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).
Should you need any further information or assistance on the above please feel free to send an email to [email protected].
We will be glad to assist you on the analysis and the election of the new Italian flat tax regime for Retirees.
Our 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.