Seeing Some Other Houses and Meeting a Great Resource

Kevin wanted me to see a couple of houses where he’d managed the building and reconstruction . The primary goal was to focus on the windows, doors, ceiling beams, and flooring, since those are some of the items we will need to choose early in the process.

stairway lights in wall

ceiling beams and tiles with wired light fixture

The first house offered a lot of stimulation to know what we don’t want. It was very contemporary inside, which makes it in keeping with modern Italian, but that’s not the look we’re going for. All it really offered me was the idea of including dovecotes, in an otherwise unappealing exterior, and a better understanding of under floor heating.

The second house was more to my liking. It was more rustic, closer to the look we want. Both the beams and ceiling treatment and the flooring offered some good examples, as did the fireplace.

The best resource I discovered here was the owner, Michael. Originally from New York, he moved to Italy from Miami full time last spring. He had found his house through Kevin, and then Kevin managed the restoration. The purchase was in 2012 and the house finished in 2014. Michael said he could have done it more quickly, but he wanted to stretch the process out to fit the timing of some other events.

He still works for a law firm in Miami, so one of my first questions to him was about the quality and speed of the over-the-air internet, the only way to get connected out in the Marchegian countryside. He said it took some fiddling by the supplier to get it right, but he said he was pleased with it once it was tuned. (It uses an on-the-roof receiver/transmitter, connecting into a cellular network, I guess.)

I also asked him how easy – or difficult – he had found the process of getting connected to the local community. He said that, while he was not naturally extroverted, he had made it a point to “put himself out there.” He said he always introduced himself when he went to a new place, a restaurant or store, and told them he’d bought a house nearby and was there full time. Since Marche is off the beaten path, the locals don’t meet a lot of Americans who have done this.

They really like Americans, especially those who are trying to use their language. They started telling their friends all about the new guy, and soon Michael knew a lot of people.

He’s also an avid cyclist and he meets people through this shared interest.

Overall, it was a very positive message, and it points out our need to find some activity we can get involved in once we’re here. Too bad I don’t knit.

An Update

Two nights later I took Michael to dinner so I could get more perspective on the house building process and some other issues related to making the move. We were supposed to go to a restaurant in a small town, but it was closed when we got there. The earthquakes of the night before had made a mess of the inside of the restaurant: wine bottles fell off the wall, etc. apparently no major structural damage, though, as he thought they might reopen in a day or so.

We ended up going into Tolentino, one of the good-sized towns in the area. We went to an eclectic restaurant where he knew the owners. One of the things I had was an antipasto plate, the meats on which came from the town of Visso, near the epicenter of the previous day’s earthquake. The owners wondered about the future of their supplier, and said maybe this was the last salume they’d receive. A bit eerie.

Michael and I talked about residency, but his situation is totally different. He has Italian heritage, so it’s relatively easy for him to become a citizen. He said the big draw was access to the low cost, high quality health care.

We talked a bit about Kevin as a construction manager. He pointed out that they have become good friends, through cycling and otherwise, and I took this as a sign that he had been pleased overall. He said Kevin tries really hard to make sure the client gets what he needs — we’ve seen that, too. Michael also said he thought that Kevin was continuing to learn more about building options and resources, so he expected our process would be good, maybe even smoother than his.

One recommendation he offered was to look at using a (wood) pellet heating system rather than gas. He said, while more expensive upfront, it pays out rather quickly. Kevin had thought gas was better for us, but I’ll need to ask him again about it.

Michael offered his ongoing help, which I think will be valuable, as an American who has navigated the waters and is sailing along.

A good dinner and more positive feelings.

Image source
Copyright © Our Big Italian Adventure

A Final — I Think — Post About Residency

It looks like the residency question has sorted itself out, just a few days before a decision had to be made.

house made of euro paper moneyRemember, the big reason to consider becoming a formal Italian resident is financial: we can save 7-9% of the purchase price when a resident, or 30,000-40,000€. But it makes us liable for Italian taxes on both income and assets.

Financially, it’s probably more or less a wash on income tax. The rates in the US and Italy seem comparable for unearned income, and we can deduct the Italian tax on our US return.

