The Italian Budget Law for 2019 (Law no. 145/2018) has introduced a favorable tax regime aimed at encouraging retired people living in foreign countries to move their residence to Southern Italy. According to the new provisions, all income sourced outside Italy will be subject to a 7% substitutive tax.

The new flat tax for retired people moving to Southern Italy

The Italian legislator set forth a new regime reserved to retired people resident abroad and receiving pensions sourced outside Italy. This regime provides for the application of a substitutive tax of 7% on all income from non-Italian source.

Special requirements

The new regime is applicable under the following requirements:

  1. the taxpayer receives pensions or similar annuities, having their source outside Italy;
  2. the tax residence of the applicant taxpayer was located outside Italy during the last five years;
  3. aninternational agreement on administrative cooperation is in force between Italy and the State where the taxpayer was resident in the previous years (e.g. Switzerland);
  4. the taxpayer moves his/her residence to Italy and the chosen place of residence is a city:

    • included in the territory of one of the following regions: Abruzzi, Apulia, Basilicata, Calabria, Campania, Molise, Sardinia, Sicily.
    • and, with a population of no more than 20.000 inhabitants.

Since the new tax regime consists in a substitutive flat tax on all income sourced abroad, the taxpayer will not be entitled to any tax credit for taxes paid abroad. Alternatively, the taxpayer has the option to exclude income sourced in specific countries from the flat tax, and to subject it to ordinary taxation.

Time frame

The special tax regime will be applicable – upon express application by the taxpayer – from the tax year in which the taxpayer moves his/her residence to Italy and for the following five years. After the expiration of this term, the taxpayer will be subject to the ordinary taxation under the Italian law.

Further remarks

The taxpayer who will be subject to the new tax regime will also benefit from two additional exemptions:

  1. he/she will not be obliged to declare to the Italian tax authorities his/her assets (bank accounts, financial assets, real estate, etc.) held abroad (exemption from the so-called "fiscal monitoring");
  2. the said assets held abroad will not be subject to the Italian wealth taxes (exemption from the so-called "IVAFE" and "IVIE").

From a tax standpoint, the introduction of the said special flat tax regime for retired people makes Italy a very attractive country in Europe for the relocation of elderly people.

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.