Q&A: What to know about Italy’s flat tax rate for pensioners
Italy offers a flat tax rate of just seven percent for people who choose to retire in the sunny south of the country - but is it really that simple? We answered the most common questions about how it works.
If retiring to the south of Italy is a dream you’ve had throughout your working life, there could be a way to do it which also saves on your tax bill.
Since 2019, Italy has offered a special seven percent tax rate to those who choose to retire in certain peaceful, sunny, and usually very affordable parts of the country. Understandably, this flat tax rate has garnered a lot of interest worldwide.
But there’s a lot to know about this scheme, so below we’ve put together brief answers to some of the most common questions readers have.
Who can benefit?
There are a few requirements you’d need to meet in order to qualify, and the main one is that you must receive a private or public pension from another country.
“It doesn’t matter whether you are a citizen of Italy or not, but you must receive a foreign-sourced pension,” explains Italian tax expert Nicolò Bolla of Accounting Bolla.
READ ALSO: From visas to language: What Americans can expect when retiring in Italy
You also can’t have been a legal resident of Italy at any time in the previous five years.
This means that if you’re already living elsewhere in Italy, "you can’t move to one of the eligible southern areas just to benefit from this tax cut to your foreign pension."
But “you may have been a tax resident of Italy five years ago or more and still qualify,” Bolla says.
Finally, you must settle in a qualifying town or municipality - see more detail on that below, but almost all of them are in the southern regions of Abruzzo, Basilicata. Calabria, Campania, Molise, Puglia, Sardinia, or Sicily.
How much could you save?
You may think the tax savings only apply to your pension, but if you meet the requirements, you can take advantage of a flat-rate personal income tax of 7 percent on all foreign earnings.
“Basically, a pensioner who has not been resident of Italy in the five years prior moving here can claim a flat 7 percent taxation on ALL of their foreign income sources, not just the foreign pension received,” Bolla explains.
READ ALSO: The Italian tax calendar for 2023: Which taxes are due when?
This would include, for example, rental income and dividends overseas.
This equates to huge savings considering that Italy’s personal income tax or ‘Irpef’ brackets range from 23 to 43 percent depending on your income.
Regional and municipal income taxes tend to add roughly an extra 2 percent to your tax bill.
But if you’re eligible for the 7 percent tax rate, you won’t have to pay regional and municipal income taxes either.
The flat tax rate applies for nine tax years in total.
Italy's flat tax rate could be one way to ensure a bright and sunny retirement in Italy. Photo by Nicola Pavan on Unsplash
Where could you move to?
The tax rate mainly applies if you move to a small town in the southern half of the country: in the regions of Abruzzo, Basilicata, Calabria, Campania, Molise, Puglia, Sardinia, or Sicily.
In 2022, the list of places you could move to and claim the 7 percent tax rate was extended to include some towns in Lazio, Marche or Umbria.
The rule is that the town you move to must have no more than 20,000 inhabitants at the time you register as a resident (if the population grows later, that won't change your tax status).
READ ALSO: Seven things to know before moving to Italy's Puglia region
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 elsewhere on the Adriatic Coast or the Ionian 'sole' of Italy's boot.
There's no specific official list of the eligible towns, but you can consult the latest population data from national statistics office Istat to find out which towns you can choose from.
Why is Italy offering this?
Italy is, for many obvious reasons, an attractive destination for retirees worldwide so it may seem unnecessary for the country to tempt people with tax breaks.
But the aim with this flat tax rate is to get people to consider retirement in one of the poorer southern regions which are suffering depopulation after years of emigration from the south to the north or abroad.
OPINION: If you want quality of life, choose Italy’s sunny south over the efficient north
As regions in the north, like Tuscany, Veneto and Liguria, have long been the first choice for many people moving to Italy, not everyone considers looking further south.
Welcoming more retirees to southern regions is hoped to not only boost the local economy, but also fund services and education in order to persuade more young people to stay.
Is there a catch?
As Italian legal experts at Studio Legale Metta confirm, “this is a genuine tax break with the intention of attracting more retirees to live in certain parts of Italy.”
However, they note that there are “certain conditions attached, aside from the eligibility criteria”:
- You must apply no later than the year after you become an Italian tax resident.
- You must pay your taxes in full and meet Italy’s tax deadlines.
- No deductions are allowed: the 7 percent is a flat tax.
- You must stay registered within an eligible municipality (you can move to another town that is also eligible for the 7 percent tax rate, but you will lose the 7 percent tax program entitlement if you move to any town that doesn’t meet the program’s criteria)
They stress that it’s important to remember “this is a flat tax rate only – it doesn’t grant you the visa to move to Italy” if you require one.
That’s a whole other process. Italy offers several different visas, but retirees coming from non-EU countries often find their best option is to apply for an elective residency visa.
How do you apply for and pay the flat tax rate?
Italian tax rules are complex, as you’ve no doubt gathered.
To begin with, the best thing to do is always to seek advice from a qualified tax professional about whether and how this flat tax rate would apply in your circumstances and what you'd need to do in order to register as tax resident in Italy.
Once resident in Italy, 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 your tax bill using the standard F24 payment form. You may also choose to have an accountant or other tax professional handle the process on your behalf.
