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Why moving to southern Italy with a foreign pension could cut your tax bill

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Why moving to southern Italy with a foreign pension could cut your tax bill
Taormina in Sicily is one of the villages where you could claim a new tax rate. Photo: Patrick Herzog/AFP
09:09 CEST+02:00
Retirees with pensions from another country could benefit from a new flat tax that's designed to attract new residents to small villages in the south of Italy. Here's how it works.

We've all heard about the shrinking Italian villages offering houses for a euro. Now it's the government's turn to offer a carrot to those considering a move to the depopulated rural south – specifically, pensioners.

Italy's Revenue Agency has released the details of the 'Southern Flat Tax', a new scheme introduced in the government's latest budget. 

READ ALSO: Italian government approves overhaul of welfare and pensions

Whether you're a foreign national or an Italian citizen living abroad, as long as your pension is paid by another country, moving to a small community in the south of Italy could earn you a reduced flat tax rate.

Tempted? Here's what you need to know.

Why is Italy offering tax perks to move to the south?

Centuries of emigration, whether to northern Italy or abroad, have emptied out towns and villages across southern Italy. Historically deprived and without the opportunities that concentrate Italy's wealth in the north, the south ranks significantly worse on health, employment and poverty – thus fuelling the cycle. 

READ ALSO: 

Successive governments have tried all kinds of incentives aimed at drawing residents, investment and spending to the south. Last year the current administration was discussing a plan to offer pensioners a ten-year tax holiday if they moved to one of its three poorest regions; this flat tax scheme appears to have replaced that idea.

The government says it will use the revenues generated from foreign pensioners to invest in southern universities specializing in sciences and technical subjects, with the goal of improving opportunities for younger residents.

Who is eligible?

Both Italian and non-Italian pensioners are eligible, providing they meet three criteria:

  • They aren't already living in Italy.
  • They draw a pension outside Italy.
  • They're currently resident in a country that has a tax cooperation agreement with Italy. 

To benefit from the scheme, you must prove you've been living outside Italy by showing tax returns for the past five years. And if you're an Italian national, you'll also need to have been enrolled on the AIRE, the Registry of Italians Resident Abroad, for the last five years at least.

Bear in mind that this is a tax scheme, not a visa: you must already have the right to live in Italy legally.

READ ALSO: 'What I wish I'd known': An American's advice on getting residency in Italy


Photo: DepositPhotos

Where do you have to move?

You'll need to become a resident of one of Italy's Mezzogiorno regions: Abruzzo, Molise, Campania, Basilicata, Puglia, Calabria, Sicily or Sardinia.

But you can't settle just anywhere. Only towns with fewer than 20,000 residents are eligible, which rules out all the best-known cities.

In popular holiday destinations like Puglia and Sicily, you're more likely to find a town that fits the bill inland. But there are still plenty of seaside options on the Adriatic Coast or the Ionian 'sole' of Italy's boot, as well as in Sardinia.

Consult the latest population data from national statistics office Istat to find out which towns you can choose from.

What tax benefits do you get?

You'll pay a single flat tax of 7 percent on all your overseas income, starting with your pension.

Taking up the scheme also exempts you from declaring your assets outside Italy or paying the IVIE and IVAFE, taxes on the capital value of real estate and other assets held overseas.

READ ALSO: 


Photo: Christophe Simon/AFP

How do you pay?

Pensioners taking up the scheme should file a tax return to the Agenzia delle Entrate (Revenue Agency) documenting the following:

  • Proof of residence outside Italy for the past five fiscal years;
  • Last place of fiscal residence;
  • Source of foreign pension;
  • Amount of overseas income to be taxed at 7 percent. 

Once the Revenue Agency has accepted your return and calculated your taxes, you can pay in a single lump sum using the standard F24 payment form.

How long does the scheme last?

You can benefit from the Southern Flat Tax for a maximum of five years after you transfer your residence, so long as:

  • You don't move to the north of Italy or a bigger town (but you may be allowed to move between eligible southern towns).
  • You don't move overseas.
  • You pay your taxes in full and on time.

You can opt out at any time before the five years is up.

The Southern Flat Tax is effective from 2019 (i.e. starting with the tax return you file in 2020), but it's not yet clear how long it will be in place.

The government has indicated it will wait for 2021 to evaluate the take-up and value of the scheme, which presumably could be scrapped if it proves to be less of a boon than hoped.

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mrdano - 11 Jun 2019 23:41
........very interested in this benefit as retiring to europe would be a dream come true...........especially for us blue americans !
MaryAnne - 15 Jun 2019 12:44
The tax break the Italian government has offered to retires (those with foreign pensions) starting this year is helpful, but why isn't the government marketing it more heavily?? First of all, they're a little slow off the mark, but many people who might take advantage of it don't even know about it. All the people in the US and elsewhere applying for recognition of their Italian citizenship by Jure Sanguinis should be told about this and other financial incentives by the Italian Consulates. It could be the motivator to get them to actually move to Italy.

I didn't find out until after I moved to Italy, but I almost didn't come because I was going to take a huge hit on my taxes. I found out BY ACCIDENT just before establishing residency in the wrong place (not one of the areas included for the tax break). I quickly changed plans so I could take advantage of it, and I'm now spending my money locally, doing what the government needs people to do to help these towns.

Instead of making the process of applying for recognition of citizenship so onerous, the Italian government should be wooing all these Americans of Italian descent to get them to consider buying property in Italy, if not moving permanently to Italy.
At the local level, also, there needs to be a little more effort on the part of the comunes to help foreigners get settled and adapt to life in Italy. If I didn't have a friend here who is bilingual, my move to rural Italy would very likely be a disaster. My Italian is still beginner level, and trying to navigate an unpredictable and heavily bureaucratic system is a nightmare, because very few Italians are willing to have a little patience, let alone make an effort to help. I am very stubbornly independent and don't give up easily, but trying to get settled here has been utterly exhausting. It would be nice if the local town governments would recognize that most of us moving here from other countries want to contribute in some positive way and not just take their time and suck up resources. Many of us are professionals and have skills and experience we could donate in some fashion once we get a little settled. Some help at the beginning, Italy, would go a long way to generate good will among people who want to help you survive and thrive.

I also get the feeling that the anger and hatred being generated by Salvini and others towards "illegal" immigrants is spilling over onto all immigrants. Maybe Salvini et al should take a little care to see the broader effect of what they are doing. Americans who can may choose to emigrate elsewhere rather than to a country that is in some ways mimicking American politics. Intolerance is not attractive.
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