In a previous blog post, we explored the complexities of investing for a US citizen residing abroad and emphasized the efficiency of using a US broker for investments.
This article we will discuss how earnings from a US broker are reported in Italy and the corresponding taxation.
Capital gains
The tax treaty between Italy and the USA ensures that capital gains are only taxed in the country of residence, which in this case is Italy.
In Italy, capital gains from financial assets such as stocks are subject to a flat tax rate. Additionally, government bonds issued by certain countries, including the US, receive preferential treatment and are taxed at a lower rate. However, US ETFs are taxed as income, meaning that the actual taxation will vary based on your tax bracket.
| Asset | Italian Tax rate |
|---|---|
| Stocks | 26% |
| Government bonds | 12.5% |
| US domiciled ETFs | Depends on your IRPEF tax bracket, 23% minimum, 43% maximum |
Dividends
Income from dividends due to holding stocks or bonds will be taxed by both Italy and USA, in this case you should first apply Italian taxes on them then deduct the Italian taxation in your US return. Usually the Italian taxes you pay will cover any amount due according to the US rules.
Italy applies the same tax scheme of capital gains, so the rate depends on the type of security. You can refer to the same table above.
Conclusion
The taxation of investments in the USA and Italy can be quite complex, but understanding how it works can empower you to make informed decisions. In many cases, a well-diversified portfolio of individual stocks and bonds will be the best to optimize your taxes.
However, it’s important to emphasize that individual circumstances may vary. If you’re uncertain about the best approach for your specific situation, seeking advice from a tax advisor may be the best course of action.
Spaghetti Finance 