The South of Italy has often left our clients longing for more time in dream destinations like Sardinia. Marco Solas, Director of Von der Heyden Real Estate, assisted by Gabriele Maxia of Albanese, Maxia and Partners, explains how some tax changes may appeal to our international retiree clients and how this dream can become a reality.
On the 30th December 2018, the Italian Financial law has introduced a provision by article 24-bis of the Italian Tax Code that aims to promote the moving of residency to the Southern part of Italy of retiree individuals holding foreign pensions income. This Flat Tax for pensioners covers income of any category received from foreign sources or produced abroad.
The Parameters
In particular, it extends the 7% Italian Flat Tax for retired people who transfer their tax residence to Italy, increasing the benefit period from five years to ten years. In this, the Government has increased the period to benefit from the pensioners Flat Tax by Legislative Decree no. 34/2019.
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)
- 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).
- Who obtain an entry visa for Italy.
It is important to note that the regime does not extend to Italian source income, where tax is payable according to the ordinary law. The sum of income produced abroad however is fully applicable at the rate of 7%.
According to the Italian Flat Tax regime, the pensioner’s income is not subjected to the ordinary personal income tax. Instead, a 7% substitute tax applies, concerning each year in which the option for the tax incentive is exercised. At the end of the flat tax period, the taxpayer will go onto the normal regime.
Under this regime, pensioners can pay the Italian Flat Tax with a single payment under the form of a 7% “substitute tax”, during the same term as ordinary income taxes.
Rules for assessment, collection, litigation and penalties of the Flat Tax also apply for the ordinary income tax. The only difference is that since the Flat Tax is a “substitute tax”, this tax cannot be deducted from any other taxes or contribution.
The Flat Tax regime can be renounced by the retiree while remaining valid for previous tax periods. The law also provides for some case in which the Tax Authority can deny the Flat Tax regime:
– if the Tax Authority ascertains the absence of the requirements for its application,
– if the taxpayer does not pay (even partially) the Flat Tax within the deadline.
The retirement Flat Tax regime now proves that is more convenient than ever before for retirees move to Italy and living there.
The Background
The reason for this provision is essentially due to the competition with some European Countries which have established a tax regime for pensioners, as Portugal for example. Portugal suspends tax on foreign pension income for the first 10 years of residency and during this period a 20% flat rate of tax is applied to other income. Portugal introduced this regime in 2012 and it attracted somewhere between 80,000 and 100,000 new residents, including many Italians, whose spending power has had a decisive influence on the GDP (Gross Domestic Product). For Italy, it is not only attracting foreigners which is key, but also the thousands of Italians who have worked abroad many of whom have opted to retire anywhere else rather than Italy over recent years. Now, thanks to this provision, people have the opportunity to choose to live in Italy, save money and maximize their interests during the entire benefit period.
Your next steps:
Clients looking to benefit from relocating can contact Von der Heyden Real Estate’s exclusive legal advisors, Albanese, Maxia and Partners who provide analysis and the election of the new Italian flat tax regime for Retirees. Their services include:
- preliminary feasibility assessment with the individual willing to transfer to Italy;
- analysis of the impact of the regime, highlighting the main effects and 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.
This information is certified by Albanese, Maxia and Partners.