Freelancers’ Questions: Will my consultancies prove taxing from Italy?
Freelancer’s Question: I’m a shareholder of a few UK companies where I’m the sole managing director/employee. I have a management company too (sole shareholder) that invoices these companies management fees and pays dividends to myself.
So currently I pay UK taxes. But I commute to Austria at weekends where my wife (an Italian passport-holder) works and we rent a property. I apparently owe UK tax as I have at least two UK ties, and spend more than 90 midnights in the UK. Is it correct I pay HMRC?
Second, if I was to move to Italy before Brexit and my wife and I bought a flat in Italy, to both be Italian residents, and I work in Italy for my UK companies and abide the 90-midnights, am I liable to tax as an Italian resident? Or if I commute to the UK for my 90 days and my wife stays in Italy, would that be less taxing? I don’t way to bet taxed twice but I’m aware I probably need to get applying for my Italian passport now due to Brexit. Please help.
Expert’s Answer: As your income is made in the UK and you live in the UK for more than 183 days in a year, you are deemed UK tax resident and pay UK taxes.
The weekends in Austria are not relevant, nor is the property rental. It is possible to become non-UK tax resident if you spend less time in the UK (the so-called 90-day rule), but HMRC will look at how many ties you have to the UK, such as resident family and property.
You will not become an Italian tax resident automatically just because you buy a property there. You will only definitively become an Italian tax resident after you spend more than 183 days in a calendar year in Italy and you apply for tax residency. The 90 days are immaterial in this case -- what counts is where you spend more than 183 days in a year.
Working remotely does not mean that you are taxed in the country where the companies are based. The companies are taxed in the UK, as long as they do not form a Permanent Establishment in Italy.
For you as a person, it means that you are taxed on your personal income: salary and/or dividends where you are a tax resident. It is not a matter of choice to remain a tax resident in one country; there are international tax rules that apply. Passport/ nationality is also irrelevant to tax residency.
There is a double tax treaty between Italy and the UK, which means that you will not be taxed on the same personal income twice. Your UK companies will be taxed in the UK, unless you form a branch in Italy. To avoid this, you must not be a director and you must avoid having another director in Italy. You may be a shareholder and draw dividends, which means that you pay income taxes on dividends in Italy, depending on when and how much you withdraw.
You might want to consider removing yourself from the directorship of the UK companies that you are a shareholder of, to begin with, in order to avoid forming a permanent establishment in Italy. The UK companies will then continue paying corporate tax in the UK. Then, you will only pay taxes on the salary and dividends where you are actually tax resident (most probably in Italy), and you will not be taxed twice. It is worth bearing in mind, however, that the rates of tax in Italy are higher than the UK. Good luck!
The expert was Nikolas Papageorgiou, country manager for Europe at overseas freelancing specialists Access Financial.
Editor's Note: Related --
1st November 2018