If you’re dreaming of retiring in Italy or moving abroad to enjoy a more relaxed lifestyle, there’s a financial incentive you need to know about.
Southern Italy offers a 7% flat tax for expat retirees. This tax rate makes Italy an attractive destination for those looking to maximize their savings while enjoying the Mediterranean lifestyle.
What Is Italy’s 7% Flat Tax?
The Italian flat tax for retirees was introduced in 2019 to attract foreign pensioners and expats to the southern regions of the country. This special tax regime allows qualifying individuals to pay a flat 7% income tax on their foreign earnings, including pensions, investments, and rental income.
Understanding Italy’s 7% Flat Tax Benefit
Italy’s 7% flat tax rate isn’t limited to pension income—it applies to all foreign earnings if you meet the eligibility criteria. This means that income from sources like rental properties or dividends earned abroad can also be taxed at the reduced rate.
This is a significant advantage compared to Italy’s standard income tax rates, which range from 23% to 43% based on earnings, or up to 45% when including regional and municipal taxes. Additionally, under the 7% tax scheme, regional and municipal income taxes do not apply.
Individuals benefiting from this tax regime are not required to report foreign assets such as real estate or financial holdings, nor are they subject to Italian taxes on those holdings (IVIE and IVAFE). The 7% flat tax remains in effect for up to nine tax years.
Who Qualifies for Italy’s 7% Flat Tax?
It’s important to note that, in order to take advantage of this tax incentive, you will have to become a permanent resident of Italy. If you are not an EU citizen, you will need a visa in order to reside in Italy. Learn more about how U.S. and Canadian citizens can get a visa for Italy.
Both Italian and non-Italian retirees can apply for this tax incentive, provided they meet the following criteria:
- You must not have been an Italian tax resident for the past five years. If you have already lived in Italy recently, you cannot simply relocate to a qualifying town to take advantage of this tax break.
- You must receive a pension from a foreign country. This includes traditional pensions as well as payments from retirement accounts like a 401K or IRA. You may also qualify if you are still working but also collect a pension.
- You must be moving from a country that has a tax agreement with Italy. Eligible nations include all EU countries, the UK, the USA, Canada, Japan, Russia, and Switzerland.
- You must establish residency in a designated town in Southern Italy. Qualifying regions include Sicily, Calabria, Puglia, and Campania, with residency required in a town with fewer than 20,000 residents.
For Italian citizens returning from abroad, additional conditions apply. You must have been registered with the Registry of Italians Living Abroad (AIRE) for at least five years, though there are exceptions for those who lived abroad for tax purposes but were not formally registered.
This tax scheme is available for up to nine years, providing retirees with significant tax savings while enjoying life in one of Italy’s picturesque southern villages.
Where Can You Move to Benefit from the 7% Tax Rate?
Italy’s 2022 legislative reforms broadened the geographic scope of its 7% flat tax initiative, allowing applicants to establish residency in a wider range of locations.
To qualify, individuals must relocate to designated areas, including regions within the Mezzogiorno. A term referring to southern Italy’s territories south and east of Naples. Or select rural towns in central regions such as Lazio, Marche, and Umbria.
This expansion aims to attract residents to areas with untapped potential, while offering significant tax savings. By settling in these zones, applicants gain access to the flat 7% rate on foreign income, bypassing Italy’s standard progressive tax brackets and avoiding local surcharges.
Some of the best towns to consider include:
- Taormina, Sicily – hilltop town known for the Ionian Sea, ancient Greek Theater, and charming medieval streets.
- Cefalú, Sicily – known for its golden beaches, medieval architecture, and the stunning Norman Cathedral with its breathtaking mosaics.
- Locorotondo, Apulia – known for its whitewashed houses, circular historic center, and stunning views of the Itria Valley’s rolling vineyards and olive groves.
- Polignano a Mare, Apulia – coastal town perched on limestone cliffs, renowned for its crystal-clear waters, dramatic sea caves, and charming historic center.
- Atrani, Campania – seaside village on the Amalfi Coast, known for its charming narrow streets, historic churches, and stunning coastal views.
How to Buy a Home in Southern Italy as an Expat
If you’re considering taking advantage of this tax incentive, finding the right property is key. Whether you’re looking for a traditional farmhouse, a seaside villa, or an affordable apartment, navigating the Italian real estate market can be complex. That’s where working with a trusted real estate consultant makes all the difference.
At Dolce Living, we specialize in helping expats and retirees find the perfect home in Italy, guiding you through the legal process, paperwork, and elective residency requirements.
Final Thoughts: Is the 7% Flat Tax Worth It?
For retirees and expats looking to enjoy the Italian lifestyle while keeping more of their hard-earned money, Southern Italy’s flat tax incentive is a fantastic opportunity. Lower taxes, affordable real estate, and a slower pace of life make this region one of the best places to retire in Europe.
U.S. citizens who wish to benefit from this tax incentive should keep in mind that, even after moving to Italy, they are still required to file tax returns and pay taxes in the U.S. However, taxes paid in Italy may qualify for substantial foreign tax credits in the U.S., helping to mitigate the risk of double taxation. We recommend consulting a trusted tax professional to assess your specific situation and ensure compliance with all applicable tax regulations.
