Reduced penalties apply for disclosing prior to September 2015
Now is the time to get your tax affairs in order, so that in the event you owe taxes in Italy for undisclosed assets and income – the penalties are reduced for possibly the last time.
In December, I briefly summarised this new government initiative and now the Italian government has released the legislation governing a new “Voluntary Disclosure Program” for those with undeclared foreign assets and income. The program provides Italian residents with the opportunity to make up the shortfall in unpaid taxes and, in doing so, significantly reduced penalties will apply.
Taxpayers who want to avail of this procedure will need to contact a professional adviser who will be responsible for submitting the declaration form together with a report detailing the omitted income and assets, the related taxes as well as a summary of the reduced penalties. The report will need to be supplemented by adequate supporting paperwork and documents from abroad will generally need to be translated into Italian.
The deadline for submission is 30 September 2015.
What’s this all about?
Essentially, it’s about encouraging Italian residents to come forward and declare previously undeclared foreign assets and income.
That is, declaring those assets held abroad (property, shares, bank accounts, etc.) that have never been previously declared to the Italian authorities, possibly upon which no tax has ever been paid to them. You should remember that not only are Italian tax residents required to pay tax on their worldwide income but also to disclose, in their yearly annual tax return, the existence of any assets (real estate, securities, cash, etc) situated outside Italy.
This is an opportunity to review your own financial situation and ensure you are tax compliant and up-to-date with Italy’s tax rules, when it comes to overseas based assets and income.
Penalties for non-disclosure added to accumulated back-taxes can add up to significant sums, and with the increasing rate of information-sharing between governments, the chances of being discovered for non-disclosure are much higher (Switzerland, for example have agreed an information-sharing agreement with Italy which is about to be signed and become law in 2015).
Ordinary penalties that apply today for non-disclosure, are generally between 3 and 15% of the asset values.
However under the initiative, penalties for not disclosing foreign assets will be between 1.5%-3% of the value of assets not disclosed (depending on where they are), calculated for each year that you have not disclosed them (going back for 5 years maximum generally).
Hence the voluntary disclosure initiative represents a significant penalty discount.
Many foreign-born residents are often unwittingly caught in the net and may however believe they are not taxable on foreign business or assets. Unfortunately this is simply not the case. You are taxable on your foreign-held assets in Italy if they give rise to income, and you must in any event disclose their existence.
The Quadro RW form provides the format to disclose your foreign assets and it’s required annually. One common example is a property you own that is now let, back in your country of birth.
You may well have paid tax in the country where your property is located, however that does not mean you are not taxable in Italy on the same property income. Hence you are likely to have outstanding tax to pay, based on your foreign rental income. If such a situation could apply to you then you must get advice from a qualified Italian-tax specialist.
There are many more details to consider if this program could be relevant to you, and you will need to take specific advice.
For planning and advice related to tax-effective investment strategies and foreign assets, message me here.
