The preferential tax regime with a 7% substitute  tax

In recent years, Italy has introduced significant tax measures designed to attract citizens residing abroad interested in moving permanently to our country.

Among these, one of the most interesting concerns foreign pensioners, who are entitled to a particularly favorable tax regime: the so-called “7% Flat Tax.”

This is a tax relief that allows, under certain conditions, all income earned abroad to be taxed at a flat rate of 7%, while also benefiting from significant tax and asset simplifications.

The aim of the law is to encourage the transfer of tax residence to certain areas of Southern Italy and to municipalities affected by earthquakes, thus incentivizing new investments and repopulation of the area.

• What does the relief consist of?

The regime established by Article 24-ter of the TUIR (Consolidated Income Tax Code) allows foreign pensioners to replace the standard Italian personal income tax with a flat 7% tax on foreign income.

The benefit doesn’t just apply to pensions received abroad. The substitute tax also applies to other foreign-source income, such as bank interest, dividends, rental income from properties located outside Italy, capital gains, and other financial income.

Income generated in Italy, however, continues to be taxed according to the ordinary rules established by the Italian tax system.

• Who can access the scheme

The benefit is reserved for individuals receiving a foreign pension who transfer their tax residence to Italy.

To benefit from the regime, you must first not have been a tax resident in Italy for at least five tax periods prior to the transfer. The transfer must also occur from a country with which Italy maintains administrative cooperation agreements in tax matters, i.e., countries that allow the exchange of information with the Italian tax authorities.

Both foreign citizens and Italian citizens permanently residing abroad are eligible for the benefit.

It’s important to note that having an Italian pension, such as an INPS pension, does not automatically exclude access to the benefit, provided the taxpayer also receives a pension from a foreign source that meets the regulatory requirements.

• Where it is necessary to transfer residence

One of the central aspects of the regulation concerns the Italian municipality to which tax residence is transferred.

The law requires that the taxpayer move to one of the municipalities located in the regions of Abruzzo, Basilicata, Calabria, Campania, Molise, Puglia, Sardinia, or Sicily, provided that the population does not exceed 30,000 inhabitants.

Effective April 7, 2026, the population limit has been raised from 20,000 to 30,000 inhabitants, significantly expanding the number of eligible locations. This change has made the scheme particularly attractive to those who wish to live in larger, better-connected cities with more services.

The incentive also includes some municipalities affected by the seismic events of 2009 and 2016, according to the lists provided for by the special legislation.

• How long does the tax benefit last?

The benefit can be applied for a maximum period of ten years.

Specifically, the regime begins in the year in which the taxpayer acquires Italian tax residency and continues for the nine subsequent tax periods.

It is therefore a long-term tax planning tool, particularly interesting for those intending to move permanently to Italy.

• The most relevant advantages

In addition to the application of the flat rate of 7%, the regime offers further very significant advantages.

In fact, the taxpayer is exempt from tax monitoring obligations relating to assets held abroad. In practice, completing the RW section of the tax return for foreign assets covered by the regime is not required.

Furthermore, IVIE and IVAFE, the property taxes normally applied on real estate and financial assets held abroad, are not due.

This not only results in tax savings, but also significantly simplifies tax reporting requirements.

• How to exercise the option

Participation in the scheme occurs directly in the tax return for the year in which tax residency is transferred to Italy.

The taxpayer must indicate their intention to opt for the preferential regime and declare the foreign income that will be subject to the 7% substitute tax.

The tax is then paid using the F24 form within the standard tax deadlines for settling income taxes.

It is essential to prepare and retain all necessary documentation to demonstrate foreign tax residency in the previous five years, receipt of a foreign pension, and the effective transfer of residency to Italy.

• An aspect not to be underestimated: actual residence

The Revenue Agency pays particular attention to verifying the taxpayer’s actual residence.

Therefore, simply registering is not enough. The transfer must be concrete and effective, with permanent residence in the chosen municipality and a genuine shift of the center of personal and family interests to Italy.

For this reason, it is important to ensure consistency between the declared tax position and the concrete elements of daily life, such as housing, household utilities, habitual presence in the area, and the organization of one’s personal life.

• Final considerations

The tax regime for foreign pensioners currently represents one of the most attractive opportunities offered by the Italian tax system to those wishing to transfer their residence to our country.

The combination of reduced taxation, a ten-year benefit, exemption from tax monitoring requirements, and administrative simplification can lead to significant economic benefits.

Before proceeding with the transfer, however, it is always advisable to carry out a preliminary check of your tax status, both in Italy and in the foreign country of origin, carefully evaluating any double taxation agreements and the overall effects of the transaction.

For this reason, preliminary professional advice is an essential tool for planning your move correctly and safely.

§ § § § § §

Don’t hesitate to contact us for further information or to receive support in complying with the new regulatory provisions.

Best regards,

Sara Razzi

This circular is the result of a collaboration between artificial intelligence and human expertise, with review and editorial care by Sara Razzi.