Article 18 of the Abu Dhabi Convention, signed between the Government of the Italian Republic and the Government of the United Arab Emirates on April 29, 1997, and entering into force on January 1, 1999, establishes the prohibition of double taxation and generally addresses the taxation of employment income, including retirement pensions.
This article sets the rules for taxing income earned by a resident of another state, thus avoiding double taxation. Regarding pensions, the fundamental principle is that income should be taxed solely in the taxpayer’s country of residence.
Consequently, the mere transfer of a pension to a foreign bank account does not automatically result in the application of the tax regime of the country where one claims residency. To benefit from the tax treatment of the country of residence, the taxpayer must prove that they are also fiscally resident in that country.
Only after providing proof of having transferred their tax residence to the host country and upon presenting appropriate documentation to demonstrate that all the conditions set out by the Convention are met, can the Italian National Institute of Social Security (INPS), acting as the tax withholding agent, apply the exemption or reduced conventional rates for the current year, as specified by the Italian Revenue Agency.
Specifically, for citizens fiscally resident in the UAE, since there is currently no form of personal income taxation, which also includes pension income, pension payments from the Italian Social Security Institute are effectively disbursed gross of any withholding.
For tax residence verification purposes, INPS is required to confirm compliance with the formal requirement set out in Article 2 of the Consolidated Income Tax Law (TUIR), which entails removal from the Italian municipal registers for most of the tax period, along with registration with AIRE (Registry of Italians Resident Abroad). The control of additional subjective requirements, such as the transfer of the main center of business and interests, as well as habitual residence abroad, remains under the exclusive responsibility of the financial administration’s investigative and intelligence activities.
Thus, the process of obtaining tax exemption on an Italian pension is not immediate. INPS must carry out the necessary checks before disbursing the gross pension. This may sometimes cause a temporal gap between the request for the benefit and its actual granting.
During this period, the pensioner has the option to request a refund of the Italian withholdings applied to the pension in the form of arrears. The refund request must be submitted within a 48-month statute of limitations from the date the tax was withheld (Articles 37 and 38 of Presidential Decree No. 602/73).
The need for rigorous and thorough checks means that, in cases of uncertainty about the eligibility requirements outlined in the respective conventions to avoid double taxation, INPS is obliged to apply taxes on the pension payments it disburses to residents abroad, by Article 23, paragraph 2, letter A) of the TUIR, using the withholding methods provided for in Article 23 of Presidential Decree No. 600/73.
Conversely, once the above requirements have been verified, a pensioner who has transferred their tax residence abroad may apply to INPS. This application requests the payment of the pension without Italian taxation.
To do so, the pensioner must submit a duly completed form to the INPS office managing the pension. This form is unilaterally prepared by Italy and accepted by most treaty partner countries.
This form, MODEL EP/I, serves as the request for the non-application, in full or in part, of Italian tax withholding on pensions or similar income received by residents of countries with which Italy has signed conventions to avoid double taxation on income taxes. The form must also include certification of the pensioner’s foreign tax residence by the competent foreign authority (Federal and Tax Authority for Dubai). The original MODEL EP/I must be sent to the INPS office responsible for managing the pension.
It is therefore not sufficient to submit requests online or via certified email, as original certifications must always be provided to the office. The rules regarding self-certifications apply only to relationships between national administrations, excluding those with foreign administrations.
The above applies to the pensions of private sector employees, whereas the regulations for public sector employees’ pensions vary depending on the case and the country of residence.
Finally, regarding pensions, it is worth noting that in the United Arab Emirates, it is possible to obtain a residence visa for retirees (Retirement Visa) for those receiving an annual pension of at least 180,000 AED. To qualify, it is also necessary to make a real estate investment in the country of at least one million AED or have a bank deposit of the same amount with a local bank.
In this case, it is necessary to evaluate the compatibility with the client’s interests and lifestyle plans regarding potential consulting activities, which may require registration for corporate tax and VAT purposes (above the first 375,000 AED in turnover), or the opening of a company in Dubai for this purpose.