The financial problem is on assets. The Italians tax worldwide financial and real estate assets. These taxes we can’t deduct in the US.

But here’s the practical resolution, which I hadn’t understood clearly before: we’d need to become residents within 18 months of the time we sign the purchase and construction contracts. That puts us in the spring of 2018, well before we’d be able to be there for long enough of an extended period to become residents.

So we’ll have to bite the bullet and pay the extra taxes.

Image source
Licensed from aeolos via 123rf.com

Project Update: Timing, Residency, and Taxes

We’ve spent most of the last 6-7 weeks waiting for the formal permission to build. We had to wait out August because most of Italy, including the planning “department” of Colmurano, which is really just one guy, is off work. Then the earthquake naturally delayed routine building projects, as many structures needed to be inspected for damage.

Application for permission to build in Italy
Application for Permesso di Costruire
Click image to enlarge

Our formal application was submitted on September 9. It is a surprisingly short document, only 8 pages with diagrams. (The brevity is probably because we are applying for a variance to an already approved project rather than a whole new project.)

Latest word is that approval is imminent, supposedly next week.

Residency and Taxes

Off and on, I’ve been trying to understand the issues and make a decision about whether we should try to become residents of Italy. The only reasons we’d do it are to save money on the purchase and construction and to eventually be eligible for the extremely low-cost/high quality health care. The reason not to do it may be the amount of Italian income tax we’d need to pay.

To start, I do finally understand our options for spending time in Italy, but the tax situation is still murky.

We can stay up to 90 days in a 180-day period without any paperwork or a visa. In this case, we get no tax break or face any Italian income tax.

To stay more than the 90 days, we need to become “elective residents.” This requires that we get a visa in the US and then register with the comune when we arrive. I don’t think this would qualify us for a tax break, but if we stay more than 183 days in a year appear to be subject to income tax.

We could become “formal residents.” This is a much more complicated process and seems to require some years of elective residency. This certainly makes us eligible for the purchase and construction savings, but also certainly requires us to pay Italian tax.

How much tax? Unclear. I’ve gotten referrals to a couple of accountants, but I can’t seem to get them to understand my issue. They just tell me about the purchase and construction taxes, which I understand.

Some Pure Speculation

I did find a KPMG site and a Deloitte site which gave me some insight, so at least I know the range of issues involved.

Importantly, it defines a resident who is subject to taxation as staying more than 183 days. Will this limit how long we can stay in Italy each year? A new issue arises.

Some types of income, certainly earned income, is taxed at a top rate of 43% plus local taxes of 1%-4% on income over 75,000€. (The lowest rate is 23% but is near 40% for most income levels.)

On investment income, dividends appear to be taxed only on 60% of the amount, but at the above rates, so about 25% in total. For capital gains, the tax rate seems to be 26%. There is also a “wealth tax” of 0.2% on investment holdings and a tax on real estate owned that is outside of Italy of somewhere between 0.4% and 0.8%.

All of this doesn’t consider deductions or exemptions, which I can’t begin to understand.

We might be subject to capital gains tax on US real estate we sell. There may also be an estate tax, were that to become relevant.

The income tax portions of this can be claimed as a foreign tax credit, but subject to limits, one of which is the amount of US taxes owed.

Clearly, we need to find someone to sort this out soon, as we need to make a residency decision within a few weeks.

Image source
Copyright © Our Big Italian Adventure

Codice Fiscale We Get Our Official Italian Tax Code Numbers

To be able to buy the property, both Anne and I need to have an Italian tax code number (codice fiscale). The approval process seems suspiciously simple. Surprisingly, there is no official form that needs to be submitted in triplicate, personally hand-carried to be stamped by officials in four different offices, each of which is open just a few mornings a week, and accompanied by a video of your oldest child’s high school graduation.

In fact, there is no form at all. You write a short statement giving your full name, date and place of birth, and occupation, attach a copy of the main pages of your passport, and authorize your lawyer to apply for you. Done. We had it back in a day, all done from the comfort of our home.

Codice Fiscale Structure
Codice Fiscal Structure

(Now, the process to become a resident is more like the one I outlined above. I’ve read stories online of people being sent away because the ink color they used was wrong or the tax stamp was not aligned in exactly the right way. So we will have that to look forward to.)

