Taxation outline for employees of international organizations in Italy
Hardly a day goes by in my working life in Rome (as an international financial consultant) that the question of whether or not a person should report and pay tax in Italy is not raised.
The most common people to contact me about this are those working within one of the many international organizations that are based here in Rome.
The nature of their enquiry usually revolves around their confusion of their actual tax status here in Italy and the conflicting information they are given compared to information they find on the internet? When looking for some comfort they turn to colleagues with longer experience of working here in Italy and are met with varying personal opinions which cause further confusion.
At this point I must state that I am not a tax advisor but I have drawn on professional opinions of those who are to detail some of the agreements currently in place. Manuela Stefoni of Oliver and Partners Rome, has kindly assisted me by researching and writing the below outline for readers:-
Italy has entered into numerous headquarters agreements for hosting headquarters/offices of International Organizations (the UN, the FAO, the Ital-Latin American Institute, etc.).
The content of the headquarters agreement (international convention) is generally standardized, with the exception of specific particularities relating to individual international organizations.
These headquarters agreements are a point of reference when it comes to establishing regulations for the legal relationship between an organization and the host country, including taxation of the salaries paid to employees of an international organization.
Headquarters agreements have been signed by the Italian government (the country hosting the headquarters and offices of the organization) and by promoters belonging to the hosted organization.
A key aspect consists of the maintenance of privileges and immunity for the organization, for the delegates from Member States, and for officers in order to allow the achievement of specific institutional goals.
The category of officers is vast, and includes all members of the personnel who perform their duties for institutional purposes of the organization to which they belong.
These do not include specialized experts with ad hoc commissions nor personnel hired locally and paid according to hours worked.
Privileges include tax exemptions for the various types of payments made by an organization or on behalf of the same. However, generally speaking, officers who are Italian citizens or who are permanent residents in Italy may not benefit from such tax exemptions.
The inapplicability of the tax exemption, as described above, for officers who are Italian or permanent residents who work at an international organization that does not have a permanent establishment in Italy means that the employer organization lists on the pay-slip only the social security withholdings indicated on the annual statement of salaries (not being a taxable entity in Italy).
In order to fulfil tax obligations, the employee must file the UNICO tax return.
By this article we start an analysis of such Agreements to allow employees and families to comply with their duties.
FAO-WFP Agreement :
The Agreement between the United Nations and the Food and Agriculture Organization on one side and the Government of the Italian Republic regarding the headquarters for the World Food Programme for officials states in article XIII section 30, the following:
- (E) exemption from any form of direct taxation on salaries, emoluments and indemnities paid to officials by WFP
- Lett (f) exemption for officials who are not Italian nationals from direct taxation on income derived from sources outside the Italian Republic.
As you may read, the above (f) states the exemption on “income” (such as additional emoluments or other income ) for non- Italian nationals while no exemption is granted on personal wealth (i.e. assets).
Taxation of spouses and relatives: the above exemption is not extended to spouses and relatives who are exempt only from immigration restrictions and alien registration according to let. (g) of the same article. Accordingly those individuals shall be considered as taxpayers subjected to the ordinary rules of taxation respectively 1) Italian sourced income for non -tax residents and 2) taxation of worldwide assets for tax residents of Italy.
In order to verify who is a tax resident under the fiscal rules, the physical presence test of more than 183 days per calendar year for residence or domicile in Italy would apply.
Pensions: no specific exemption apply to pensions of WFP employee according to the named Agreement. Moreover Revenue Agency Resolution 285/E dated Dec. 16/2009 explains that any tax exemption must be clearly stated in the Agreement to be valid and for the International Organizations the exemption is connected only to the specific institutional activities performed by the in force personnel, the latter non-extendable to the income under retirement.
So what does this mean to those people affected by the statements made by Manuela? Well, I am sure that some may say that won’t apply to me as I work for organization x,y or z and they were not mentioned in the examples and internally I have heard differently? Others may be thinking gosh, I have never reported any of my affairs in all the years I have spent here in Italy and they will be afraid to act because of this?
For those people who work with these organizations and still have some doubts about their position, let us look at this logically by answering a few questions.
- Do you spend more than 183 days a year living in Italy? Yes? you are a tax resident here (in almost every case)
- Are you an officer of a UN or international organization with treaty agreements? Yes ? Salary and Emulsions and not taxed in Italy
- As an officer or consultant of the same, and you purchase a property in Italy, do you pay annual tax on this? The default answer to this should be yes and proves that you are paying Italian tax on non-income related earnings from your employer.
- As an officer or consultant of the same, when you hold assets in an Italian bank account do you pay 26% tax at source on any capital gain? This is not actually a question as everyone does so hence further proof that you are paying Italian tax on non-income related earnings from your employer.
- If you are receiving a pension income in Italy form one of these organizations and you are an Italian national or a permanent full resident not making a tax return each year, would you not be wise to understand your actual position rather than to ignore it?
- If agreements and treaties were made Italy with UN organizations, those surrounding it and other international organizations in the mid 1900’s relating to earned income and emulsions exemptions, would you expect those agreements and treaty’s to cover all tax laws made in Italy in existence that were not related to income earned and those introduced in the 1990’s (declaring worldwide assets) and in 2011 (wealth tax on property and assets held outside of Italy)? Yes? This is incorrect in most instances as it clearly does not apply in points 3) and 4) No? Then you are correct.
The simple solution to this problem is to seek some professional advice that is INDEPENDENT in all aspects to assess your personal tax circumstances, your assets and how they could be best held tax efficiently.
The worst thing to do is to do in this instance is to do nothing, as claiming that “ignorance to the laws and rules that apply in Italy is a legitimate defence” will just not wash with the tax authorities here or anywhere else in the world.
For further information please contact firstname.lastname@example.org