7% Flat Tax For Retirees
New Italian 7% Flat Tax Incentive for Retirees Moving To The Southern Regions of Italy
The Italian Budget Law for 2019 includes a much-discussed, “Portugal Model” tax regime, which aims to attract foreign retirees, and Italian retirees living abroad, to move their tax residence to certain municipalities in the Regions of Southern Italy.
Law 145/2018 (Article 1, paragraphs 273 – 275) states that individuals with an income from a foreign pension or other source abroad, who transfer their tax residence to one of the municipalities with populations not exceeding 20 000 inhabitants in the Regions of Abruzzo, Basilicata, Calabria, Campania, Molise, Puglia, Sardinia and Sicily, may opt to have their foreign income taxed on a flat-rate basis of 7% for each tax period in which the option is valid.
Individuals who opt for the new flat tax regime for retirees will be exempt from tax on the value of both financial assets (Imposta sul valore delle attività finanziarie detenute all’estero (Ivafe)) and real estate property (Imposta sul valore degli immobili situati all’estero (Ivie)) which they own abroad. In addition, they will be exempt from completing annual, “Quadro RW” filings. These are used by the Italian tax authority to monitor individuals resident in Italy with foreign investments and financial assets abroad.
Who is entitled to the new flat tax rate regime?
- Individuals from countries which have Tax Information Exchange Agreements (TIES), Double Taxation Agreements (DTA) and Foreign Account Tax Compliance Agreements (FATCA) with Italy;
- Individuals who have not been an Italian tax resident for 5 years prior to the period for which their option is valid.
How can you take up an option on the new flat tax rate regime?
If you meet the criteria outlined above, you can elect to exercise an option to adopt the new flat tax regime for retirees when you file your tax return related to the fiscal period in which you moved your tax residency to Italy.
You will need to indicate the jurisdiction/s in which you had your previous tax residence. The Italian tax authority will then forward this information, through the appropriate administrative cooperation instruments, to the tax authorities of the indicated jurisdiction/s.
It is possible to carve out income produced in one or more foreign countries or territories. You may decide that for income generated in a certain country or territory, the ordinary Italian tax rules should be applicable. In principle, this allows you to benefit from foreign tax credits based on applicable tax treaty protections and relief on taxes paid abroad. You must specifically indicate this intention when you exercise your option to take up the flat rate tax regime.
How long is the flat tax rate for retirees regime valid?
- The flat tax regime is effective for five years from exercising your option to adopt it.
- You may withdraw from the regime at any time during the five year period. This will not prejudice the effect of previous fiscal years. However, withdrawal from the regime precludes you from exercising a new option to join the flat rate tax regime.
- The Italian tax authority may revoke your rights to the flat rate regime by challenging your legal entitlement to it.
- If you fail to pay all, or if you only partially pay your annual tax bill your rights to the flat tax regime will cease. You must pay your tax in a lump sum by an annual deadline set by the Italian tax authority.
If you need more information or would like help to understand what would best suit your personal situation, feel free to contact me or seek advice from another qualified accountant registered with the ODCEC, the Italian professional accounting association of certified public accountants, auditors and advisors.
The New Italian Flat Tax Regime For New Residents Retirees
The 2019 Italian Budget Law contains a provision that aims to promote the moving of residency in the Southern part of Italy of Retirees individuals holding foreign pension incomes. This new regime can be considered as an “extension” of the lump sum tax regime for new residents already provided by article 24-bis of the Italian Tax Code and could be potentially joined by a wider audience of taxpayers due to a paltry tax rate applied to all the Retirees’ non-Italian sourced incomes.
In particular, according to the new flat tax regime for Retirees, non-Italian resident individuals holding foreign pension incomes transferring their tax residency in Italy are allowed to elect for a 7% flat tax on foreign source incomes that provides for relevant effects for individual direct tax purposes, wealth taxes and monitoring duties.
The 7% flat tax regime is applicable on all foreign-source income and gains – not just only on the foreign pension income – and provides for an exemption from wealth taxes on foreign (non-Italian) assets. The election for the new regime shall be reported in the income tax return related to the tax period in which the tax residency has been transferred to Italy and it is valid for the next 9 years.
