I move to Italy on Tuesday and have just been informed that there’s a tax treaty between the UK and Italy with a clause that covers me. If I work for at most two years in a university doing research, then I’m tax exempt in Italy, and can be taxed in the UK. This is great, as it saves me up to 7% marginal rate in my upper tax bracket. However, I’m a bit confused as to how this treaty works. Will my employers automatically understand that this treaty applies to me in Italy? Do I have to inform the HMRC in the UK of this? How exactly does it work?
Unfortunately the treaty won’t deal with how it works; the treaty will determine what your tax liablity is, but administration of tax, and how it is collected, is left to be dealt with by the national tax authorities as they see fit.
I have no idea about the mechanics of tax collection in Italy. I suggest you talk to the university; if any employer has experience of short-term engagements of visiting foreign employees, a university will. It may be that you will need to get some kind of certificate from the tax authorities and present it to you employer before they can stop deducting tax. Alternatively, you may have to let them deduct the tax and then claim it back from the tax office as a refund. But your university employer should at least know how to go about this.
Of course, you should engage the services of a chartered accountant. But in general, assuming that Italy has income tax withholding:
Get a certificate of tax residence from the UK tax office.
When filling out the paperwork for Italian payroll, attach a written statement of your special status and a copy of the certificate.
If the employer insists on withholding tax, you seek a private ruling from the Italian tax authority confirming your special status, pursuant to Italian law.
If the Italian authority refuses to issue a ruling or denies your status, you file for a competent authority procedure with the UK tax office.
If the UK and Italian authorities reach a mutual decision that you do not qualify for the special status, you pay the Italian tax without treaty relief and credit it against your UK tax pursuant to UK law.
Thanks both. I phoned HMRC yesterday to be safe and they basically told me there’s nothing that they can do in the UK. I have to claim the tax back in Italy.
You may be able to get Payroll to not withhold from you by providing the treaty’s reference, without that certificate of tax residency. Speak with them first of all, to see what documents will they need.
And some of these treaties spell out quite clearly how do they work; the Spain-US treaties which were applicable to me while I lived in the US explained everything short of what figure to write in each line of the US tax form.
There’s a form. (There’s always a form. In Italy, there are usually fourteen forms, each of which HAS to be filled out AFTER the other thirteen.)
The form states, basically, that you’ll be getting paid in Italy (or wherever) but you’re officially resident in the UK (or wherever). You need to sign it yourself and then have it stamped by the UK tax authorities - send it to your local tax office. Then you give it to the Italian employers and they don’t withhold tax.
I’m not sure where you get the form, because someone else sends me mine, but I’m pretty sure it comes from the country where you’re being paid rather than the country where you’re officially resident. Your Italian employers might well have copies.