The tax code you get looks more complicated than a social security number, but its purpose is similar. It’s 15 characters, constructed using a formula based on your basic facts. For example, mine is KTZDNJ55R08Z874I.

Now we can open a bank account and transfer euro as we need them.

Sources
First image source: https://it.wikipedia.org/wiki/File:Codice_fiscale_nuovo.jpg
Second image source: http://www.agenziaentrate.gov.it/wps/content/Nsilib/Nsi/Home/CosaDeviFare/Richiedere/Codice+fiscale+e+tessera+sanitaria/Richiesta+TS_CF/SchedaI/FAQ+sul+Codice+Fiscale/

To Be or Not To Be: The Residency Conundrum

When you look at the taxes on a property purchase, you immediately notice that a big variable is your residency status. If you are an Italian resident (and it’s your “first home”, apparently meaning you have no others nearby), you are taxed at significantly reduced rates on purchase and construction costs. (I estimated we might be talking about €30,000 in our case.)

(I don’t have an official source on this, but for these purposes it seems that “are an Italian resident” means you intend to become one within 18 months. But it gets murkier, because, as I explain below, you can’t get “permanent residency status” in less than 5 years.)

flag_of_the_united_states_and_italySo, what can we and should we do? Become residents or not?

For now, let’s assume that we can. I’ve read a number of places that it can be done, with some saying, “it’s easy.” That I don’t believe, but it would be easier if Anne or I had a parent or grandparent who was an Italian citizen. I’m not finding it in the family tree.

Should We Become Elective Residents?

On the “should” questions, there are financial, practical, and emotional pluses and minuses to weigh.

I mentioned the purchase/construction tax benefit. Unknown is the impact on our income taxes. Will our total taxes, US and Italy, go up? I’m in touch with a couple of accountants, one here and one in Italy, who I hope can sort this out. If the income tax burden is higher, the residency question may resolve itself.

A big plus to being a resident is eligibility for the Italian health system. This would eliminate our need for health insurance while in Italy. From what I’ve read, the level of care in Italy is high. From my experience last year when I had to replace stolen medications, I’d agree. And I also learned that medications are dramatically cheaper.

One thing you can’t do in Italy as a non-resident is buy a car. Go figure. You can buy a house but not a car. That might be fine if we’re not there full time. I just looked at AutoEurope and they offer longer term rentals and the rates aren’t outrageous. Three months, starting this September as an example, is about $2000-$2200 for the smaller car that we’d want. (I will need to look into car insurance for an extended rental.)

Emotionally? We’re Americans. We love Italy, but what does it really mean to be a “resident of Italy”?

Can We?

Well, it’s not clear from what I can find online. Some of the confusion is caused by terminology.

I’m going to cite the official site poliziadistato.it which I have in sight right now. (Sorry. Couldn’t resist. Sigh) I’m using the English version of their site, which I’m sure is only “partially official”.

To stay more than 90 days, a non-European Union citizen needs to have a “residency permit.” (Is that 90 days in one trip or per year? Not sure.)

To get this permit, in addition to some paperwork and fees, you need a visa. This visa can only be issued outside of Italy. You need to go to the Italian embassy or a consulate in your home country to get it. (If you’re already in Italy and want to stay past 90 days, sorry. Leave, get the visa, come back.)

You can get the visa and permit for up to 2 years, if you are “self-employed.” (Does my online teaching count? How about teaching Italians English for very low rates?)

To get “permanent resident status”, you need to be “continuously resident for 5 years.” What does “resident” in this context mean? Have the “residency permit” continuously for 5 years? Be living in Italy for 5 years? And what about “continuous”? No trips out of Italy? Being there more than half the year?)

At minimum we’ll need to a trip downtown to the Italian Consulate in Chicago. More likely, we’ll need an Italian legal specialist.

I’ll keep you posted.

Image source: By Flag_of_United_States.svg: Dbenbenn, Zscout370, Jacobolus, Indolences, Technion. Flag_of_Italy.svg: see below derivative work: AwOc (Flag_of_United_States.svg Flag_of_Italy.svg) [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0/)], via Wikimedia Commons

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