The Italian tax system offers several incentives to attract different categories of income earners residing abroad to the country, encouraging them to move to Italy.
In this context, there are measures aimed at attracting taxpayers with high skills, educational qualifications and specific expertise (the so-called ‘brain-gain’ scheme – rientro dei cervelli); instruments aimed at high net-worth individuals who are new residents; and, finally, a regime dedicated to pensioners receiving pensions from foreign sources.
What does the scheme for foreign pensioners include?
If you are a foreign pensioner and dream of moving to Italy to enjoy the beauty of the country and its quality of life, you should know that you can also benefit from a special tax relief.
Foreign pensioners who choose Italy are subject to a flat tax of 7% on pension income paid by a foreign entity (residing outside Italy).
Article 24-ter of the Tuir introduces this measure and provides for the possibility of applying a substitute tax for Irpef at a rate of 7% not only to pension income but to any category of income produced abroad, for nine tax periods.
What do you need to do to take advantage of this benefit?
To benefit from this regime, foreign pensioners must indicate in their tax return
- That they have not been resident in Italy in the 5 years prior to the start of the option’s validity
- That they have transferred their residence to a town with a population of no more than 20,000 inhabitants in a region of southern Italy (Sicily, Calabria, Sardinia, Puglia, Campania, Basilicata, Abruzzo, Molise)
- That they come from a country with which Italy has active administrative tax cooperation agreements (EU countries; OECD countries; countries with which there is a double taxation agreement in force; or a Tax Information Exchange Agreement in force)
- The foreign country or countries for which you do not intend to claim the substitute tax
- The country of residence of the foreign entity paying the pension
- The amount of foreign income subject to the substitute tax (flat tax)
What types of income are eligible?
The 7% flat tax for pensioners applies not only to pension income but also to any financial, real estate or other income generated abroad.
Therefore, instead of the normal IRPEF (personal income tax), this income can be subject to the flat tax for pensioners, which consists of a substitute tax calculated at a flat rate of 7% for all tax periods in which the option for the favourable regime in question remains valid.
How long do the benefits last?
If you meet these requirements, you can take advantage of this favourable regime for nine tax years starting from the year in which it takes effect.
To exercise this option, simply fill in the appropriate section of your tax return for the year in which you transfer your residence.
The 7% substitute tax on foreign pension income will be paid annually.
When does the benefit lapse?
There are certain circumstances in which the Flat Tax regime for foreign pensioners may lapse.
In particular, the taxpayer loses the benefit if:
- the Revenue Agency (Italian Tax Authority) ascertains that the requirements for its application do not exist or have ceased to exist
- -fails, even partially, to pay the substitute tax within the terms of the law, unless the tax is paid by the deadline for the balance relating to the tax period following that to which the omission refers.
