We talk about real estate abroad, double taxation and how to avoid it.
question: good morning and well found at the office of the beautiful associate. Today we are in the company of Doctor Stefano of the beauty who will continue to talk to us about the protection of heritage, in general, and properties abroad in particular, doctor?
answer: on the occasion of a conference that we were asked to keep in favor of the estate agents (fiaip) this week on Lake Garda with the theme of protecting the heritage and buying real estate abroad we made some reflections in the studio we have found efficient solutions that guarantee heritage protection.
I start from the end of the conference: buy/let buy a house abroad through an Italian company vehicle.
question: interesting doctor, why?
answer: we have a big and unique problem that is declined in two aspects:
– the problem is double taxation;
the two aspects are:
– current double taxation;
– double taxation in succession.
question: doctor, can you explain what is meant by double taxation?
answer: I will try to be as simple as possible in favor of viewers so that they can understand the problem. Italy taxes all its residents for all the incomes they produce anywhere in the world and tax the non-residents for the incomes they produce in Italy. the attention I said residents and non-citizens because at the level of taxation we look at the residence. I can have an Italian citizen who lives and works for most of the tax period in France and is registered with the Italian registry (Italian population abroad): this person is an Italian citizen but resident in France and therefore will not be subject to taxation in Italy if not for the income it produces in Italy, for example, the land income or that of the buildings it owns in Italy, whether they are rented or are available. these principles are clear, Giulia?
question: I would say yes, taxation by residence and not by citizenship, but I don’t understand double taxation?
answer: now we get there. let us take the same example as before, even the French tax with the same principle (worldwide taxation principle) and therefore tax the Italian citizen residing in France for the income he produces in the world and therefore also on the properties that he owns in Italy. Italy claims property taxes in Italy, France claims them for the same properties because they are owned by a person resident in France. I would not go any further than to say that there are systems to avoid double taxation or some states give a tax credit for taxes paid abroad and others exempt an income already taxed by another country.
question: doctor, but hasn’t he explained the double taxation of succession yet?
answer: good Giulia, I see you particularly attentive, who knows how many properties you have abroad. the double taxation inheritance occurs when, for example, a resident in Italy, at the time of death, owns property abroad. two tax successions are opened, Italy wants taxes on all the assets of the deceased resident in Italy also abroad and the foreign country wants inheritance taxes on the property that is located abroad. without thinking that there are countries that have very particular successor rights, such as Dubai, let’s take an example:
man resident in Italy, married, with no children or brothers, buys for investment in real estate in Dubai, growing market, reduced taxation. the man dies, he has to pay taxes in Italy on the properties in Dubai (keep in mind that what you have of real estate abroad must be declared in the rw framework of the tax return and you must pay the capital, equal to 0.76% of the value of the properties) and Dubai will want his. what you do not know, I imagine, and that in Dubai, an Arab country, there is sharia, a civil Islamic law for which, in some cases, the wife is unworthy of succeeding her husband and the property is acquired by the emirate.
question: so what should be done?
answer: the useful tool is to buy the properties abroad with a corporate vehicle that allows, even in the case just mentioned of Dubai, to pass the shares in Italy in succession. The Italian company, Italian shares, deceased resident in Italy and Italian heir. dubai would have no right of taxation.
keep in mind that, to date, Italy is to be considered a full inheritance tax haven, a straight-line franchise (children and grandchildren) of one million euros and on the excess part tax at 4%. there have been democratic and attractive ones also with regards to real estate like the united kingdom and France that come to tax in succession up to 40% and beyond.
what a person must do, together with his trusted advisor, is to plan correctly the investment so that the succession is made entirely in Italy.
question: excuse me, doctor, didn’t you say that there were mechanisms like the tax credit and the exemption that solved the problem of double taxation?
answer: yes, I said it and it’s true. the problem is that if they allow me to discount the tax credit for inheritance taxes paid in the united kingdom but in Italy, I do not pay them because they are in the one million euro franchise, I don’t enjoy the tax credit, rather I lose it. the tax credit works against the current double taxation: Italy has a very expensive current tax on income and therefore I can discount the tax credit paid abroad by the taxes I have to pay in Italy, but at inheritance level, we are a tax haven then the taxes I pay abroad I throw away. with the corporate vehicle, simplifying a lot, I don’t pay taxes abroad.