Foreign nationals returning to Italy: life insurance policy is not equivalent to pension

9.3.2023

Read Time: 3'

The regime for foreign pensioners is excluded if the subscription to a policy entitling to a life annuity does not have a pension purpose aimed at guaranteeing the member a supplementary pension in the form of an annuity or lump sum

Foreign pensioners who are interested in moving to Italy may benefit from foreign pension income from a subsidized substitute tax of 7%

The notion of pension income also includes all those emoluments due after the termination of an employment activity, which also generically finds their cause in an employment relationship other than an employment relationship

The question submitted to the Agency

An individual, a natural person resident in Germany, questions the Agency for clarification regarding their intention to move to Italy, taking advantage of the favorable tax regime provided for foreign pensioners.

In the case referred to in interpellation No. 246/2023, the petitioner presents to the Agency that he receives a life annuity provided by a German private entity under a life insurance policy.

In this regard, the petitioner, prompted by their intention to transfer their residence from Germany to Italy, asks whether, for tax purposes, the disbursements received based on the life insurance policy allow them to access the regime outlined in Article 24ter Tuir, which is reserved for individuals with pension income from a foreign source.

The tax regime provided for foreign pensioners

As clarified by the Internal Revenue Service, Article 24ter Tuir stipulates that individuals, holders of pension income paid by foreign entities, who transfer their residence in Italy to one of the municipalities belonging to the territory of the regions of Sicily, Calabria, Sardinia, Campania, Basilicata, Abruzzo, Molise, and Apulia, or to one of the municipalities affected by the earthquake events of April 6, 2009, or having a population not exceeding 20,000 inhabitants, may:

Opt to subject income of any category produced abroad to a substitute tax, calculated on a flat rate basis, at a rate of 7 percent for each of the tax periods of validity of the option, with an overall validity period of the relief equal to 10 years.

Agency's clarifications on the regime for foreign pensioners

Individuals who transfer their tax residence to certain municipalities or territories may opt to subject income of any category produced abroad to substitute tax at a rate of 7 percent to be applied

for each of the periods of validity of the option
for a total of 10 years.

The scheme's application is subject to the condition that the individual moving to Italy has a retirement income.
In general, therefore, fall under the scheme, all recipients of pension treatments of all kinds and allowances equivalent to them" provided exclusively by foreign entities. In particular, all sorts of pensions and allowances treated as such constitute income from employment.
This regime, the Agency explains, excludes nonresidents who receive income disbursed by a pension institution resident in Italy.
That clarified, the Agency continues:

The notion of pension income also includes all those emoluments due after the termination of an employment activity, which also generically finds their cause in an employment relationship other than that of an employee
The normative expression pensions of all kinds leads one to consider including in the scope also all those one-time allowances (think of the capitalization of pensions) paid on account of the payment of contributions and whose disbursement may be irrespective of the termination of an employment relationship.
Supplementary pension benefits paid to a person who transfers tax residence to Italy, provided by a foreign occupational pension fund or paid through a foreign insurance company, delivered in the form of a lump sum or annuity, are ordinarily attributable, according to the tax system in force in Italy, to income assimilated to pensions, since the rules of supplementary pension provision do not apply to the same benefits.

Life insurance policy is not equivalent to pension

In conclusion, the interpellation under review, having clarified the requirements and terms of operation of the tax regime intended for foreign pensioners, the Agency (referring to the case at hand) explains that when the subscription to the policy (from which a life annuity derives) is voluntary in nature and the provision of benefits does not require the attainment of any age pension requirement, but derives solely from a life insurance contract, entered into with a private entity, the operation of the regime for foreign pensioners must be excluded.

The scheme for foreign pensioners is only for pension purposes if the underwriting of the policy is for pension purposes, aimed at providing the member with a supplementary pension in the form of an annuity or lump sum.