A less taxing retirement option

Imagine sipping an espresso on your sun-drenched terrace in Puglia, reading your latest copy of the soon to be released digital version of Fra Noi, and thinking, “I could get used to this.”

If you’re an Italian-American considering moving to Italy for retirement, there’s a special tax regime that might make the decision even sweeter — a flat 7% tax on all your foreign income, including pensions.

But before packing up and heading south, it’s important to understand who qualifies and how the regime works. Here’s a clear, friendly guide to help you navigate Italy’s 7% flat tax for foreign retirees, under Article 24-ter of the Italian Income Tax Code.

Who Qualifies?

To benefit from this favorable regime, all of the following conditions must be met:

1. You must receive a foreign pension, whether public or private. This is the essential requirement. If you don’t have a foreign pension, you cannot access this regime. That said, not all pensions automatically qualify: some types of foreign pension schemes—such as certain unit-linked plans or variable-yield insurance-based pensions—may be excluded depending on Italian tax interpretations. In nay case, it is always susggested to consult a tax attorney in advance.
2. You must transfer your Italian tax residence to a qualifying municipality. That means a town with no more than 20,000 residents, located in one of the southern regions of Italy: Abruzzo, Basilicata, Calabria, Campania, Molise, Puglia, Sardinia, or Sicily.

But there’s more: thanks to updated interpretations of the law, some “special” municipalities outside the South, such as those affected by historical earthquakes (e.g. the 2009 L’Aquila quake), are also included in the list. In such cases, population limits may be relaxed. All qualifying towns are listed in official annexes to Decree-Law 189/2016. Before choosing your dream village, it’s wise to consult the updated list of eligible municipalities—your future tax benefits may depend on it.

You must move directly into a qualifying town. You cannot first move to a non-qualifying city like Florence or Rome and then transfer to an eligible one. However, if you start off in a qualifying town and later move to another one—within the eligible zones and under the 20,000-resident threshold—you still qualify.

3. You must not have been a tax resident of Italy in the past five years.
4. You must be coming from a country that has a tax information exchange agreement with Italy. (The United States does.)

What Do You Get?

If you meet all these requirements, you can opt into a 7% flat tax regime for up to 10 years, which covers:

• Foreign pension income
• Capital gains
• Dividends
• Interest
• Rental income earned abroad
• Any other foreign-sourced income

This option simplifies your tax obligations and can be especially advantageous for those with diversified financial portfolios abroad.

How to Elect the Regime

The option must be exercised in your Italian income tax return for the year in which you transferred your tax residence to Italy. If you become a tax resident in 2024, you’ll make the election in your 2024 return, filed in 2025 (usually by November).

When filing, you must declare:

• Your foreign tax residence for the previous five years
• The countries where you previously lived
• The country paying your pension income
• The total amount of foreign income to be taxed at 7%
• (Optional) Countries you wish to exclude from the flat tax (the “cherry-picking” clause, rarely relevant in practice)

The 7% tax is then due annually, along with your other tax payments—typically by July of each year.

But Be Careful…

The Italian tax authorities can revoke the regime if:

• You don’t meet all the legal requirements (especially the 5-year rule)
• You fail to pay the 7% tax (even partially)
• You move your residence abroad
• You relocate to a municipality with more than 20,000 residents

And if you’re disqualified for any of these reasons, you cannot opt in again.

So….

If you’ve dreamed of retiring in a sun-kissed village in Southern Italy, surrounded by history, food, and family roots—and if you receive a pension from abroad—the 7% flat tax regime could make la dolce vita not just possible, but practical.

It’s one of the most generous tax incentives in Europe for foreign retirees, but it’s not automatic. The key is to plan carefully, verify your pension type, check the updated municipal lists, and get expert guidance on timing your move.

Send your questions regarding Italian law to cbortolani@aliantlaw.com and I’ll be glad to answer them.

The content provided in this Q&A column is intended solely for general informational purposes and does not constitute legal advice. The information presented here is not tailored to any specific situation or transaction and should not be relied upon as a substitute for professional legal counsel. Legal issues can vary widely based on individual circumstances and jurisdictional nuances. Therefore, it is crucial to consult with a qualified legal professional regarding your specific case or concerns. Please be aware that no attorney-client relationship is established by accessing or interacting with the information provided in this column. The column’s author and publisher disclaim any liability for actions taken based on the information contained herein.