Every year Italy attracts nearly 90,000 migrant workers and retirees. As one of the EU’s largest economies Italy offers many options for savings and investment for both natives and migrants. Here is a look at some of these options and why they make sense in today’s economy.
Inflation has everything to do with savings and investments. Saving is worthwhile only if the rate of interest on savings is higher than the rate of inflation. Expats can make much better investment choices if they know how the two rates are moving.
Historically Italy has had a checkered relationship with inflation and price stability. Data from The World Bank shows that in 2000-2008 Italy’s average inflation rate was 2.43%. This was slightly higher than the Eurozone average of 2.33% at the time. Higher inflation coupled with lower price stability meant that Italy was not a favored destination for investors. All of this changed after the global recession of 2008. Italy’s inflation rate fell to 1.13% against the Eurozone yearly average of 1.33%, and the country’s economy grew.
A savings account is the safest option for migrant workers in Italy to park their surplus earnings. The Italian finance ministry guarantees the safety of savings account deposits up to EUR 100,000. Some banks offer interest rates of 1% or more on savings. This is well above the country’s median inflation rate of 0.6% (as of 2020). This would mean that over time the real value of the savings would slowly increase without any efforts from the investor.
Although a savings account deposit comes with low or no risk, it generates low returns. More ambitious expat investors might want to look at other options.
Fixed income securities and bonds
Italian government bonds have been highly sought-after investment options in the last decade. The World Government Bonds website provides an analysis of the past performance of these bonds, which explains why they are so popular. Merely 3 years after the economic crisis of 2008 Italian bonds soared to give rates of return as high as 7.23%. This shows the resilience of Italy’s government-backed securities. In more recent times the EU’s EUR 750 billion post pandemic stimulus package is expected to improve the ROI of Italy’s government bonds.
For expat investors who are planning to invest in government bonds for the first time, Treasury Bills and Zero Coupon Treasury Bonds can be a great starting point. These mature in a year, and are relatively risk-free. Expats considering longer term investments can opt for Treasury Certificates or Classic Bonds. These instruments offer a minimum maturity period of 5 years, and commensurate returns.
Stock trading is a ‘high risk high reward’ proposition. Investing in Italian shares makes sense for expats with larger risk appetites as well as a keen understanding of the stock markets. As of January 2020 investors held more than EUR 95 billion worth of shares on the Milan Stock Exchange. Traders on the Exchange must be cautions since not all listed stocks are booking profits. The volatility of stock markets is a risk. However, for the seasoned investor the same volatility creates possibilities for higher returns.
Foreign investments and savings
Migrant workers often invest their Italian incomes in their home nations. To do this they remit the funds to their native countries via popular remittance service providers and channels such as the Ria Money Transfer App. Many developing countries are currently good places to buy real estate for investment purposes.
However expats in Italy must bear in mind that as per Italian law overseas investments are considered foreign financial assets. They attract an annual tax of 0.2% of the purchase value. Expats have to report their foreign investments to the Italian Revenue Agency for taxation purposes, especially in cases where double taxation treaties apply. This is why for overseas investments expats must evaluate the trade-off between ROI abroad and tax liabilities in Italy.
Migrant workers in Italy who come from outside the EU are allowed to buy property in Italy, provided their home country also allows Italians to buy property there. Italian law makes it easier for expats residing in Italy for 3 years or more to buy real estate. Foreigners can lease or rent out their properties in Italy, and hold them as long term investments.