New Italian 7% Flat Tax Incentive for Retirees Moving To The Southern Regions of Italy
The Italian Budget Law for 2019 includes a much-discussed, “Portugal Model” tax regime, which aims to attract foreign retirees, and Italian retirees living abroad, to move their tax residence to certain municipalities in the Regions of Southern Italy.
Law 145/2018 (Article 1, paragraphs 273 – 275) states that individuals with an income from a foreign pension or other source abroad, who transfer their tax residence to one of the municipalities with populations not exceeding 20 000 inhabitants in the Regions of Abruzzo, Basilicata, Calabria, Campania, Molise, Puglia, Sardinia and Sicily, may opt to have their foreign income taxed on a flat-rate basis of 7% for each tax period in which the option is valid.
Individuals who opt for the new flat tax regime for retirees will be exempt from tax on the value of both financial assets (Imposta sul valore delle attività finanziarie detenute all’estero (Ivafe)) and real estate property (Imposta sul valore degli immobili situati all’estero (Ivie)) which they own abroad. In addition, they will be exempt from completing annual, “Quadro RW” filings. These are used by the Italian tax authority to monitor individuals resident in Italy with foreign investments and financial assets abroad.
Who is entitled to the new flat tax rate regime?
- Individuals from countries which have Tax Information Exchange Agreements (TIES), Double Taxation Agreements (DTA) and Foreign Account Tax Compliance Agreements (FATCA) with Italy;
- Individuals who have not been an Italian tax resident for 5 years prior to the period for which their option is valid.
How can you take up an option on the new flat tax rate regime?
If you meet the criteria outlined above, you can elect to exercise an option to adopt the new flat tax regime for retirees when you file your tax return related to the fiscal period in which you moved your tax residency to Italy.
You will need to indicate the jurisdiction/s in which you had your previous tax residence. The Italian tax authority will then forward this information, through the appropriate administrative cooperation instruments, to the tax authorities of the indicated jurisdiction/s.
It is possible to carve out income produced in one or more foreign countries or territories. You may decide that for income generated in a certain country or territory, the ordinary Italian tax rules should be applicable. In principle, this allows you to benefit from foreign tax credits based on applicable tax treaty protections and relief on taxes paid abroad. You must specifically indicate this intention when you exercise your option to take up the flat rate tax regime.
How long is the flat tax rate for retirees regime valid?
- The flat tax regime is effective for five years from exercising your option to adopt it.
- You may withdraw from the regime at any time during the five year period. This will not prejudice the effect of previous fiscal years. However, withdrawal from the regime precludes you from exercising a new option to join the flat rate tax regime.
- The Italian tax authority may revoke your rights to the flat rate regime by challenging your legal entitlement to it.
- If you fail to pay all, or if you only partially pay your annual tax bill your rights to the flat tax regime will cease. You must pay your tax in a lump sum by an annual deadline set by the Italian tax authority.
If you need more information or would like help to understand what would best suit your personal situation, feel free to contact me, or seek advice from a qualified accountant registered with the ODCEC, the Italian professional accounting association of certified public accountants, auditors and advisors.