid and who is responsible for their payment. Let’s explore these basics
through some frequently asked questions.

 

How do I pay taxes on my salary?

Every month your employer must deduct a part of your
salary to pay directly, on your behalf, your taxes. Thus, the check that you
receive at the end of each month is ‘lighter’ than your gross salary. The
employer is your sostituto d’imposta, your withholding agent, who is personally liable for
withholding a part of your gross income to pay your taxes and social security
duties.

 

How do I know how much I paid in taxes?

All the employment wages that you received during the
previous year, as well as the amount of salary used by your employer to pay
your taxes and the amount of money used for security contributions are reported
in a final document called the Certificazione unica dei redditi di lavoro
dipendente (CUD). By the end of February of each year, employers must provide
all employees with two originals of the CUD documenting salary and taxes paid
during the previous year. So, for example, by the end of February 2011, you
should have received the CUD for 2010. If you have more than one employer, you
should receive a CUD from each.

 

What information does the CUD contain? 

Every year the Ministry of Finance releases a new
model of the CUD (due to the introduction of new tax provisions), so the number
and the location of the information to include in the form can change. But
generally speaking each CUD is divided into four parts: (1) Employer
(withholding agent) information; (2) Section A: employee general information
(birth date, residency, tax code); (3) Section B: employer’s tax information;
and (4) Section C: social security data.

The most important portions are probably contained in
Part B, where you will find (*): N.1 the gross salary, which is used to
calculate the taxes; and N.2, other income, which is considered the equivalent
of your employment salary, reported only for tax deduction purposes, and income
subject to separated taxation (for example, back payments, pensions, money paid
in addition to regular wages to an employee upon dismissal or resignation).
Section B also contains N.3 and N.4, the number of days worked during the year.
The items from N.5 to N.33 document taxes paid on behalf of the employee by the
withholder, including salary, regional and local surtaxes. Finally, N.34 notes
the reported gross amount of taxes that the employer will pay. This amount will
be subject to different types of detractions, such as tax credits, including
taxes paid abroad, family support, and other burdens that will determine a
reduction of the taxes to be paid. (*) These numbers are according to the 2011
CUD

 

I have my CUD. Now what?

Generally speaking, if you do not have any other form
of income in Italy or abroad, or if all your income is reported in the yearly
CUD, then-provided that the employer correctly filed your tax report and took
care of all the tax payments-it is likely that the employee will not have to
file any other tax form.

On the other hand, if during the year you (1) earned
income from other sources in Italy or abroad, (2) own real estate properties in
Italy or abroad, (3) had expenses or burdens that are allowable deductions such
as mortgage, medical expenses, child expenses, alimony or child support; or (4)
claim reimbursement of the tax credits paid in excess, then the employee must
file another tax report, either the Modello 730 (see below) or Modello UNICO.
In this case, the employee will submit one of the two originals of CUD to one
of the organizations that offers support to employees in filing their tax
reports (such as the Centro Assistenza Fiscale (CAF), generally free of charge
for employees) or another tax professional to compile the Modello 730 or
Modello Unico. Which one you
will use will depend on the type of income, and all these expenses will be used
to decrease the amount of taxes you must pay.

To avoid the countless pitfalls possible in the
Italian tax system, I recommend that you work with a professional accountant or
the CAF.

 

I am an expat employed in Italy, but I also have
income from activities, investments or properties abroad. Where do I pay tax?

Enter double taxation relief. According to the Testo
Unico Imposta sui Redditi (‘Unified Text on Income Taxation’), whoever resides
in Italy pays taxes in Italy, no matter where the income was earned. This is
known as the worldwide taxation principle. Thus, in Italy the general rule
(although subject to several exceptions) is that a person is liable to pay
taxes in Italy if he or she resides here for at least 183 days or if the
person’s closest personal and economic relations (‘center of vital interests’)
are in Italy. But, even if a person paid taxes abroad, that part of their
income must be reported in the Italian tax return.

Finally, note that since 2009, if a person owns a real
estate property in a foreign country, even if he or she already paid taxes in
that country, these assets must also be reported on the Italian tax form
Modello Unico, redditi prodotti
all’estero, even if the
person is not earning money from them.

 

What about . . .?

Perhaps you are employed in Italy but conduct your
work abroad. Or you have investments such as stock investments, pensions or
retirement funds in your home country. The tax process becomes even more
complicated. Even if you owe taxes in your home country, you may still be
liable to declare that income in Italy. Thus, even if some of your assets are
abroad, you are obliged to report them all in your Italian tax return. Again, I
advise you to turn to a tax professional.

Avv.
Michele Capecchi will be writing a regular column for The Florentine. Should
you have any general legal questions, send them to redazione@theflorentine.net.
He will compile the most relevant inquiries and respond in coming issues.

 

DISCLAIMER:

 

As
always, this article is intended for informational purposes only. It is not
intended to give you legal advice, and should not be considered as such. None of
these materials are offered, nor should be construed, as legal advice. The
communication of this information or use of such information is not intended to
create an attorney-client relationship. We always recommend that you
specifically seek professional legal advice. The description anywhere on this
page of the results of any specific case does not mean or suggest that similar
results can or could be obtained in any other matter. Each legal matter should
be considered unique and subject to varying results. Also, the information
herein provided is based on the current regulations enforced in Italy and
therefore is subject to continuous changes and updates.

 

 

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