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What solution for 85% taxation?
Thread poster: Jo Macdonald

Jo Macdonald  Identity Verified
Spain
Local time: 21:04
Member (2005)
Italian to English
+ ...
Sep 11, 2007

I’ve been living and working in Italy for 20 years now, as a pro translator getting good rates (0,08/9€+/word) and this year has been a good year for work. It was also a profitable year until the month of August when my accountant took around 8.000€ in taxes, another 4 thousand will be due in November plus more I imagine in between and after those dates.
The 20% my clients pay on invoices doesn’t even cover half of what the Italian state is asking (barely a third) and the result is a well paid professional who ends up on or nearly on the poverty line. I’m not kidding, I don’t gamble or drink or anything, I live a modest life and earn well, pay a huge amount of money to the state and end up having to dip into my savings to pay taxes. It just doesn’t work.
People in Italy say you have to doge the taxes to be able to live, and while I don’t think that was true in the past, for me today it looks that way, but I have always paid taxes because I think it’s morally right.
I’m now considering just stopping paying these ridiculous taxes and seeing what the judge says when it comes to court, how they think I can feed a family of five and pay the rent when they make me a pauper, and I shouldn’t be because I’m a well paid and respected professional in my field. I will be upping my rates but I don’t think this is the solution.
I’m considering taking up residence in the Uk at my mother’s address, don’t know if the British taxation system would be any fairer though. Perhaps there is another way, Cayman Islands, Jersey, San Marino, Malta, that sort of thing, anyone know?

If anyone knows of a solution which could be fitting please speak out. I don’t want to have to leave Italy as my friends and family are here, and I don’t want to dodge the taxes because it’s wrong, but if the state puts me in a situation in which I can’t afford to live here paying more than half what I earn for the privilege to do so it will come to that. I will run out of money and be forced to stop paying these taxes and eventually leave.

One example my accountant gave me yesterday after I'd been arguing with them all morning: "One of our clients made 40.000€ last year and has to pay 32.000€ tax."

Many thanks for any advice.
Jo

[Edited at 2007-09-11 07:17]

[Edited at 2007-09-11 08:59]


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Marco Oberto  Identity Verified
Italy
Local time: 21:04
Member (2003)
English to Italian
+ ...
Allowances and mums abroad are a possible solution Sep 11, 2007

Unfortunately, I'm familiar with this issue. Taxation in some Western countries is very 'unfair' and Italy is certainly a good example.

I would suggest you to smooth out your tax burden working hard on tax allowances and deductions: petrol, house appliances, electronics, travel expenses... everything you could possibly imagine of and reasonably deduct.

Should it prove not to be sufficient to make ends meet, your mother is still a wonderful opportunity to pick, and I would profit from this chance without feeling guilty.

Indeed, there is a point after which taxes become an unjust punishment for good taxpayers working well and hard.



[Modificato alle 2007-09-11 08:27]


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Ivana de Sousa Santos  Identity Verified
Portugal
Local time: 20:04
French to Portuguese
+ ...
somthing is wrong Sep 11, 2007

One example my accountant gave me yesterday after I'd been arguing with them all morning: "One of our clients made 40.000€ last year and has to pay 32.000€ tax."


Hi Jo,

I think somehting is wrong, namely this last paragraph.

I also feel like you when it comes to taxes. Many translators don't present their eanings from abroad and I do and I always end by paying much more taxes. Explanation of the IRS "You work for clients abroad".

I am still not convinced and tried a higher instance of the IRS and had a similar answer.

I am waiting for my tax return to come, I will probably have about 1200€ to receive, but as in previous years I never get what the tax return online form states, Last year for instance, I was supposed to receive back about 2000€ and received 800€.

Obviously something is wrong in here too. After I receive my tax return this year I will continue "fighting" against the IRS and their system to a still higher body.

Write letters, protest, don't give up.

