How to Benefit from Italy’s 7% Tax Rate for Foreign Pensioners

Posted on July 29th, 2024

Optional Regime for Foreign Pensioners – What It Is

Overview

Individuals receiving pension income from foreign sources who transfer their tax residence to Italy can benefit from an optional tax regime. This regime is available to those moving to specific municipalities in Sicily, Calabria, Sardinia, Campania, Basilicata, Abruzzo, Molise, and Puglia, with populations not exceeding 20,000 inhabitants. The regime allows for a substitute tax on personal income tax (Irpef) at a rate of 7% on any category of income produced abroad, valid for nine tax periods (Article 24-ter of the Tuir, introduced by Article 1, paragraph 273, of Law No. 145/2018).

Expansion of Beneficiaries

The Sostegni Ter Decree (Dl 4/2022) has expanded the pool of beneficiaries. Foreign pensioners who transfer their residence to municipalities affected by the L’Aquila earthquake of April 6, 2009, can also benefit. The population limit of 20,000 inhabitants is now extended to all “eligible” municipalities, including those affected by seismic events, previously restricted to a limit of 3,000 inhabitants. This includes areas such as Camerino, Matelica, Tolentino, and Norcia.

Determining Resident Population

The resident population in the municipality is determined using data from the “Annual Municipal Survey of Movement and Population Calculation” (Rilevazione comunale annuale del movimento e calcolo della popolazione) published on the Istat website as of January 1 of the year preceding the first period of validity of the option. This data remains relevant for the entire duration of the option’s validity, provided the taxpayer does not transfer their residence to another municipality.

Option Validity

The option remains effective even if the taxpayer moves to another “eligible” municipality starting from the second period of validity. The population data as of January 1 of the year preceding the transfer of residence is considered.

Finalizing the Option

To finalize the option for the substitute tax regime, the taxpayer must submit the income tax return for the tax period in which the residence is transferred. The option becomes effective from that same year. In the income tax return, the taxpayer must indicate:

∙ Non-resident status in Italy for at least five tax periods preceding the start of the option’s validity.

∙ The jurisdiction with administrative cooperation agreements in the tax sector where the last tax residence was held.

∙ The foreign states for which the substitute tax application is not intended.

∙ The residence state of the foreign entity paying the pension income.

∙ The amount of foreign-sourced income to be subject to the substitute tax.

Tax Payment

The substitute tax on foreign-sourced income, calculated at a flat rate of 7%, must be paid for each tax period of the regime’s validity by the deadline for the balance of income taxes. Payment must be made in a single installment using the F24 form, with the tax code 1899, established by resolution no. 19 of April 21, 2020.

Revocation and Termination

The option can be revoked in one of the tax periods following the one in which the choice was made, by notifying it in the income tax return for the last year of validity. The effects produced in previous tax periods remain valid. The effects of the option do not occur if the legal requirements are not met, or they cease if these requirements are no longer met. The regime also terminates in case of omitted or partial payment of the substitute tax, unless remedied by the deadline for the balance payment for the tax period following the one to which the omission refers (interest and penalties for late payment are still due). Revocation or termination of the regime precludes the exercise of a new option.

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