The new special tax regime is aimed at attracting individuals – who are not resident in Italy (both Italians and foreigners) and are in receipt of a foreign pension – to transfer their tax residence to one of southern Italy’s cities, therefore becoming eligible for a 7% flat-rate tax on all their foreign income.
To benefit from the most favourable tax regime the individual has to transfer his tax residence to one of the following Italian southern regions: Abruzzo, Basilicata, Calabria, Campania, Molise, Puglia, Sicily and Sardinia, in a Municipality with a population of less than 20,000 inhabitants.
The new regime, applicable from 1 January 2019, is not just limited to pensions but applies to any income sourced abroad.
Pensioners can exercise the option for the flat tax through the first Italian tax return and it is valid for that tax period and the following five. As clarified by the Italian Revenue Agency (“Agenzia delle Entrate”), the 5 eligibility criteria, required to exercise the option, can be summarised as follows:
- The retirees must not have been resident in Italy in the previous five tax years;
- They must transfer their tax residence from a country with an administrative cooperation agreement with Italy;
- They must declare the foreign countries for which they do not want to apply the option of the favourable tax regime;
- The nationality of the income sourced abroad;
- The total amount of income that will follow under the scope of the optional regime.
The flat tax should be paid in a lump sum, for each period of the application and within the ordinary deadline for paying individual income taxes.
The retiree can always revoke the option for the favourable tax regime, and it will cease its effects anyways after 5 years from when the option for the flat tax has been exercise.
The benefit of the favourable tax regime is lost if the retiree no longer meet the inclusion criteria or misses the deadline for the payment of the 7% flat tax.
