Tax treatment of pensions earned by Italian self-employees emigrating to another EU country

ITALY - Tax treatment of pensions earned by Italian self-employees emigrating to another EU country

April 2019

With the increase in international mobility, including retirees, the Italian Tax Authorities issued clarification regarding the taxation of retirement income earned by non-Italian tax residents who have moved to another EU Country. This was in relation to self-employed workers, as well as the tax treatment of the severance payment paid by an Italian Pension institution.   

The Italian tax law (art. 23 par 2 letter a) of the Italian Tax Code (TUIR) states that retirement income is considered to be produced and taxed in Italy if it is delivered by the Italian State or by an Italian Pension Institution residing in Italy.

The tax ruling submitted to the Italian tax Authorities is interesting since it is in relation to self-employed individuals.

Whilst it was always the case that income granted by the Pensions Institution to retired employees must fall within art. 18 of the OECD tax Treaty, there was some uncertainty around whether the same treatment should be given to retired self-employees.

The Italian Tax Authorities clarified that, in adhering to the principles defined in the OECD Commentary (art. 18, paragraph 7), such income does not fall within art. 18, but rather within art. 21 of the OECD Treaty (residual category).  

Therefore, in this case, art. 21 “Other income” of the European double tax treaties, must be applied instead of art. 18 “Pensions”.

Art. 21 provides for no taxation of pensions in the Country of residency of the Pension Institution that delivers the income, and for the exclusive taxation in the Country where the person is tax resident at the moment of the payment of such revenue.

Consequently, an Italian citizen expatriated to another EU Country (in this case Portugal), will not be taxed in Italy, but exclusively in Portugal, regardless of the fact that such Country applies a more favourable tax treatment.

BDO comment

Since in most cases the Italian Pension Authorities apply tax withholdings on the above incomes, taxes incorrectly paid can be reclaimed by submitting a specific refund application.

Gianluca Marini
[email protected]

Gianluca Foligno
[email protected]