Understanding the Italian Tax System
Italy has a progressive income tax system, much like most of its European peers. As of 2025, it features three brackets: 23% on income up to €28,000, 35% on income between €28,001 and €50,000, and 43% on income above €50,000.
For comparison: France levies 45% above approximately €180,000; Spain’s top rate is 47%, applied to income over €300,000; and Portugal applies 48% on income above roughly €84,000.
Unlike some countries, Italy does not have a standard personal allowance, but it does offer a range of deductions tied to family and medical expenses, among others. Residents are considered Italian tax residents if they spend at least 183 days per year in Italy.
Importantly for retirees, pensions — whether foreign or domestic — are generally treated as ordinary income, subject to the same rates above.
Special Incentives for Retirees Who Relocate
Italy has introduced a variety of tax incentives aimed at attracting individuals to establish residence in the country: from the well-known rientro dei cervelli for returning talent, to a lump-sum flat tax of €200,000 per year for high-net-worth individuals.
But perhaps the most advantageous program for retirees is the special 7% flat tax regime for foreign pensioners — designed to attract retirees from abroad, regardless of nationality.
This incentive allows qualifying individuals to pay a flat 7% tax on all their foreign income, not just pensions, for up to 10 years. Here are the key requirements:
• Where you live matters
There are two geographic routes to eligibility:
- Southern Italy. Move to a municipality in one of the southern regions — Abruzzo, Basilicata, Calabria, Campania, Molise, Puglia, Sardinia, or Sicily — with a population of 20,000 or fewer residents. Popular eligible destinations include Taormina (Sicily) and Polignano a Mare (Puglia).
- Earthquake-affected areas. Certain municipalities in Abruzzo, Lazio, Marche, and Umbria — designated as earthquake-affected — also qualify. However, uptake here has been lower due to limited housing stock and ongoing reconstruction.
• You must truly move
You need to become a tax resident (i.e., live in Italy at least 183 days/year) and not have been an Italian tax resident with domestic income in the five years prior. Those with a non-EU passport will need to secure a residence permit.
• You must already receive a foreign pension
The program is open to anyone already receiving a non-Italian pension at the time of relocation. Both public and private pensions qualify, and there is no nationality restriction — Italians retiring from a career abroad are eligible too.
Beyond the 7% flat rate, another advantage is that foreign-held assets are exempt from Italian wealth taxes and reporting obligations for the duration of the regime — a notable simplification for retirees with international investments.
What Does This Mean in Practice?
In most cases, foreign retirees will only pay Italian tax once they relocate, thanks to Italy’s extensive network of double tax treaties.
However, there are two important exceptions:
- US citizens are subject to US federal taxes on worldwide income even when living abroad.
- Government pensioners (e.g., civil servants, NHS employees, public school teachers) are often taxed in their country of origin on those pensions, even after relocating.
The good news is that, for both these groups, the Italian 7% regime essentially caps their total Italian tax burden: if they pay less than 7% in their home country, they only top up to reach 7% in Italy. If they already pay more at home, no additional Italian tax is due.
This is why working with a tax advisor before making the move is crucial — understanding how your pension and other income types interact with bilateral treaties ensures you take full advantage of the incentive without surprises.
Potential Savings: Case Study from the UK
Let’s translate all this into real numbers. Below is a practical comparison for a retiree moving from the UK on a UK pension.
• At an annual pension income of £100,000:
- In the UK, income tax owed would be ~£27,400.
- In Southern Italy under the 7% regime, tax would be £7,000 — a saving of over £20,000 per year.
- In the rest of Italy without incentives, the tax burden would rise to ~£36,800 — almost £10,000 more than staying in the UK.
• At an annual pension income of £200,000:
- UK tax would climb to ~£76,800.
- In Southern Italy under the 7% regime, tax would still only be £14,000 — delivering savings of over £60,000 per year.
- Elsewhere in Italy without incentives, taxes would be ~£80,000 — slightly more than in the Uk.
Clearly, the benefits of the 7% scheme grow with income. Similar calculations apply for retirees from other countries, though rates and treaties vary.
At Mitos Relocation, we regularly help clients model these scenarios and understand their eligibility in detail — working alongside tax professionals to tailor the plan.
Conclusion
Italy’s lifestyle, beauty, and culture are already strong magnets for retirees — but taxation can make a meaningful difference to your financial security too.
For those willing to embrace the charms of the south or smaller, lesser-known towns, the 7% regime can deliver substantial savings for a decade — making an Italian retirement even more appealing.
That said, preparation is everything: the rules are strict, and failing to plan properly before moving could exclude you from the incentive for good. Working with an advisor helps you coordinate your move and your finances effectively.