Regards
Ivana


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Williamson  Identity Verified
United Kingdom
Local time: 20:04
Flemish to English
+ ...
The UAE and other tax-havens. Sep 11, 2007

You are British. If you don't mind the temperature-average of 30° in winter and 45° in summer-in the United Arab Emirates (country with high standard of living for Westeners), you can live tax-free. The UAE's money comes from petrol, so they do not have any need to tax their citizens.
British citizens do not need visas for the UEA (Dubai, Sharja and Abu Dhabi) and there is a large British community living and working there.
Dubai has the biggest tax-free shop of the world, is a Middle-East hub and there are daily flights
---
Other solutions are:

http://www.worldwide-tax.com/
http://www.cafebabel.com/en/article.asp?T=T&Id=6348
Googleff-shore company creation
http://www.monsterball.nl/TaxHavenReporter.html

Some years ago, there used to be a colleague who for some reason or another spends more than 180 days in the Bahamas and the other half in Italy. Guess why.
Good luck.
-
FWIW: Years ago, I "jumped" on translation and worked my butt off only to find out that after two years I actually worked to pay advanced taxes, VAT of the quarter +1/3 advanced VAT of the coming quarter (in that particular country the state wants your money before you receive it) on the one hand and had to run after invoices on the other. Better built a legal structure (ltd.llp) first in a tax-friendly country (the U.K. ain't that bad), then start translating.
---
Another solution would be to find a p.t.-job in Italy and declare revenus (just enough to survive) from that job to the Italian state and have somebody else (accountant, fidiciary, secretary of your company) write your invoices for translations.
A legal person (ltd,llp) differs from you (natural person) and can have another address than you and also pays taxes in the country it is based. Besides no tax-man in the world is going to stand beside you to count the exact number of days you are present in a particular country.


[Edited at 2007-09-11 08:43]


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Catherine Brix
Local time: 21:04
Swedish to English
+ ...
Off-topic forum Moore's Sicko Sep 11, 2007

As someone who has a family of five to support, maybe you should read up on the alternative before deciding you're not getting your money's worth. What exactly does the Italian welfare system cover - education and to what level? dental care and to what age? healthcare? These are genuine questions, I don't know but would love to be enlightened. Particularly since I live in a country that takes +60% of my income. Could I be getting more for less?

Maybe we should have systems based on the number of children and our general state of health. Obviously, immigrants who arrive in a country as adults, already educated and in good health would pay less than citizens born into a system that offers free healthcare and education since the citizens have been a "burden" to the system from the start. And obviously, people with children have to pay more taxes than those without since they're more of a burden since the system has to provide their offspring with education, dental care, healthcare, not to mention the cost of delivering a child and check-ups provided to to-be mothers, etc. And obviously, citizens but non-residents who do not pay taxes would not be allowed any form of free healthcare or education since they don't contribute to the system.

That said, I agree that taxes are heavy. I just don't see how welfare systems are supposed to be financed without 'em.


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Sonia Hill
United Kingdom
Local time: 20:04
Italian to English
I had the same problem Sep 11, 2007

I felt the same way when living in Italy and eventually made the decision to return to the UK (I hasten to add that Italian taxation was not the only reason, but a big contributing factor). I pay significantly less tax here and have therefore been able to save, get a mortgage, etc.

I would be very careful about taking up residence in the UK at your mother's address. I'm pretty sure this is not allowed unless you really are resident there for a certain length of time each year. If you feel morally obliged to pay tax, I'm sure you would also feel wrong about cheating the system in this way. It's something I looked into myself when in Italy, but decided that I couldn't do it.

It's a very difficult situation as you don't want to leave Italy and feel that you have a moral obligation to pay tax, just as I did. As Marco suggested, one of your only options is to focus on your expenses and make sure you claim for absolutely everything - unfortunately a freelance translator generally has very few expenses. Perhaps you could also try writing to the government, although I doubt this will have much effect. Setting up an offshore company may also be an idea.

I don't really have any good suggestions to make apart from moving elsewhere. I just wanted to sympathise with your plight and I hope you manage to resolve it one way or another.


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jmadsen  Identity Verified
Local time: 21:04
Don't move to Denmark Sep 11, 2007


Perhaps there is another way, Cayman Islands, Jersey, San Marino, Malta, that sort of thing, anyone know?


