If you are new to Italian taxation, IVAFE may sound a weird tax, and definitely something that does not exist in the USA.
IVAFE stands for “Imposta sul Valore delle Attività Finanziarie detenute all’Estero” , which translated literally means “Tax on the Value of Financial Assets held Abroad”. This tax applies to all Italian residents who hold financial assets abroad, including ETFs and similar financial instruments.
IVAFE is paid on a yearly basis at a rate of 0.2% of the asset value when the assets are held in non-blacklisted countries, with the US being part of that list.
Implications
To better grasp the impact of this tax on your finances, consider IVAFE as akin to the management fee connected with an Exchange-Traded Fund (ETF).
ETF management fees represent the cost of overseeing a fund, generally around 0.05% annually. These fees are charged by the fund and automatically subtracted from the ETF assets, thereby diminishing the ETF returns.
When you factor in IVAFE on top of this, it’s as if your ETF cost amounts to 0.25%. For instance, if the market yields, let’s say, 10% year over year, your net market return would then be 9.75%.
While not ideal, in the larger context, this is unlikely to significantly alter investment returns.
Spaghetti Finance 