Tax benefits for foreign pensioners

The option for the substitute tax for individuals with foreign retirement incomes who establish their fiscal residence in Southern Italy is regulated by Article 24-ter of the Italian Income Tax Code (TUIR).

Individuals receiving pension income from foreign institutions and choosing to relocate their tax residency to Italy can take advantage of a favourable tax regime.

The Decreto Sostegni Ter (DL n. 4/2022) has broadened the qualifying criteria for beneficiaries under the scope of this tax system, encompassing all municipalities eligible for aid, including those affected by earthquakes. Currently, pensioners can benefit from this fiscal system in the following towns and cities:

• Municipalities in the regions of Southern Italy (Sicily, Calabria, Sardinia, Campania, Basilicata, Abruzzo, Molise and Apulia) with population under 20.000 inhabitants;
• Municipalities affected by the 2009 earthquake in L’Aquila and other areas impacted by seismic events;
• Other municipalities in regions affected by seismic disasters, such as Camerino, Matelica, Tolentino, and Norcia, previously excluded from the favourable fiscal regime due to a population limit of 3,000 residents.

This optional tax system allows for the implementation of a substitute tax for Personal Income Tax (IRPEF) and local income taxes at a rate of 7%, applicable to all categories of income generated abroad for each of the nine tax periods during which the tax is in effect. The primary goal of this initiative is to promote the transfer of foreign pensioners, particularly in Southern Italy, to boost the local economy and enhance the area’s conditions.

The choice for the optional scheme is finalised upon submission of the income tax return for the tax period in which the relocation of residency to Italy occurs, taking effect from that year.

IMPORTANT: Whether this system is beneficial for an individual may depend on how convenient the provisions set out by the country’s national legislation are where the income is generated, particularly regarding pensions. Thus, not all pensioners living abroad would necessarily benefit from this tax regime upon relocating to Italy. It is recommended that this option be assessed by comparing it with the pensioner’s home country’s regulations and seeking an accountant’s advice during the evaluation.

For further information, such as the procedures for finalising the optional plan and the timing of tax payments, please consult the official website of the Revenue Agency: www.agenziaentrate.gov.it (PAGE IN ITALIAN)