Finance

Retiring in Italy and New 7% Flat Tax Regime for U.S. Citizens

Retiring in Italy

Italy has become a popular retirement destination for U.S. citizens. If you plan to retire to Italy, make sure to learn about the tax system and manage your finances in advance. The country has introduced beneficial tax regimes for new residents – a 7% tax system for retirees moving to the southern part of Italy and a €100,000 tax system for High-Net-Worth relocators.

Is it possible for a U.S. citizen to qualify for the Italian Tax system?

Expat retirees who qualify under the Legge Di Bilancio 12019 are the lucky ones as they can enjoy the benefits of the Italian Tax system for up to 10 years. The retiree needs to be a non-resident of Italy and receive a pension from a non-Italian organization. Here are a few more criteria to qualify for the tax system:

  • The individual has not been an Italian, tax-paying resident in the last five years.
  • The person has to shift their tax residence to the municipality in South Italy. The population of the place should be 20,000 or less.
  • The qualifying areas for this tax system include Molise, Campania, Sicily, Basilicata, Calabria, Abruzzo, Puglia, and Sardinia.
  • The individual has to spend a minimum of 183 days in the country to qualify as a tax resident.

Retirees who qualify for these criteria can apply for the unique 7% Italian tax system. Please keep in mind that the tax system is only applicable in specific regions across Italy.

Advantages of 7% flat tax Italian election

You might have to pay a bit of extra income tax in Italy. If you are earning a tax over 75,000 EUR, you are a part of the standard 43% slab of Italian tax. However, the new preferential tax regime in Italy states an exemption for a regular individual from income tax, and they will only pay 7% of the tax. This share will include pension, capital, rent, social security, dividends, and more. It can be a massive relief for U.S. citizens who have to pay high taxes in Italy.

The bright side of this unique tax system is that qualified retirees will be exempted from wealth taxes imposed on foreign assets. However, the tax system does not cover income generated via Italian sources. Therefore, it is essential to note that this regime does not extend to any Italian sourced income. 

Implications for the U.S. Retires Shifting to Italy

If you hold a green card in Italy, you will still be taxed by the U.S. government. As the government of the United States imposes taxes on people who are citizens of the country, you will still be paying double taxes under the system. More US citizens are becoming aware of their responsibilities. U.S. residents planning to migrate to Italy will have to pay foreign tax credit along with their U.S. tax, that is, 7% tax to Italy.

On the other hand, residing in other parts of Italy might cost an individual more as they have to pay higher Italian tax on their income and gains. However, the US-Italian tax issue is nothing compared to other essential aspects of being a U.S. expat in Italy. These include:

  • What is the taxation scheme for the IRA, Roth IRA, and 401k accounts in Italy?
  • Will there be brokerage firms working with U.S. expats in Italy?
  • What is the method to identify the exchange rate risk between the U.S. dollar and Euro?
  • Is it possible for U.S. expats living in Italy to receive U.S. Social Security living?
  • Do we have to pay estate and inheritance taxes in Italy?
  • What other legal, taxable, or financial issues are to be considered while moving to Italy?

It’s essential to plan your finances before moving to Italy in order to avoid any surprise visit to the Italian tax office. In addition, if you are a U.S. resident retiring in Italy, be prepared and understand the implications of moving to a new country.

Connect with retire2italy International Tax Experts today.  

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