Italy might not be the first place that comes to mind, when you think of low taxes. But for certain retirees it can be very tax-friendly.
The rules don’t cater to everyone though, they’re targeted at foreigners with pension income, and UHNW individuals.
If you’re dealing with more modest levels of non-pension investments, Italy can be far less tax friendly (26% on capital gains and investment income).
Beyond tax efficiency, it also offers lower living costs, with life in Rome costing 30% less than London (according to Numbeo).
So if you’re a pensioner thinking of a Mediterranean retirement, it’s worth considering.
Tax Advantages
Italy has two tax regimes which appeal to expats, the Lump-Sum Tax Regime, and the 7% Flat Tax for foreign pensioners.
Italy’s Lump-Sum Tax Regime
The lump-sum regime is targeted at ultra high-net worth individuals, and has gained a lot of press attention.
The concept is quite simple, you pay a lump-sum of tax each year to the Italian government, which covers all foreign sourced income.
It works well, for expats looking to realise significant capital gains. To qualify you also must have been non-resident in Italy, for 9 of the last 10 years, preceding the transfer.
However, for new tax residents this amount stands at €300,000 per year. So for many it’s unlikely to be favourable.
Italy’s 7% Flat Tax for Foreign Pensioners
Unlike the lump-sum regime, the flat tax for foreign pensioners will appeal to far more retirees.
It covers all foreign pension income taxable in Italy (although be sure to check the double tax treaty for where your pension is paid from).
The regime requires you to settle in one of the less populated areas of southern Italy, which includes:
- Sicily
- Calabria
- Sardinia
- Campania
- Basilicata
- Abruzzo
- Molise
- Puglia
Both pensions, pension lump sum payments, and pension annuities qualify. But unit-linked policies, and life assurance based annuities, do not.
The regime is valid for 10 years after moving.
Obtaining Long-Term Residence
Italy’s Elective Residence Visa allows non-EU citizens to live in Italy without working, provided you can evidence stable passive income.
Individuals need income of €31,000 per year, and married couples need €38,000.
This can be from pensions, investments, or property. You’ll also need along with proof of accommodation and health insurance. The visa is renewable and leads to permanent residency.
Owning Property
There’s no restrictions on foreigners owning property in Italy, provided your home country has a reciprocal treaty, or provided you’re an Italian tax resident.
In Italy, registration tax (imposta di registro) is charged at 2% of the Cadastral value of a property, but increases to 9% if you are buying as a holiday home or investment (and not for residing in Italy).
