Foreign pensioners moving to Italy: the point on tax benefits
The favorable tax regime allows exemption from the obligation of tax monitoring concerning foreign activities and investments provided for by Italian law
Access to the regime is allowed to both a foreign national and an Italian citizen. What matters is that the prerequisite of tax residence abroad is fulfilled
Facilities for pensioners: general profiles
There are many European (and non-European) states that, to attract new taxpayers to the territory, preferably those with high earning capacities, have over time introduced tax breaks for specific categories of individuals. These categories include pensioners.
Italy, as well as Portugal or Greece, for example, as of 2019, provides a tax-advantaged regime for taxpayers who receive pensions from a foreign source and who decide to transfer their residence to the state's territory.
The goal pursued by the legislature with this measure is to attract foreign human capital and stimulate the growth of certain territories in the South.
Generally speaking, as provided in paragraph 1 of Article 24-ter of the Tuir, the favorable regime allows taxpayers to opt for the Irpef substitute tax at a rate of 7 percent on income produced abroad instead of the ordinary discipline. In addition, the favorable tax regime allows exemption from the obligation of tax monitoring regarding foreign activities and investments under Italian law; and exemption from the payment of Ivie and Ivafe.
To access the concessional regime dedicated to pensioners, which provides as a benefit the 7 percent substitute tax on foreign source income for ten tax periods, interested parties will have to integrate specific requirements.
In more detail, individuals who wish to benefit from the measure:
- must receive pension income (or equivalent allowances) provided by foreign entities
- must have been a tax resident in the foreign state for the previous five tax periods
- must transfer their residence to Italy
- must come from countries with which administrative cooperation agreements are in force.
Those who supplement these requirements and transfer their tax residence to Italy may opt to subject income of any category produced abroad to a substitute tax at a rate of 7 percent, to be applied for each period of validity of the option (a total of 10 years).
Moving to Italy: but where?
It is worth spending a few words with specific reference to where one needs to transfer one's residence.
To take advantage of the scheme in the comment, as reported in Art. 24 Tuir and clarified in Circular No. 21/E of July 17, 2020, it is required the person receiving pension from a foreign source will have to move to a municipality in the Italian Mezzogiorno, with a population not exceeding 20,000 inhabitants, located in Sicily, Calabria, Sardinia, Campania, Basilicata, Abruzzo, Molise, and Puglia. Likewise, he may move to a municipality situated in one of the areas affected by the 2016 earthquake events.
It is clear, therefore, that the rule incentivizes the entrenchment of retirees in small municipalities located in less competitive areas to promote their growth through increased investment and consumption.
Does the option apply only to foreigners?
To take advantage of the benefit, the nationality of the relocating person does not matter.
Access to the scheme is allowed for both foreign and an Italian citizens. What matters is that the prerequisite of tax residence abroad is fulfilled and that the last residence was in a country where administrative cooperation agreements on tax matters are in force.
As is evident, individuals must have pension income to access the scheme in question.
In this regard, as pointed out by the Revenue Agency in its recent answer to interpellation No. 471/2022, under Article 49, paragraph 2, letter a) of the Tuir, pensions of all kinds and allowances equated to them constitute income from employment. Therefore, the express regulatory provision correlates pension income with employee income.
In this sense, pensions paid by foreign entities fall within the scope of the facilitating provision under consideration, as income is produced abroad. In contrast, pensions received by individuals who have moved to our country and opted for the tax regime under consideration remain excluded from the application of the substitute tax, and are taxed according to the ordinary provisions.
However, it is not ruled out that a person who holds several pension incomes, some from a foreign source and others paid from an Italian source, may assert the preferential option on foreign income.
As the Agency notes, the circumstance that the Applicant also holds pension income disbursed by INPS does not prevent the application of the regime under Article 24-ter of the Tuir.