With its warm climate, natural beauty, and relaxed ways of life, Italy is an attractive destination for foreign retirees.
But there’s another element that contributes to the appeal: a special flat income tax rate of just seven percent for people with foreign-sourced pensions who choose to retire in certain areas of the country.
READ ALSO: Q&A: What to know about Italy's flat tax rate for pensioners
First introduced in 2019, the flat tax offer has since garnered a lot of interest worldwide – and it's easy to see why.
If you meet the requirements, the seven-percent rate doesn’t apply just to your pension but to all foreign earnings taxed in Italy, such as rental income and dividends overseas.
To be eligible, retirees must register as residents in a town with fewer than 20,000 inhabitants. Most of the eligible towns are in the regions of Sicily, Calabria, Sardinia, Campania, Basilicata, Abruzzo, Molise or Puglia.
Other requirements include having a foreign-sourced pension, and having lived outside Italy for the previous five years.
As there are fewer than 500 people currently using the seven-percent flat tax rate, it seems the criteria aren't always easy to meet.
But if you do meet the requirements, how do you claim this tax incentive?
Once you've got your visa (if required) and registered as an Italian resident, you'll then be required to declare your income to the Italian tax authorities. You'll need to prove you meet the flat tax scheme requirements in order to benefit from the seven-percent rate when filing your first Italian tax return.
Those who have successfully used the scheme when retiring in Italy say it wasn't difficult to claim - but there are a few things you'll need to be aware of.
There's no application process
“Getting the seven-percent flat tax for retirees wasn’t an issue, that was the easiest part," British citizen Kim Dutton tells The Local, adding that getting an Italian health card and other paperwork sorted out was far more difficult.
"You don’t have to apply, you just have to show your passive income yearly and the rate gets deducted."
Kim, who moved with her partner from Sheffield, England, to Marina di Ragusa, Sicily, before the end of the Brexit transition period says the tax rate was not the main draw for them.
“We did not come not strictly for the seven-percent flat tax rate. But we fell in love with the area after sailing our boat there on and off for three years prior,” Kim says.
“We just knew it was where we wanted to settle and wanted to put down permanent roots.”
READ ALSO: Five big reasons people choose to retire to Italy
The couple, who have passive income from rentals back home as well as UK pensions, say applying was just a case of filing a tax return with their accountant.
The flat tax rate is available for up to ten years, and Kim has six years left in which she can benefit.
“I love living here and love the quality of life. I just hope in six years I can afford to stay.”
An accountant is invaluable
Robert Laggini and his wife Joyce moved to Molise, southern Italy, from Maryland in the US three years ago after meeting the passive income threshold for the elective residency visa.
Whilst he also mentions there's no application process involved in the seven percent flat tax scheme, he does recognise filing taxes on pension income and any other type is hard to do alone.
“Trust me, getting an accountant is the best way to navigate this. It is common practice here to use one to file, unlike the US, as the Italian system is complicated," says Robert.
READ ALSO: Should you hire an accountant to file your Italian taxes?
“It’s a wonderful scheme when you think about how high taxes are for other people,” he continues. “It is intended to repopulate towns in the south that had suffered depopulation over the years.”
Checking double taxation laws is a must
Texas native Carl Lobitz, who moved to Abruzzo two years ago, says he also considered Portugal but "there were too many Brits and it felt as though it had lost a bit of originality."
Carl agrees that the process itself was easy enough, and that getting an accountant is the biggest piece of advice he can pass on to anyone else thinking of making the move.
READ ALSO: 'How we moved to Italy and only pay tax on 50 percent of our income'
“There's a double taxation scheme between the US and Italy, so I don’t have to pay double the tax, but I would advise anyone who does not come from a country with double taxation to speak to someone before,” he says.
“Overall I’m pleased with the scheme and happy I have a few years left of it.”
Have you used Italy's seven percent flat tax rate? If you have any advice for other readers, please share your experience in the comments section below.
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