We practically hold the world record in taxes, and we have so many different taxes that even accountants and tax authority people break into a sweat if you ask them a simply question about how much you're supposed to pay. And you can never get a straight answer...

We have progressive taxation (the more you earn, the higher tax percentage), but there is an income tax limit of 59%, but then there are some smaller additional taxes. However, about 40% of the population pay the maximum tax percentage. It is not unusual to pay about 68% in taxes.

VAT is 25% and there are pesky taxes on anyhing bad for the population (read: anything people may depend heavily on, so the money will just be rolling in): alcohol, petrol, cigarettes etc. The result is that tax dodging/evasion is our unofficial national sport, closely following by insurance fraud.

So, my advice is: Don't move here unless of course you have masochistic tendencies...



[Edited at 2007-09-11 08:51]


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Tim Drayton  Identity Verified
Cyprus
Local time: 22:04
Turkish to English
+ ...
UAE? Sep 11, 2007

British citizens do not need visas to visit the UAE as tourists provided they stay no more than one month, but I can't believe that British citizens can just waltz in, set up businesses and live there tax free for as long as they please. There is no such thing as a free lunch. I have lived in Qatar, and know the set up there. If a foreign national wishes to set up a business in that country, they need to find a local to act as their "sponsor". In return, you pay half of what you earn to your sponsor for doing absolutely nothing. This is why most Qataris live a life of ease and leisure - they all have four or five Indian taxi drivers and shop keepers paying them half of their business earnings. Oh - and if your sponsor so wishes, he can complain about you to the police and you will be deported from the country instantly! I find it hard to believe that the UAE is vastly different, although I know Dubai (which has little oil income) has a more liberal regime with respect to foreign investors, and they are trying to attract high-tech and media companies there. I imagine there must be rules about importing a minimum amount of capital, employing a certain quota of local labour etc. The motive cannot be purely philanthropic! However, if anybody knows different, I would like to hear from them. If foreign freelance translators can operate from Dubai in their own names, tax free and unhindered by red tape, I would like to know about it.
Incidentally, I can recommend Cyprus as an EU member state with low taxation (e.g. no income tax at all on earnings below 10,000 Cyprus pounds annually) and an unintrusive bureaucracy where English is widely used in the business world and little hostility is felt towards outsiders moving in.


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Marie-Hélène Hayles  Identity Verified
Local time: 21:04
Italian to English
+ ...
Change your accountant Sep 11, 2007

Judging from how much tax you had to pay in August, my income must be fairly similar to yours, but I pay slightly under 50% tax on my total income.

Are you claiming everything you can? You can claim:
a proportion of bills (electricity, gas) relative to your workplace

50% of car-related expenses - if you don't have a car but your partner does, you can claim back the expenses by exchanging letters (raccomandata con ricevuta di ritorno) in which your partner formally transfers use of the car to you

restaurant bills (my accountant advises limiting this to weekdays and no more than two people)

computer and stationary expenses (obviously)

Taxis/bus season ticket

50% of household items (new sofa, fridge, etc. - I always feel uncomfortable about claiming for these, but it seems we are entitled to do so)

It doesn't apply to me, but I imagine as a freelancer if you pay rent you must be able to claim a part of that too, relative to your workplace

Also, as for everyone:
Vet's bills (above a threshold of about €150/year - this applies to everyone, not just freelancers)
Insurance policies taken out before 2001
Mortgage


and probably lots more that I've forgotten.

Having said all that, I agree that the taxes we pay in Italy are excessive, and I'd also be tempted to move elsewhere more tax-friendly or with a lower cost of living. But.... not back to the UK. And I don't have any first hand experience of living anywhere else (except Luxembourg, where the taxes may be lower but the cost of living is extortionate and the climate too much like the Uk for my taste). And, of course, while I can work anywhere, my partner would need to find a job first!



