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

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.

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

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.

Member comments

  1. ……..very interested in this benefit as retiring to europe would be a dream come true………..especially for us blue americans !

  2. 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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SUMMER

Gelato, iced tea and escaping to the hills: How to survive an Italian summer in the city

As Italy swelters in the early summer heat, writer Richard Hough in Verona shares his tips for keeping cool in the city this summer.

Gelato, iced tea and escaping to the hills: How to survive an Italian summer in the city
Photo: Tommaso Pecchioli/Unsplash

With the temperature in Italy soaring and this year’s first wave of the famed ‘caldo Africano’ sweeping the nation, a number of coping strategies can be employed to try and stay cool in the brutally hot Italian summer.

In Verona the temperature is now well into the thirties, and even through the night it rarely falls below 20 degrees.

I can’t remember the last time it rained, and there’s barely a breath of wind in the air. Even performing simple tasks, like putting on a pair of socks (to be avoided at all costs if possible), cause an alarming outbreak of perspiration. Anything as vigorous as cycling to work or going for a jog becomes an energy-sapping endeavour that inevitably results in an unpleasant sweaty drenching. 

READ ALSO: Fried eggs and sweaty underpants: 10 phrases for complaining about the heat like an Italian

With the effective use of blinds, shutters and air-conditioning, some of our neighbours and friends boast of being able to keep their house at a relatively stable 19 or 20 degrees, a feat of household management we’ve never quite managed to achieve.

Noisy, expensive and generally unsatisfying, we tend to use our air conditioning system only as a last resort and instead endure the heat of our apartment like some kind of mildly unpleasant act of self-flagellation.

Ice-cream, of course, is an altogether more pleasant way to confront the summer heat.

To my squirming delight, the local gelateria even offered me a loyalty card earlier this week. On closer inspection, I was somewhat dismayed to calculate that I’d need to consume €100 of ice-cream before I received any reward! When you consider that a cone costs as little as €2 a pop, you have some idea of the scale of the task that lies before me.

READ ALSO: How to keep cool like an Ancient Roman in Italy’s summer heat

Photo: Miguel Medina/AFP

Iced tea is another vital source of refreshment in these sweltering days. Before moving permanently to Italy ten years ago, I had always mocked the idea of cold tea. For me tea was brewed hot and strong with a splash of milk. The notion of ice-cold, sweet, peach-flavoured tea just seemed ridiculously self-indulgent. The first summer I spent it in Verona I consumed the stuff by the gallon. It remains one of the few things that can quench that insatiable summer thirst.

Another, of course, is beer. 

Verona is well-known principally as a wine-producing region, but in the summer months that intoxicating blend of barley, hops and water comes into its own, as the full-bodied red wines of the region momentarily take a back seat. Even my wife, who never drank beer before we came to Italy, is known to enjoy the occasional birra media in the summer months. 

Some of the best birreria in town even serve their beer in chilled glasses. If you can avoid getting your lip stuck to the glassware, this is a delightfully refreshing way to enjoy the ancient amber nectar.

As the popularity of locally-brewed craft beers has soared in recent years, a number of new bars have sprung up in Verona to cater for the seemingly insatiable demand. Amongst the best of these new arrivals is the Santa Maria Craft Pub, near Piazza Erbe. Perhaps I can persuade them to introduce a loyalty card?

READ ALSO: How to spot good quality gelato in Italy – and how to suss out the fakes

Verona’s Piazza Erbe. Photo: Shalev Cohen/Unsplash

The hills above the city also provide some respite from the stifling heat below, and the Verona Beer Garden in the Torricelle hills opens every year from May to September. The Beer Garden offers the standard range of German beers and simple fast food, as well as live music, crazy golf and beer-pong, in the blissfully cool surroundings of the Veronese hills. 

This year has also seen the launch of the Mura Festival which runs from June to October. Mura is Italian for ‘wall’ and this exciting new addition to the local events scene takes place in the green ramparts of the ancient wall that surrounds the city. With everything from yoga and children’s theatre to Thai street food and arrosticini abruzzesi (barbequed lamb skewers), it’s another refreshing place to chill out and cool down after a day under the fierce sun. 

Of course, the best strategy for avoiding the heat is to leave the city behind you and head to the beach. In recent years we’ve done exactly that, exploring Sicily, Sardinia and Elba when the heat of the city gets too much. The region of Puglia, famed for its pristine beaches and crystal-clear water, has long been on our list too, but this year we’ve opted to stay local. With the ever-evolving pandemic situation, we took the decision not to be too ambitious with our travel plans. 

REVEALED: The parts of Italy where Italians are going on holiday this summer

With three months of school holidays to contend with, many Italian kids have already been dispatched from the sweltering cities, often with their obliging nonni (grandparents). We too will soon be decamping, returning this year to Bibione, a popular beach resort to the east of Venice on the Adriatic coast, where we’ve enjoyed simple family holidays in the past. 

Like many families, we’ve opted for a ‘camping’ style resort, but will be treating ourselves to a luxurious, six-berth ‘leaf tent’, fully equipped with air-conditioning, fridge/freezer and the all-important mosquito netting, as well as two sun loungers and a parasol on the nearby beach.

The only slight cloud on the horizon is that I’ll have to tear myself away from the beach for a few hours to return to Verona for the second dose of my vaccine. As long as I’ve got a supply of chilled peach tea for the journey, I think I’ll be ok. And if all goes to plan, I’ll be back on the beach in time for a quick pre-lunch dip in the cool Adriatic.

Richard Hough has lived in Verona since September 2011 and writes about the region’s history, football, wine and culture. His new book, Rita’s War, a true story of persecution, resistance and heroism from wartime Italy, is available here. He is currently writing his next book about wartime Verona.

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