Please note that The Local is unable to advise on individual cases. Find more information about Italy's flat tax rate for retirees on the Italian revenue agency (Agenzie delle Entrate) website here (in Italian only) or speak to a qualified tax advisor.
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If retiring to the south of Italy is a dream you’ve had throughout your working life, there could be a way to do it which also saves on your tax bill.
Since 2019, Italy has offered a special seven percent tax rate to those who choose to retire in certain peaceful, sunny, and usually very affordable parts of the country. Understandably, this flat tax rate has garnered a lot of interest worldwide.
But there’s a lot to know about this scheme, so below we’ve put together brief answers to some of the most common questions readers have.
Who can benefit?
There are a few requirements you’d need to meet in order to qualify, and the main one is that you must receive a private or public pension from another country.
“It doesn’t matter whether you are a citizen of Italy or not, but you must receive a foreign-sourced pension,” explains Italian tax expert Nicolò Bolla of Accounting Bolla.
READ ALSO: From visas to language: What Americans can expect when retiring in Italy
You also can’t have been a legal resident of Italy at any time in the previous five years.
This means that if you’re already living elsewhere in Italy, "you can’t move to one of the eligible southern areas just to benefit from this tax cut to your foreign pension."
But “you may have been a tax resident of Italy five years ago or more and still qualify,” Bolla says.
Finally, you must settle in a qualifying town or municipality - see more detail on that below, but almost all of them are in the southern regions of Abruzzo, Basilicata. Calabria, Campania, Molise, Puglia, Sardinia, or Sicily.
How much could you save?
You may think the tax savings only apply to your pension, but if you meet the requirements, you can take advantage of a flat-rate personal income tax of 7 percent on all foreign earnings.
“Basically, a pensioner who has not been resident of Italy in the five years prior moving here can claim a flat 7 percent taxation on ALL of their foreign income sources, not just the foreign pension received,” Bolla explains.
READ ALSO: The Italian tax calendar for 2023: Which taxes are due when?
This would include, for example, rental income and dividends overseas.
This equates to huge savings considering that Italy’s personal income tax or ‘Irpef’ brackets range from 23 to 43 percent depending on your income.
Regional and municipal income taxes tend to add roughly an extra 2 percent to your tax bill.
But if you’re eligible for the 7 percent tax rate, you won’t have to pay regional and municipal income taxes either.
The flat tax rate applies for nine tax years in total.
Where could you move to?
The tax rate mainly applies if you move to a small town in the southern half of the country: in the regions of Abruzzo, Basilicata, Calabria, Campania, Molise, Puglia, Sardinia, or Sicily.
In 2022, the list of places you could move to and claim the 7 percent tax rate was extended to include some towns in Lazio, Marche or Umbria.
The rule is that the town you move to must have no more than 20,000 inhabitants at the time you register as a resident (if the population grows later, that won't change your tax status).
READ ALSO: Seven things to know before moving to Italy's Puglia region
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 elsewhere on the Adriatic Coast or the Ionian 'sole' of Italy's boot.
There's no specific official list of the eligible towns, but you can consult the latest population data from national statistics office Istat to find out which towns you can choose from.
Why is Italy offering this?
Italy is, for many obvious reasons, an attractive destination for retirees worldwide so it may seem unnecessary for the country to tempt people with tax breaks.
But the aim with this flat tax rate is to get people to consider retirement in one of the poorer southern regions which are suffering depopulation after years of emigration from the south to the north or abroad.
OPINION: If you want quality of life, choose Italy’s sunny south over the efficient north
As regions in the north, like Tuscany, Veneto and Liguria, have long been the first choice for many people moving to Italy, not everyone considers looking further south.
Welcoming more retirees to southern regions is hoped to not only boost the local economy, but also fund services and education in order to persuade more young people to stay.
Is there a catch?
As Italian legal experts at Studio Legale Metta confirm, “this is a genuine tax break with the intention of attracting more retirees to live in certain parts of Italy.”
However, they note that there are “certain conditions attached, aside from the eligibility criteria”:
- You must apply no later than the year after you become an Italian tax resident.
- You must pay your taxes in full and meet Italy’s tax deadlines.
- No deductions are allowed: the 7 percent is a flat tax.
- You must stay registered within an eligible municipality (you can move to another town that is also eligible for the 7 percent tax rate, but you will lose the 7 percent tax program entitlement if you move to any town that doesn’t meet the program’s criteria)
They stress that it’s important to remember “this is a flat tax rate only – it doesn’t grant you the visa to move to Italy” if you require one.
That’s a whole other process. Italy offers several different visas, but retirees coming from non-EU countries often find their best option is to apply for an elective residency visa.
How do you apply for and pay the flat tax rate?
Italian tax rules are complex, as you’ve no doubt gathered.
To begin with, the best thing to do is always to seek advice from a qualified tax professional about whether and how this flat tax rate would apply in your circumstances and what you'd need to do in order to register as tax resident in Italy.
Once resident in Italy, 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 your tax bill using the standard F24 payment form. You may also choose to have an accountant or other tax professional handle the process on your behalf.
Please note that The Local is unable to advise on individual cases. Find more information about Italy's flat tax rate for retirees on the Italian revenue agency (Agenzie delle Entrate) website here (in Italian only) or speak to a qualified tax advisor.
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