[Edited at 2007-09-11 09:07]


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Jo Macdonald  Identity Verified
Spain
Local time: 21:04
Member (2005)
Italian to English
+ ...
TOPIC STARTER
Just got back from the accountant's Sep 11, 2007

I have a lot of allowances/deductions, just over half of my income is taxable and the amount of tax the Italian state is asking me to pay on that is equal to 85%, yes EIGHTY-FIVE PERCENT of that taxable income. This will be worse next year as at the end of August this year I have already almost “earned” as much as I had at the end of last year.

This is obviously not a sensible business situation, it just doesn’t work, make say 50 thou in a year and end up with 4 with which to live and feed a family of five for 12 months.
I have to find a solution to this. The accountant has no legal solutions.


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Jo Macdonald  Identity Verified
Spain
Local time: 21:04
Member (2005)
Italian to English
+ ...
TOPIC STARTER
Thanks everyone for your answers Sep 11, 2007

This situation also seems to be caused by having to pay tax in advance for next year and welfare contributions, so if your income is higher than last year you end up paying almost 2-year’s of tax in one year for example. Welfare contributions are 23.5% of your income (not taxable income which is much lower), income tax is around 30% so for one year it’s around 55% then you have to pay the tax in advance for next year on top of that, so in theory up to 110%. I am really curious to what the judge in a fiscal court would say when enforcing taxes and the relevant fines that amount to more than your taxable income and according to the state’s calculations you had to pay more taxes than the amount you’d earned. This is totally silly, really. Wonder if there is extradition from Dubai.
Especial thanks to you Williamson; I’ll look into those links.



[Edited at 2007-09-11 10:04]


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xxxLatin_Hellas
United States
Local time: 21:04
Italian to English
+ ...
The message is leave Sep 11, 2007

I lived in Italy in the 1990s. The message I perceived from the Italian ruling class is that young, independent, professional people are not wanted. So, ten years ago, I obeyed the rules of the game and left (the other choice is stay and be taxed to death, as you are experiencing).

I have no regrets: in the past ten years, I have lived in several countries on three continents, I am married and have children. I travel at will, and I save significant sums every year for retirement in a private account.

Recently I canvassed some long-time Italian friends about the possibility of moving back to Italy. Unanimous response: stay away!


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Chris Lancaster  Identity Verified
Spain
Local time: 21:04
Member
Spanish to English
Customer base Sep 11, 2007

I looked into taking up residence elsewhere for at least 181 days of the year to avoid paying huge taxes in Spain. I took (paid) advice from a tax consultant in Madrid and was told that, whilst theoretically possible, if the majority of my clients were still in Spain (which they are) then the Spanish tax authorities would very likely file for tax evasion. I wouldn't be at all surprised if Italy is similar in this regard...

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Barbara Micheletto
Italy
Local time: 21:04
Russian to Italian
+ ...
Did your accountant mention anything... Sep 11, 2007

about Italian "Studio di settore"? Maybe he made some "adjustment" to the income declared in your tax return for the previous year according to the amount fixed by the "Studio di settore" and now you have to pay for a higher income than you really earned in 2006? First time I hear we pay taxes in advance for next year. I know we pay taxes on the income we declare for the previous year, the higher income taxe rate is 43% (for income in excess of 75.000 euro), than you have to add some 23,5% as welfare contributions... how can it sum up to 85%? Before paying, I would consult another accountant.

B.


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Williamson  Identity Verified
United Kingdom
Local time: 20:04
Flemish to English
+ ...
Jebel Ali Free Zone. Sep 11, 2007

Google: Jebel Ali free zone. My nationality is not British and I needed a visa. When my former employer restructered and Europe-wide a lot of employees lost their job, one of my colleagues went to look for a job in Dubai. She was British and did not need a visa at all.
The tax-exemption is not forever, but limited in time. If you set up a company in the Jebel Ali free zone, the first three years you pay nothing.
Purpose behind this reasoning is to foster economic growth. Isn't Dubai booming in comparison with Quatar. And yes, it is a bit more liberal, but too hot for my taste.
--
Another ways to diminish taxes is to become an expat based outside the E.U., but for that you will need a visa.
Why are some of our colleagues coming from Belgium based in the Dominican Republic or Hong-Kong?


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