7% Tax Rate for Pensioners in Italy

In Italy, it is possible to take advantage of a 7% flat tax if you move to a small location in southern Italy.

In fact, as of 2019, there are incentives for those who receive a pension provided by foreign entities and choose to move to certain regions in the south, mainly to municipalities with less than 20,000 inhabitants or to those, with a maximum of 3,000 inhabitants, affected by the earthquakes that took place on 24^th of August, 26^th and 30^th of October in 2016 and 18^th January 2017.

A flat tax of 7% percent is thus applicable, i.e., particularly advantageous taxation for about ten years provided that the expiration of the period is not extended.

Who Is Eligible for the 7% Flat Tax?

In order to be among the lucky ones who can enjoy promising tax breaks, certain requirements must be met: first, the 7% flat tax applies to nonresident, foreign pensioners, regardless of whether they are foreigners or Italians residing abroad.

In addition, it is required:

• non-tax residence in Italy in the five tax periods preceding the one in which the new tax benefits would be activated;
• having had, until the time of the change, previous residence in countries with which administrative cooperation agreements with Italy are in force;
• be individuals;
• be holders of pensions abroad, not having had tax residence in Italy in the five tax periods preceding the one in which the request is made.

Regions Affected by the 7% Flat Tax

Anyone who moves to a municipality in southern Italy whose population does not exceed 20,000 will be eligible for the flat tax, mainly from among those in Sicily, Calabria, Sardinia, Campania, Basilicata, Abruzzo, Molise and Apulia, or anyone who moves to a municipality whose population does not exceed 3,000 in a territory in southern Italy hit by earthquakes between 2016 and 2017, mainly from among those in Marche, Umbria, Abruzzo and Lazio

In addition to the fantastic climate, the dreamy landscape, the warmth of its people, and the delicious cuisine, “details” that make Southern Italy the ideal place to spend the years of well-deserved rest, also making the idea of relocation attractive could be an advantageous tax incentive.

Moreover, the regions concerned offer all kinds of opportunities to find the ideal small town to elect as residence, one can in fact choose from places of historical interest, seaside resorts, mountain villages, hills, plains …etc.

What Did the Law Provide?

The Budget Law 2019, (Law No. 145/2018) dedicated a special chapter (Art. 1, paras. 273 – 275) to those who benefit from a pension treatment abroad (pensions or comparable allowances). These people, if they wish, will be able to access a preferential regime that allows them to subject their income to a 7% substitute tax.

A flat tax therefore, equal for all, regardless of the economic conditions of the applicant.

The Tuir, Testo Unico delle Imposte sui Redditi, has been enriched with Article 24-ter, which, in addition to tax incentives, guarantees those who make a choice in favor of any small location in southern Italy, a series of reliefs and concessions.

One is relieved of tax monitoring reporting requirements and is exempted from paying Ivie, the tax on real estate investments abroad, and Ivafe, the tax on the value of assets abroad, which normally burden Italian residents (individuals) holding current accounts, financial products, and savings accounts abroad.

The jurisdiction where the last tax residence was located must be indicated so that the Internal Revenue Service can forward the request to the tax authorities of the jurisdiction in question.

How Long Can You Take Advantage of The Flat Tax?

Currently, there are ten tax periods affected by the measure, during which the retiree will also be exempt from submitting the RW panel of the Unico form, in which foreign financial assets and investments held by individuals residing in Italy are declared to the Italian tax authorities.

In addition, the payment of the tax on the value of real estate located abroad (Ivie) and the tax on the value of financial products, current accounts and savings accounts held abroad (Ivafe) will also be waived for 10 years.

The substitute tax must be paid in a lump sum by the deadline for paying the balance of income tax.

The option must be expressed in the tax return for the tax period in which residence in Italy is transferred and is renewable, for five years, from that period. It can also be revoked without prejudice to the effects already obtained in previous tax periods.

A retiree who wants to move to one of the municipalities affected by the measure but who is not affected by the relief can safely renounce it by indicating it at the time of transfer of residence.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

https://www.mondaq.com/italy/tax-authorities/1304206/italy-7-flat-tax-for-pensioners