7% Flat Tax on Foreign Income

7% Flat Tax on Foreign Income

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Thinking of retiring to Italy? You could take advantage of a generous flat tax rate if you move to one of Italy’s small southern towns. Here’s an overview of who’s eligible and how it works.

In a bid to attract more people to Italy’s rural south, the Italian government is offering a 7% flat tax rate specifically for pensioners/retirees.

First introduced in 2019, Italy’s Revenue Agency (Agenzia delle Entrate) details that the incentive is aimed at those who have foreign pensions and move their tax residency to Italy. 

You can benefit from the tax break whether you’re a foreign national or an Italian citizen living abroad. The key is that you receive your pension from another country.

In return for significant cuts to your tax bill, the authorities hope to repopulate small villages and towns that have seen years of emigration from the south to the north or abroad.

Welcoming more retirees to the southern regions is hoped to not only boost the local economy, but also fund services and education to retain more young people thereby reinvigorating these beautiful hidden gems.

The government is working on several tax changes within the 2024 budget law, expected to be finalized by Dec. 31, 2023. 

What are the requirements to apply for the 7% tax program?

If retiring to the stunning south of Italy is the dream you’ve had throughout your working life, this could be a financially sound way to do it.

However, it’s important to remember this is a flat tax rate only – it doesn’t grant you the visa to move to Italy. For help with getting the right immigration visa for you, see here.

READ ALSO: Italian elective residency visa

Any retiree can apply, both Italian and non-Italian, as long as you meet the criteria set out by the law:

  • You must not have been an Italian tax resident for any of the past five tax years. This means that if, for example, you have already lived in Italy for a few years,  you cannot move to one of the eligible small southern towns just to benefit from this tax cut to your foreign pension.
  • You draw a pension outside Italy. You qualify even if you do not have a traditional pension but rather receive money as “Substantial Equal Periodic Payments” (SEPP), for example from a 401K or IRA. And, you qualify even if you have a job, as far as you also collect a pension.
  • You are currently a resident in a country that has tax agreements with Italy. The list includes the EU countries, Canada, Japan, Russia, Switzerland, the UK and the USA.
  • You move to an Italian village included in one of the categories designated by the law for this specific tax incentive (read below for more information).

For Italians living abroad, you’ll need to have been registered with the Registry of Italians Living Abroad – or AIRE – for at least the previous five years, although exceptions apply. For example, the Italian Revenue Agency released some instructions for those who were never registered with AIRE, but actually lived and resided abroad for tax purposes.

Scroll down to book a consultation to discuss how to proceed with your application if this applies to you.

What are the 7% tax benefits?

The 7% tax rate does not apply only to pension income.

If you meet the requirements above, you can take advantage of a flat rate personal income tax of 7% on all your foreign earnings of any nature.

Therefore, for example,  if you have a rental and dividends overseas, you can apply the 7% flat tax also to such income.

That is a considerable drop based on Italy’s personal income tax rates, or ‘IRPEF’ brackets, which range from 23% to 43% depending on your income, or 25% to 45% when you also factor in Regional and Municipal income taxes.

When the 7% tax applies, neither the Regional nor the Municipal income taxes apply.

You’ll also be exempt from tax monitoring of foreign assets. That means you won’t have to disclose real estate or financial assets you own overseas nor pay foreign estate taxes, known as IVIE and IVAFE.

The flat tax rate lasts for nine tax years in total.

Where can I move to in Italy under the 7% tax program?

In 2022 the law extended the list of eligible places where you can move for the purposes of the 7% tax program. To take advantage of this flat tax rate, originally you’ll need to get residency in one of Italy’s so-called ‘Mezzogiorno’ regions or some other qualifying villages in LazioMarche or Umbria. The Mezzogiorno is an area that essentially covers the south of Italy, predominantly all Italian regions south and east of Naples, as follows:

  • Sicily
  • Calabria
  • Sardinia
  • Campania
  • Basilicata
  • Abruzzo
  • Molise
  • Puglia

Within those regions, and the list of designated villages of Lazio, Marche and Umbria (see below, at the end of this article), you can only choose a town with no more than 20,000 inhabitants. If the population of your town grows over 20,000 after you register as a resident, this will not prevent you from continuing to enjoy the 7% tax program until its natural term.  This would include a town with a low-population (<20,000) even if it is located within a metropolitan area.

Italy’s national institute for statistics (ISTAT) has population data to help you narrow down which towns are eligible. What counts is the population on January 1st of the year prior to the first tax year for which you intend to opt for the 7% tax program. For example, if you intend to move to Italy on November 2022, your first year of 7% Italian taxation would be 2023 and, therefore, you should look at the population of your chosen village on January 1st, 2022.  

