U.S. Citizens Owning an SRL in Italy: What You Need to Know About Resident vs Non-Resident Taxation
Thinking about moving to Italy or investing in an Italian business? Many Americans who look at buying property in Italy or Sicily are entrepreneurial and immediately want to entertain the idea of starting a business. This can get complicated quickly with corporate residency, personal residency and Tax Treaties.
Here’s a breakdown of how residency status affects your tax obligations as an American owning one or more SRLs in Italy.
👤 What Is an SRL?
An SRL (Società a Responsabilità Limitata) is the Italian equivalent of a Limited Liability Company (LLC). It’s a separate legal entity that pays corporate tax (IRES) at a flat rate of 24%, (like a US C-Corp) plus regional taxes (IRAP) of around 3.9%depending on the region.
🏠 Resident vs Non-Resident: What’s the Difference?
The Italian tax system classifies individuals as tax residents or non-residents, and this has big implications for how dividends from your SRL is taxed.
Italian Tax Resident
You’re considered a tax resident in Italy if you meet any one of these conditions for more than 183 days in a calendar year:
- You are registered with the Anagrafe della Popolazione Residente (Registry of Residents).
- Your center of vital interests (family, economic, or social life) is in Italy.
- You are physically present in Italy for the majority of the year.
What does this mean for SRL owners?
- You’ll be taxed in Italy on your worldwide income, including:
- Salaries or director’s fees paid by the SRL.
- Dividends from the SRL.
- Rental income, investment income, etc.
- Dividends are taxed at a flat 26% withholding rate, but as a resident, this is your final tax. This can result in a very high effective tax rate.
- You must file an Italian tax return (Modello Redditi PF) and potentially a foreign asset declaration (Quadro RW).
- Italian Tax Residents should entertain holding structures in both Italy and the EU, as well as administrator salary and owner dividend strategies to defer withholding tax.
Non-Resident
If you do not meet any of the conditions above, you are considered non-resident.
What does this mean for SRL owners?
- You are only taxed in Italy on Italian-source income. For example:
- Dividends from an Italian SRL.
- Income from property or services in Italy.
- Dividends distributed to you are still subject to a 26% withholding tax, unless reduced by a double taxation treaty (e.g., U.S.-Italy tax treaty lowers this to 15%, or even 5% if you own more than 10% of the SRL).
- You don’t pay Italian taxes on foreign income or assets.
- Withholding Tax paid in Italy can be claimed against your US tax burden using the Foreign Tax Credit.
- If part of a group inter-entity shared services and other strategies can make taxation more efficient.
💡 Tax Planning Tips for Americans
- Be strategic about residency: If you plan to live in Italy part-time or run your SRL remotely, you may be able to avoid becoming a tax resident—and the worldwide income requirement.
- Use tax treaties: The U.S.-Italy Tax Treaty helps reduce double taxation on dividends, interest, and royalties. But you must claim treaty benefits properly.
- Consider your U.S. obligations: As a U.S. citizen, you must report global income to the IRS, regardless of where you live. You’ll also have to file FBAR and possibly Form 5471 if you own more than 50% of a foreign corporation. You can never escape US taxation as a US Citizen.
- Work with a cross-border tax expert: Navigating Italian taxes and complying with U.S. rules (like GILTI or Subpart F income) requires specialized knowledge. JSBC is one of only a handful of firms that specializes specifically in the Italian-American experience.
Watch Out: U.S. Tax on Foreign Corporations
Even if your SRL pays taxes in Italy, the U.S. may still impose additional tax on your share of the profits. Some key things to know:
- CFC Rules: If you own more than 50% of the SRL (alone or with related parties), the SRL is a Controlled Foreign Corporation (CFC). You may owe U.S. tax even on undistributed earnings.
- Foreign personal holding company (FPHC): It is important that the Srl is an active business to avoid FPHC rules.
- GILTI Tax: The Global Intangible Low-Taxed Income (GILTI) regime can hit U.S. shareholders of foreign corporations with a surprise tax bill—though individuals may be able to mitigate this with planning.
Fortunately due to Italy’s relatively high tax rate these rules often do not apply.
✈️ Thinking of Moving to Italy?
Before making the leap, consider:
- Whether to delay establishing residency, or avoid residency entirely until you’re fully informed and set up.
- Applying for special tax regimes like the “Impatriati Regime” which can reduce Italian income tax by 70–90% for up to 10 years. These regimes often are less effective for US Citizens.
- Structuring your SRL and ownership in a way that optimizes both Italian and U.S. taxation.
- Very High Net Worth Individuals may want to consider renouncing US Citizenship as many Italian Americans are exempt from the “exit tax”.
- Contact JSBC for a consultation
Final Thoughts
Owning an SRL in Italy as an American can be a smart move—especially if you’re passionate about living and doing business in Italy. Reinvesting profit can be tax advantaged versus US personal income tax rates.
Plan ahead, structure wisely, and always consult a dual-competent tax advisor. The right structure can protect your income, minimize tax exposure, and ensure your Italian business dream stays a profitable one.
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