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Old 25.04.2021, 12:14
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Italian tax on second and third pillar withdrawals when moving to Italy

Hi There,

I would like to submit the following case study (mine )and I wish to get some advice from someone who already went through the same procedure.

I am 48yo, Italian, I hold a C permit and in a couple of years, I will leave permanently Switzerland and move back to Italy.
I want to withdraw my second and third pillar funds upon departure.
I do not plan to start and lucrative activity in Italy and will not need to pay any social contributions. I will be therefore entitled to withdraw also the mandatory part of my second pillar. This has been already discussed in some previous threads in this forum.

I know how to optimise the capital withdrawal tax in Switzerland (i.e. moving my vested benefit to Kanton Schwyz before departure and get taxed there)
I am however a bit confused on the taxation the Italian fiscal authorities might apply to my cashed-out pension funds.
Considering that my plan is to withdraw my pension funds asap while departing from Switzerland, here is my main questions

1)
I believe I can receive the money from my vested benefits in 0-2 months after leaving Switzerland. Will the Italians consider those money just as part of my after wealth, together with my personal savings and investments upon moving to Italy?
I am aware that if I withdraw my vested benefits later on (few months/year later), when I am already Italian fiscal resident , they won’t be considered as wealth and a different tax rate applies.


2)
If I am going to be taxed, how will they tax me?
Italy and Switzerland signed a bilateral agreement on the taxation rate of the AHV pension(1st pillar). A one off 5% tax is applied if the pension (when you reach retirement age) is transferred from Switzerland directly to authorised Italian bank institution. 5% is a great deal and the same applies to the 2nd pillar pension if received as monthly payment after retirement age.
However, the info about the taxation on one time withdrawals from vested benefits are not clear and sometimes discording.

Has anyone in this forum done that?
Any experience you can share is very much appreciated.

Thanks a lot!
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Old 25.04.2021, 12:21
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Re: Italian tax on second and third pillar withdrawals when moving to Italy

Ask on an Italian site, this has nothing to do with Switzerland.

Tom
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Old 25.04.2021, 12:24
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Re: Italian tax on second and third pillar withdrawals when moving to Italy

But please share what you have found out. We are considering retirement in Italy and would have similar questions (although probably another 20 yrs down the road )
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Old 26.04.2021, 11:05
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Re: Italian tax on second and third pillar withdrawals when moving to Italy

I thought the general principle was that pension income is taxed in the country where the pension was accumulated - but yes you need to ask the Italians.
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Old 26.04.2021, 12:47
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Re: Italian tax on second and third pillar withdrawals when moving to Italy

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I thought the general principle was that pension income is taxed in the country where the pension was accumulated - but yes you need to ask the Italians.
It depends on the respective Double Tax Agreement which is different for every country. You are correct the CH-UK DTA says 2 pillar lump sum withdrawal when leaving CH to UK is taxed in the country where accumulated i.e. CH. So anyone withdrawing 2P lump sum when moving to UK should only have to pay the witholding tax in CH, no tax in UK. In this case it probably makes sense to move to a vested benefit account in canton Schwyz as it has the lowest tax rate.

I found Italy - CH DTA, it seems to say pension is taxable in country of residence (with few exceptions). So in Vadalmar's example it will be taxable in Italy. Re how it would be taxed in Italy needs someone with knowledge of Italian tax to advise. In this case I believe the WHT paid in Switzerland could be reclaimed once documentation proving the Italian state recognised the payment is provided to the authorities in Switzerland. If Italy tax is higher than CH WHT there is likely no benefit to move to a vested benefit foundation in Schwyz.

French
https://www.fedlex.admin.ch/eli/cc/1979/461_461_461/fr
Art. 18
"Sous réserve des dispositions de l’art. 19, les pensions et autres rémunérations similaires, versées à un résident d’un Etat contractant au titre d’un emploi antérieur, ne sont imposables que dans cet Etat."

Italian
https://www.fedlex.admin.ch/eli/cc/1979/461_461_461/it
"Fatte salve le disposizioni dell’articolo 19, le pensioni e le altre remunerazioni analoghe, pagate ad un residente di uno Stato contraente in relazione ad un cessato impiego, sono imponibili soltanto in questo Stato."
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Old 26.04.2021, 13:11
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Re: Italian tax on second and third pillar withdrawals when moving to Italy

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It depends on the respective Double Tax Agreement which is different for every country. You are correct the CH-UK DTA says 2 pillar lump sum withdrawal when leaving CH to UK is taxed in the country where accumulated i.e. CH. So anyone withdrawing 2P lump sum when moving to UK should only have to pay the witholding tax in CH, no tax in UK. In this case it probably makes sense to move to a vested benefit account in canton Schwyz as it has the lowest tax rate.

I found Italy - CH DTA, it seems to say pension is taxable in country of residence (with few exceptions). So in Vadalmar's example it will be taxable in Italy. Re how it would be taxed in Italy needs someone with knowledge of Italian tax to advise. In this case I believe the WHT paid in Switzerland could be reclaimed once documentation proving the Italian state recognised the payment is provided to the authorities in Switzerland. If Italy tax is higher than CH WHT there is likely no benefit to move to a vested benefit foundation in Schwyz.

French
https://www.fedlex.admin.ch/eli/cc/1979/461_461_461/fr
Art. 18
"Sous réserve des dispositions de l’art. 19, les pensions et autres rémunérations similaires, versées à un résident d’un Etat contractant au titre d’un emploi antérieur, ne sont imposables que dans cet Etat."

Italian
https://www.fedlex.admin.ch/eli/cc/1979/461_461_461/it
"Fatte salve le disposizioni dell’articolo 19, le pensioni e le altre remunerazioni analoghe, pagate ad un residente di uno Stato contraente in relazione ad un cessato impiego, sono imponibili soltanto in questo Stato."
If its a big amount in pillar 2, it almost seems worth moving to somewhere like the UK for a few months (putting your stuff in storage) and then onwards to Italy. Could easily be hundreds of thousands saved.

(If immigration is a problem i'm I'm sure there's other EU countries with similar tax treaties with Switzerland to the one the UK has)
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Old 26.04.2021, 15:49
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Re: Italian tax on second and third pillar withdrawals when moving to Italy

I was under impression that once moving to EU/EFTA you'd actually moved AHV and 2nd pillar to respective country legal system ( for Italy it would be to forget about that money simply) ?



https://www.swisscommunity.org/es/li...in-the-eu/efta

https://www.ahv-iv.ch/p/880.e
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Old 29.04.2021, 16:13
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Re: Italian tax on second and third pillar withdrawals when moving to Italy

Thanks for your sharing your thoughts and inputs, I appreciate.
Is there anyone in this forum who withdrew the 2nd and the 3rd pillar when moving from CH to IT?
THANKS!
V.
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Old 29.04.2021, 16:25
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Re: Italian tax on second and third pillar withdrawals when moving to Italy

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I was under impression that once moving to EU/EFTA you'd actually moved AHV and 2nd pillar to respective country legal system ( for Italy it would be to forget about that money simply) ?



https://www.swisscommunity.org/es/li...in-the-eu/efta

https://www.ahv-iv.ch/p/880.e
What do you mean "legal system" - could you clarify?

As far as I am aware it is not possible to move your Swiss AHV pension to an EU country's pension system, if that is what you mean. You would normally receive a different pension from each country you worked in. Similarly no obligation to move 2 pillar
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