Tag Archives: dual

THE DUAL-NATIONAL ADVANTAGE

THE DUAL-NATIONAL ADVANTAGE

(ITALY)

So you are a dual national (Italian-American) doing business in Italy? Well, for a person in business, that may be an advantage! However, before we begin, we need to understand some basic principles:

Taxation

  1. Residents of Italy are subject to Italian tax on their worldwide income. Individuals who are not Italian residents are subject to tax on their Italian-source income.

  2. Citizens (not only residents) of the US are subject to US tax on their worldwide income. Non-citizens who are not US residents are subject to tax on their US-source income. Note: Green Card holders are considered US citizens for tax purposes.

  3. Double-Taxation is governed by the US-Italy Income Tax Treaty1.

Residence

  1. In Italy an individual is considered a resident for income tax purposes if, for the ‘greater part of the year’, they satisfy any of the following conditions:

    1. Their habitual abode is in Italy.

    2. The center of their vital interests are located in Italy.

    3. They are registered at the Office of Records of the Resident Population in Italy.

    4. Note: By unwritten EU convention ‘greater part of the year’ is defined as 180 or more days per year.

  2. In the USA an individual is considered a resident for Federal and State income tax purposes based on different criteria:

    1. Federal: You are a resident for income tax purposes if you were present in the USA for a period longer that 35 days in any given tax year.

    2. State: Differs State to State, but for California you are a resident if you were present in California for 9 months or more2 in any given tax year.

Income Tax Rates

  1. The official income tax rate in Italy is 23-43%3, however with almost no ‘serious’ deductions and exemptions, and after you add-in certain ‘hidden’ taxes and non deductible business expenses, under certain conditions, the ‘unofficial’ tax rate can shoot up to 70%!

  2. The official income tax rate in the US is 10-40%4, however with many deductions and exemptions, including, but not limited to, a ‘Foreign Earned Income Exclusion’ of $97,6005. Furthermore, since the US adheres to the principle that ‘all income is taxed, but taxed only once’, the official income tax rate is generally without unpleasant surprises.

  3. California has an income tax of 1-12%6, and does not recognize the Federal ‘Foreign Earned Income Exclusion’!

Fortunately, a business entity is generally taxed where it is registered … and this is gives an advantage to dual-nationals!

Example

You are a freelance Photographer doing business in Italy and are paying all those wonderful Italian taxes. You can you legally reduce those taxes without entering into conflict with Italian or US laws and regulations by registering a business entity (sole proprietorship7, LLC8, or Chapter S Corporation9) in the USA!

Once you have registered a business entity in the USA, your US business entity charters your services to do business in Italy. You now bill all your worldwide clients as a US entity and your clients pay you via bank transfer directly into your US business bank account. Your US entity is taxable only in the USA and pays no taxes in Italy. Italian taxes if any, you pay as an individual!

If you keep your Italian residency:

  1. You are taxed in Italy as an individual on any monies you decide to pay yourself from your US business entity. That amount must be ‘credible’ to Italian tax authorities. Any other monies you may need you can ‘borrow’ from your US entity (loans are not income and therefore are not taxable).

  2. By spending less than 35 days per year in the USA, you take full advantage of the US Foreign Earned Income Exclusion.

  3. You keep your Italian social benefits, if any.

If you transfer your residency to the USA:

  1. You pay no taxes in Italy.

  2. You loose the US Foreign Earned Income Exclusion.

  3. You loose your Italian social benefits, if any.

  4. You can spend a maximum 180 days per year in Italy.

Setting up a Business in California:

  1. Sole Proprietorship: If you use a business name other than your own, you must register a ‘fictitious name’ in a county of your choice10 The cost is minimal but varies county by county. Probably can be done on-line.

  2. Limited Liability Company (LLC) or Chapter S Corporation: Use an on-line service11. There are many, and the cost varies from $184-439 and up, depending on the services requested.

  3. Business Bank Account: You most likely will have to go to the USA to set up your business account. You can use your personal bank account only as a sole proprietor, and only if you do not use a business name that is different from your personal name.

PAAL Services USA © 2014 http://paalservicesusa.webs.com/

Advertisements