The new 7% flat tax regime is applicable to individuals:
- holding pension incomes and other similar remunerations paid by foreign (non-Italian) private/public subjects;
- who transfer their residence to Italy from Countries having administrative cooperation agreements (e.g. DTA, TIEA, FATCA) in force with our country;
- that have not been Italian tax resident for the 5 years preceding the one for which the option is effective;
- who actually transfer their tax residency in one of the municipalities with a population not exceeding 20.000 inhabitants located in one of the regions of Southern Italy (Sicily, Calabria, Sardinia, Campania, Basilicata, Abruzzo, Molise and Puglia).
Individuals who opts for the new flat tax regime for Retirees will be subject to a 7% flat tax rate applied upon all their non-Italian sourced incomes. Remittances of foreign-sourced income in Italy do not trigger further taxation.
Moreover, individuals that opt for the new flat tax regime are not subject:
- to reporting duties for their foreign (i.e. non-Italian) assets vis-à-vis the Italian tax authorities and
- to the Italian wealth tax on foreign real estate and foreign financial assets.
Italian-sourced income is excluded from the flat tax and it is taxed under the ordinary regime.
How to opt for the new flat tax regime
The election for the new regime shall be reported in the income tax return related to the tax period in which the tax residency has been transferred to Italy and it is valid for the next 9 years. Nonetheless, the retired person is free to withdraw the option for the regime at any time.
The individual opting for the new flat tax regime can exclude certain countries from the application of the special tax regime under the so-called “cherry picking” principle.
In such a case, the taxable income produced in the “excluded” Countries will remain subject to Italian ordinary taxation rules benefitting in principle from the applicable tax treaty protection and tax relief on taxes paid abroad (foreign tax credit).
I will be glad to assist you on the analysis and the election of the new Italian flat tax regime for Retirees.
My assistance will include:
- preliminary feasibility assessment with the individual willing to transfer to Italy;
- analysis of the impact of the regime, highlighting the main consequences of the regime;
- day-by-day tax compliance of the individual and family office services;
- assistance with the relocation in Italy;
- drafting and filing of the annual Tax return of the individual.
 Article 24-bis of the Italian Tax Code provides for a100k lump sum tax regime on foreign-source income, applicable to worth non-resident individuals moving their residence in Italy.
What it would be like to retire in Italy paying a flat tax of 7% on all your income generated outside of Italy?
Live your dream retirement in Italy by discovering the romantic island Sardinia, smouldering Mount Etna in Sicily, visiting the curious dome-shaped trulli houses in Apulia and other amazing places. Southern Italy is waiting for you with open tax arms.
Under the Article 1 (273-274) of Law N.145/2018 (so-called Legge di Bilancio 2019), foreign retired people or Italian people retired outside and not resident in Italy for the last five years would pay a flat tax of 7% on all the income generated abroad (i.e. social security checks, pension, investment returns and dividends) on the only condition they move their tax residence to Italy, in a city of following southern Italian regions Sicily, Calabria, Sardinia, Campania, Basilicata, Abruzzi, Molise and Apulia with no more than 20.000 citizens.
I know, it’s a great opportunity but you are wondering “what about healthcare in Italy”?
In Italy, you don’t have to pay for health insurance. Like many Western nations, Italy has a national health service ranked in the top 10 for quality care according to the World Health Organization.
Once you’re an Italian resident, prescription drugs prescribed by a doctor are covered by the taxpayer. You will pay out of pocket only for over-the-counter drugs.
If you would really love to pass the rest of your days in one of the best countries in the world, it is worth taking into consideration to move to one of the beautiful cities of Southern Italy and take benefit from the 7% flat tax on all your foreign income.
As you may have already understood, Italy is happy to welcome retired people and their spending money.
To learn more about it, contact us.
Are you looking forward to retiring in Italy?
The Italian Accountant Filippo Scatigna can help you assess the conditions, requirements and favourable terms of the Italian tax regime, to calculate the savings you can make and advise you of conditions you would be required to fulfil.
Taxpayers may opt for this regime not only for income received from retirement funds but also for worldwide income of any kind: in this case a flat rate of 7% will be levied, instead of ordinary progressive taxation (up to 43% in further additional taxes) on the taxpayer’s income. The brand-new optional income tax regime is applicable for a maximum of five financial years only.
Taxpayers who opt for ordinary taxation levied on overseas income can obtain a tax credit for the taxes paid abroad. In addition, thanks to this regime, the individuals are exempt from wealth tax on foreign financial assets (IVAFE) and foreign real estate tax properties (IVIE).
For this reason, it is not mandatory to report those assets in their tax returns, Further clarification will be released by the Italian revenue tax agency in the next months. Italy has recently introduced several proposals to attract foreign individuals and investors.
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