Frontier: taxation and home loans in Italy (cross-border guide)

Context

In brief

• New cross-border agreement in effect from 1 January 2024
• Withholding tax deducted only in Switzerland, credit in Italy
• Increased exemption: €10,000 for new cross-border workers from 2024
• Net income affects mortgage borrowing capacity

Key facts

• What: New cross-border tax regime CH-Italy
• When: Effective from 1 January 2024
• Where: Switzerland-Italy border crossings (Ticino cross-border workers)
• Tax: Withheld 5.3%-43% in Switzerland
• Exemption for new cross-border workers: €10,000 annually
• Tax credit: Section CE of the Italian model 730

The new cross-border agreement and 2024 taxation

On 1 January 2024, the new cross-border tax agreement came into effect, signed on 23 December 2020 and ratified by Italy with Law 83 of 13 June 2023. This agreement introduces significant changes in the calculation of taxable income in Italy for cross-border workers employed in Switzerland.

The main novelty concerns the €10,000 annual exemption for cross-border workers who started their activity after 17 July 2023. For cross-border workers already operating before this date, an exemption of €7,500 is provided with a transitional regime until 2033.

The withholding tax continues to be withheld by the Swiss employer: the rates range from 5.3% to 43% depending on the total income. To these are added AVS/AI/IPG contributions (5.3% for the employee), unemployment insurance and supplementary pension fund (1.1% up to CHF 148,200), LAINF (0.7%-1.5%) and pension insurance LPP (7%-18% according to the age bracket, from 25 years).

The system provides for a tax credit in Section CE of the Italian 730 declaration, which allows the cross-border worker to recover part of the taxes already paid in Switzerland.

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Operational details

How Net Income Affects Mortgage Applications

The ability to obtain a mortgage from an Italian credit institution depends on the taxable income, which for cross-border workers is lower than the gross Swiss salary due to taxes, contributions, and the new exemption.

A cross-border worker who started working in Switzerland after July 17, 2023, declares a gross annual salary. This amount is subject to: (1) withholding tax in Switzerland (progressive rate from 5.3% to 43% depending on income); (2) Swiss social security contributions AVS/AI/IPG (5.3%), AD/AC (1.1%), LAINF (0.7%-1.5%), LPP (7%-18%); (3) application of the €10,000 exemption; (4) calculation of the taxable income in Italy net of these elements.

The resulting taxable income is significantly lower than the initial gross salary. This reduced amount is what the Italian bank will consider to determine the maximum mortgage amount. A cross-border worker with a mid-range gross Swiss salary might declare a much lower net amount in Italy, limiting the ability to obtain a high-value mortgage.

Additionally, the new 2024 agreement has introduced greater transparency in the declaration. Cross-border workers should be aware that the calculation of Italian taxable income has been modified compared to previous years, which could affect the bank's perception of repayment capacity.

Old Cross-Border Workers and Transitional Regime

Cross-border workers who had already started their work activity before July 17, 2023, benefit from a €7,500 exemption, with a transitional regime that will last until 2033. This difference in exemption (€7,500 vs €10,000) affects the calculation of taxable income and, consequently, the ability to obtain mortgages.

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Key points

Practical procedure to request a mortgage as a cross-border worker

If you are a cross-border worker who wants to buy a property in Italy and take out a mortgage, you must follow this procedure:

Step 1: Gather tax documentation. Prepare your latest tax return (model 730) with the CE section that reports the cross-border tax credit. This document is essential to prove your taxable income to the bank according to the new 2024 agreement.

Step 2: Calculate the net taxable income. The income you will use for the mortgage application is the one indicated in the Italian declaration, not the gross Swiss salary. Make sure you understand how the exemption (€10,000 if a new cross-border worker, €7,500 if a historical one) has been applied in your specific case.

Step 3: Contact Italian banks with experience in cross-border workers. Some Italian banks have specific expertise in cross-border clientele and better understand how to calculate income according to the new agreement. Request contacts of institutions operating in border areas (Chiasso, Mendrisio, Lugano, Brogeda, Gaggiolo).

Step 4: Submit the mortgage application. Provide the bank with: Italian tax return (730) for the last two years, recent Swiss pay slip (last 3 months), bank statements, identity document, and G permit.

Step 5: Evaluation and disbursement. The bank will evaluate your repayment capacity based on the taxable income in Italy. They may request additional documentation to verify the stability of your employment in Switzerland.

Implications of the Italian-Swiss Convention

The Convention signed on December 9, 1976, continues to regulate the tax credit system. It is a recognized advantage because it prevents you from paying taxes both in Switzerland and Italy on the same income.

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