Resources for Italy’s 7% Flat Tax for Retirees

Did you know you could retire in Italy and pay only 7% income tax to the Italian government? The normal income tax in Italy can range up to 43% so paying only 7% is quite a bargain.

This place is intended to provide resources for people who are intrested in participating in the Italian 7% tax regime for retirees. I have collected data and useful links to help you explore the topic.

In 2019 the Italian government established a special incentive to attract retirees to settle in Italy in areas deemed to need economic stimulation. Many small towns and rural areas of Italy have been losing population. The Italian government wants to help stimulate these areas. The resources linked below can help people find information about the 7% program.

The basic eligibility requirements under the original law are:

1. You must receive a pension from a country outside of Italy. The country paying the pension must have an administrative cooperation agreement with Italy. Your citizenship does not matter.
2. You must move to Italy and establish tax residency in an approved area.
3. You must not have been a tax resident of Italy during the 5 years prior to your move.

What are the approved areas? Under the original law they are any comune with a population not exceeding 20,000 people in the following regions: Abruzzo, Basilicata, Calabria, Campania, Molise, Pulia, Sardinia, and Sicily. The 2019 law also designated specific small towns with population of 3,000 or less which are in designated seismic zones as a way to revitalize those towns.

The government modified the 7% program in 2022 to include more towns outside the 8 southern regions. Again, the law gave specific criteria for qualifying towns which now include some towns with population over 20,000. Please note that in the past there has not been universal agreement about whether certain comuni qualify for the 7% program. See the note on this page.

The special tax incentive will apply for 10 years. The 7% rate does not apply to income you generate in Italy, only to your non-Italian income. But wait, there's more! Normally the Italian government imposes a wealth tax which is applied to savings and property worldwide. The 7% tax program exempts you from those taxes on assets outside of Italy and you don't even have to disclose those assets to the Italian government. When the 7% tax applies, neither the Regional nor the Municipal income taxes apply.

Many countries have a tax treaty with Italy to prevent double taxation. The United States is one of those countries, but there are many others. Here is an example of how it works, suppose a US citizen is participating in the 7% program. Let's say it turns out she will pay the Italian government €5,000. She is still required to file and pay income taxes to the US government. Suppose her tax liability to the US is $7,000. She gets a credit for paying the Italian tax which is deducted from the amount owed to the US. So (assuming an exchange rate of 1:1) she would owe the US only $2,000. This means she really pays the same amount in income taxes than if she lived in the US. She just pays it to different governments.

Let's use an example to compare 7% taxes with standard Italian income taxes. We will keep it simple just to illustrate the general principle.

Assume a retired individual who has tax residency in Italy has 31,000€ income from pensions like Social Security or private pension. Also assume investments of 250,000€ earning a 3% return annually. We assume the funds are not in a bank account, but invested at a brokerage firm. We will see why in a minute. Let's first calculate your Italian tax liability under the standard personal income tax regime known as IRPEF. Here is the tax table and your taxes due according to that table.

Now we must calculate wealth tax, which is 0.2% of wealth. That's 2/10ths of one percent. So 0.002 x 250,000€ = 500€. Bank account balances are taxed at a flat 34.20€ for any account having more than a 5,000€ balance. Since this is not a bank account, the standard wealth tax applies.

Finally we must pay capital gains tax of 26% on the gains of our 250,000€ investment. The 3% return on investment of 250,000€ yields a capital gain of 7,500€ and 26% of 7,500€ is 1,950€. Now we know the total tax due.

Tax	Amount Due
Income Tax	7,750€
Wealth Tax	500€
Capital Gains	1,950€
Total Tax Due	10,200€

Note that after taxes, your investment balance is 255,050€. That's an effective interest rate of 2.02%.

Now let's calculate the taxes due under the 7% tax regime. It's much simpler. Let's take 7% of 31,000€ to get 2,170€ in taxes due. That's it! All done! There is no wealth tax or capital gains tax. The 7% tax regime in this simple example SAVES you 8,030€ in taxes to Italy.

And this is for someone with a fairly modest financial picture. For someone with higher income and higher wealth, the savings will be even greater. The after-tax return on investment for the 250,000€ is still 3% because none of it got taxed. The investment balance is 257,500€. Here is a quick look at the two tax regimes for this person.

	IRPEF Standard Tax	7% Tax Regime
Income Tax	7,750€	2,170€
Wealth Tax	500€	0€
Capital Gains	1,950€	0€
Total Tax Due	10,200€	2,170€
Investment Balance	255,050€	257,500€

The 7% tax regime is actually even better than illustrated here because those under the 7% regime do not pay income taxes to regional or local governments. Under the standard IRPEF tax regime, you pay income tax to the national, regional, and local governments. See this Q&A section where someone asks Nicolò Bolla this question on his web site.

As I said, this is a simplified example just to illustrate the general principle of the 7% tax regime as opposed to the IRPEF standard personal income tax regime. Italy does not have as many exemptions and deductions as the USA, but there are some which you may be able to take advantage of. You will need professional tax advice to discover the best tax strategy for you.

There is a companion Facebook group called "All Things Italy 7% Tax for Retirees". Join us there to ask questions and discuss things related to the 7% tax program.

The buttons below will lead you to more information. If you're looking for the official text of the laws, click on "Flat Tax Laws" below. To find out which towns qualify by reason of their population or location, click on "Italian Population Data Made Easy". To use a map of Italy with all the Italian towns listed (with population data), click on "Italian Comuni Boundaries".

Please be sure to look at the links below for "Italian Population Data Made Easy" and "Italian Comuni Boundaries". The files I have compiled there make it MUCH more convenient to search for a qualifying comune.