5% withholding on LPP benefits: intermediary irrelevant

Context

In brief

• Irrelevance of the resident intermediary for LPP withholding tax
• 5% withheld by the Italian intermediary or, without one, paid as a substitute tax in the tax return
• Italian tax law: art. 76, paragraphs 1-bis and 1-ter, Law 413/1991

Key facts

• What: Irrelevance of the resident intermediary for LPP withholding tax
• When: 2023 Budget Law (Law 197/2022)
• Where: Italy
• Who: Italian residents receiving LPP benefits
• Amount: 5% (withholding or substitute tax)

The 5% withholding tax on Swiss LPP benefits is a topic of great interest to cross-border workers employed in Switzerland. The 2023 Budget Law (Law 197/2022) clarified that the presence of an intermediary resident in Italy does not affect the rate. This means that LPP benefits received by Italian residents are taxed at 5% both when they pass through an Italian bank and when they are credited abroad: only who pays the tax changes.

Italian tax law

The 5% is an Italian tax, not a Swiss one. Article 76, paragraph 1-bis, of Law 413/1991 requires Italian financial intermediaries involved in the payment to withhold a final 5% tax on LPP benefits, in whatever form they are paid; the bank applies it if the beneficiary gives it the mandate and the necessary information (Agenzia delle Entrate resolution 3/E/2020). Paragraph 1-ter, added by art. 1, paragraph 77, of Law 197/2022, applies the same rate, as a substitute tax, to sums paid anywhere and received without Italian intermediaries. In Switzerland, by contrast, LPP pensions from a private-law institution are paid to Italian residents without source tax, while on lump-sum benefits the institution withholds the source tax of the canton where it has its seat (in Ticino, the VIC table). Since art. 18 of the Italy-Switzerland tax convention gives the taxing right to Italy, this tax is refunded with form Q-IS within three years of the payment, with a certificate that Italy has taxed the benefit. This clarification is important for cross-border workers receiving LPP benefits, as it eliminates any doubts about the application of the withholding tax.

Irrelevance of the resident intermediary

The presence of a resident intermediary has no impact on the 5% rate on LPP benefits, but it decides the formalities. If the payment passes through an Italian intermediary, it withholds the final tax and the beneficiary does not have to declare the benefit. If the pension or the capital stays in an account in Switzerland, the beneficiary self-assesses the 5% in schedule RM of the Redditi PF return and pays it with form F24 (Agenzia delle Entrate ruling no. 125/2024).

Conclusion

In summary, the 5% on Swiss LPP benefits does not depend on the presence of a resident intermediary: that only decides whether the 5% is withheld by the bank or paid by the beneficiary in the tax return. This clarification simplifies the tax process for beneficiaries of LPP benefits, ensuring transparency and simplicity.

Operational details

Practical Analysis

Implications for Cross-Border Workers

For cross-border workers employed in Switzerland and receiving LPP benefits, the clarification on the 5% withholding is of great importance. This clarification eliminates any doubts and tax complications, ensuring that the 5% applies to LPP benefits in every case.

Comparison with the Previous Situation

In the past, without an Italian intermediary the 5% did not apply: according to Agenzia delle Entrate resolution 3/E/2020, LPP benefits credited abroad fell outside art. 76 of Law 413/1991. This clarification eliminates such uncertainties, simplifying the tax process for LPP benefit recipients.

Concrete Scenarios

Scenario 1: Cross-Border Worker Without a Resident Intermediary

A cross-border worker resident in Italy who receives LPP benefits into an account abroad, without an Italian intermediary, suffers no Italian withholding: they report the benefit in the tax return and pay the 5% substitute tax (art. 76, paragraph 1-ter, Law 413/1991).

Scenario 2: Cross-Border Worker With a Resident Intermediary

If the benefit is credited to an account with an Italian intermediary instructed to handle it, the bank withholds the final 5% tax (art. 76, paragraph 1-bis, Law 413/1991) and the beneficiary does not have to declare it. This eliminates any tax complications and ensures that the tax process is transparent and simple.

Conclusion

In conclusion, the clarification on the 5% withholding for Swiss LPP benefits simplifies the tax process for cross-border workers, ensuring transparency and simplicity regardless of the presence of a resident intermediary.

Useful planning tools

To estimate your pension strategy, use the pension planner and the pillar 3 simulator.

Key points

Practical Action

What to do concretely

Cross-border workers resident in Italy who receive LPP benefits should be aware that the 5% applies regardless of the presence of a resident intermediary, but with different formalities. With an Italian intermediary, you give it the mandate and the information needed to withhold the tax. Without an intermediary, the benefit goes in schedule RM of the Redditi PF return and the 5% is paid with form F24.

Deadlines

Without an intermediary, the 5% substitute tax is paid by the deadlines of the tax return for the year in which the benefit is received. If the Swiss institution withheld source tax on a lump-sum benefit, the Q-IS refund must be claimed within three years of the payment. It is important to always stay updated on Italian and Swiss tax rules to avoid any potential complications.

Step-by-step procedure

1. Check your LPP benefits: Verify your LPP benefits to ensure that the 5% withholding tax has been applied correctly. 2. Consult with a tax expert: If you have any doubts or questions, consult a tax expert for clarification. 3. Stay updated: Keep yourself informed about Italian and Swiss tax rules to avoid any future complications.

Useful tools

For more information and to calculate your LPP benefits, use the tax calculator. This tool will help you better understand your LPP benefits and the withholding tax applied.

Conclusion

The clarification on the 5% withholding tax on Swiss LPP benefits simplifies the tax process for cross-border workers, ensuring transparency and simplicity. Use the available tools to obtain more information and to calculate your LPP benefits.

Sources: Law no. 413 of 30 December 1991, art. 76, in Italian, Law no. 197 of 29 December 2022, art. 1, paragraph 77, in Italian, Agenzia delle Entrate, resolution 3/E of 27 January 2020, in Italian, Agenzia delle Entrate, ruling no. 125/2024, in Italian, Italy-Switzerland double taxation convention of 9 March 1976, art. 18, in Italian, Federal Tax Administration, leaflet on source taxation of private-law pension benefits, in German, Federal Tax Administration, refund form Q-IS and Canton Ticino, VIC table from 1 January 2025.