In today’s global world, it is increasingly common to own assets abroad, a holiday home, a family property inherited from relatives, or an investment made years ago.
But when the owner passes away, heirs often face a key question:
do foreign properties need to be declared in Italy, or are they taxed only in the country where they are located?
Italian law gives a clear answer, and everything depends on one central factor: where the deceased was tax resident.
The key rule: it depends on the deceased’s residence The Italian tax system follows the principle of worldwide taxation.
This means that if the deceased was a tax resident in Italy at the time of death, all assets must be declared in Italy, regardless of where they are located.
In other words, it is not the location of the property that matters, but the residence of the person who passed away.
What must be declared in Italy?
If the deceased lived in Italy, heirs must include in the inheritance declaration:
- real estate located abroad
- bank accounts and financial assets
- shares, companies or investments
- any other transferable rights
The law is explicit: inheritance tax applies to all assets and rights, even if located abroad (Legislative Decree 346/1990).
Example:
If a person living in Italy leaves:
- an apartment in Milan
- a house in Spain
the heirs must submit one single inheritance declaration in Italy, including both properties.
Do you also pay tax abroad?
In most cases, yes.
Many countries tax assets located within their territory, especially real estate. This means heirs may face double taxation, paying inheritance tax both:
- in Italy
- in the country where the property is located
How double taxation is reduced
To avoid unfair double taxation, Italy has agreements with many countries. These treaties usually work through a tax credit system:
- taxes paid abroad can be deducted from the Italian tax
- but only up to the amount due in Italy for that same asset
Example:
- Tax paid in Spain: €5,000
- Italian tax on the same property: €8,000
The heir will pay:
- €5,000 in Spain
- €3,000 in Italy (the difference)
What if the foreign property generates income? If the inherited property abroad is rented out, another obligation arises.
If the heirs are tax residents in Italy:
- rental income must be declared in Italy
- it will be taxed under Italian income tax rules
Again, double taxation treaties apply, allowing taxes paid abroad to be deducted.
What changes if the deceased lived abroad?
The rule works in reverse.
If the deceased was not resident in Italy, Italian inheritance tax applies only to assets located in Italy.
Example:
If a person living abroad leaves:
- a property abroad
- a bank account in Italy
only the Italian asset must be declared in Italy. The foreign property is excluded from Italian taxation.
VGS Family Lawyers is a law firm that offers assistance to English-speaking clients with interests in Italy. In case you need assistance, please write to: info@vgslawyers.com