Is there a catch?

This is a genuine tax break with the intention of attracting more retirees to live in certain parts of Italy.

However, 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% is a flat tax. For example, you cannot apply personal deductions, renovation tax credits or credit for taxes that you might pay overseas on the same income. However, if you earn foreign income in more than one county, you can limit the 7% flat tax to the income earned in some of these countries whereas the income from the other countries is subject to standard tax rules.
  • You must stay registered within an eligible municipality to continue to benefit from the incentive.
  • You can move to another town that is also eligible for the 7% tax rate, but you will lose the 7% tax program entitlement if you move to any town that doesn’t meet the program’s criteria.

You can choose to opt out of this incentive at any time without penalties. 

How can I get more advice on my personal circumstances?

We have a solid record of helping our clients to retire to Italy, secure residency and help them understand the taxes they need to pay.

If you want to find out more, we can guide you on areas such as:

*List of potentially eligible villages in Lazio, Marche and Umbria, if their population is not larger than 20,000. While we update this list periodically, it is not updated frequently. Because population totals change, you should research the population online if you are considering a move, in order to get the most current numbers.

LAZIO
Amatrice (RI)
Antrodoco (RI)
Borbona (RI)
Borgo Velino (RI)
Castel Sant’Angelo (RI)
Cittaducale (RI)
Cittareale (RI)
Leonessa (RI)
Micigliano (RI)
Poggio Bustone (RI)
Posta (RI)
Rieti (RI)
Rivodutri (RI)

MARCHE
Amandola (FM)
Acquacanina (MC)
Acquasanta Terme (AP)
Apiro (MC)
Appignano del Tronto (AP)
Arquata del Tronto (AP)
Belforte del Chienti (MC)
Belmonte Piceno (FM)
Bolognola (MC)
Caldarola (MC)
Camerino (MC)
Camporotondo di Fiastrone (MC)
Castel di Lama (AP)
Castelraimondo (MC)
Castelsantangelo sul Nera (MC)
Castignano (AP)
Castorano (AP)
Cerreto D’esi (AN)
Cessapalombo (MC)
Cingoli (MC)
Colli del Tronto (AP)
Colmurano (MC)
Comunanza (AP)
Corridonia (MC)
Cossignano (AP)
Esanatoglia (MC)
Falerone (FM)
Fiastra (MC)
Fiordimonte (MC)
Fiuminata (MC)
Folignano (AP)
Force (AP)
Gualdo (MC)
Gagliole (MC)
Loro Piceno (MC)
Maltignano (AP)
Massa Fermana (FM)
Matelica (MC)
Mogliano (MC)
Monsampietro Morico (FM)
Montalto delle Marche (AP)
Montappone (FM)
Montedinove (AP)
Montefortino (FM)
Montegallo (AP)
Montemonaco (AP)
Monte Rinaldo (FM)
Monte San Martino (MC)
Monte Vidon Corrado (FM)
Montecavallo (MC)
Montefalcone Appennino (FM)
Montegiorgio (FM)
Monteleone (FM)
Montelparo (FM)
Muccia (MC)
Offida (AP)
Ortezzano (FM)
Palmiano (AP)
Penna San Giovanni (MC)
Petriolo (MC)
Pievebovigliana (MC)
Pieve Torina (MC)
Pioraco (MC)
Poggio San Vicino (MC)
Pollenza (MC)
Ripe San Ginesio (MC)
Roccafluvione (AP)
Rotella (AP)
San Ginesio (MC)
San Severino Marche (MC)
Sant’Angelo in Pontano (MC)
Santa Vittoria in Matenano (FM)
Sarnano (MC)
Sefro (MC)
Serrapetrona (MC)
Serravalle del Chienti (MC)
Smerillo (FM)
Servigliano (FM)
Tolentino (MC)
Treia (MC)
Urbisaglia (MC)
Ussita (MC)
Venarotta (AP)
Visso (MC)

UMBRIA
Arrone (TR)
Ferentill (TR)
Cascia (PG)
Cerreto di Spoleto (PG)
Montefranco (TR)
Monteleone di Spoleto (PG)
Norcia (PG)
Poggiodomo (PG)
Polino (TR)
Preci (PG)
Sant’Anatolia di Narco (PG)
Scheggino (PG)
Sellano (PG)
Vallo di Nera (PG)

Contact us to review your details and for a consultation about how we can help you retire to Italy. We can offer expert advice on the taxes you need to pay as a resident of Italy under the 7% flat tax rate.

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