Tax regime for foreign retirees expatriating to Italy: 7% taxation on foreign income and tax advantages

Conditions for accessing the regime

The beneficiaries of this regime are individuals who receive pension income from foreign entities and transfer their tax residence to one of the municipalities located in the regions of Sicily, Calabria, Sardinia, Campania, Basilicata, Abruzzo, Molise, and Puglia, with a population of fewer than 20,000 inhabitants. The regime has also been extended to municipalities affected by seismic events, such as Camerino and Norcia, without applying this population limit.

The option is available only to individuals who have not been tax residents in Italy for at least 5 years and who transfer their residence from a country that has agreements with Italy for administrative cooperation, such as treaties to avoid double taxation.

7% tax on foreign income

The core of the regime is the substitute tax of 7% on income of any category produced abroad. This includes income from self-employment or employment, pensions, capital income, capital gains, and real estate income, provided that such income is of foreign origin. However, income of Italian origin is not included in this regime and is taxed under the ordinary progressive IRPEF rates.

Tax credit for foreign income

It is important to note that, under Article 165 of the TUIR, the favorable regime provides that foreign-sourced income is subject to a flat 7% tax without the possibility of benefiting from a tax credit for taxes paid abroad. This means that if the income has already been taxed in the country of origin, the retiree cannot deduct or offset such taxes against the Italian tax, which remains fixed at 7%. This provision could be relevant for retirees who receive income from countries with high taxation, as the absence of the tax credit may reduce the overall benefit of the regime.

Exemption from fiscal monitoring and IVIE/IVAFE taxes

Another added benefit of this regime is the exemption from the obligation of fiscal monitoring concerning investments and financial activities held abroad. Additionally, individuals opting for the regime are not required to pay the tax on the value of real estate located abroad (IVIE) or the tax on the value of financial assets held abroad (IVAFE).

Duration and exercise of the option

The regime has a duration of 9 years, starting from the year in which the taxpayer becomes a tax resident in Italy. The option can be revoked at any time, but the effects remain valid for the fiscal periods already elapsed. It is important to note that the option must be exercised at the time of filing the tax return for the first year of tax residence in Italy.

Conclusion

This regime represents a great opportunity for international retirees interested in settling in Italy, particularly in the southern regions, offering favorable taxation and various tax exemptions. However, the absence of a tax credit for foreign income might be a factor to consider depending on the country of origin of the income. It is always recommended to consult TaxLhab to anticipate the tax implications on your assets in an international mobility context.

‍