One of the factors that guided where I decided to move in Italy was the fact that in the south (all regions below Naples), there's a 7% flat tax for foreigners.
Given that the tax rate is typically 23-43%, you can see why this is appealing!
If you're considering a move to Italy, here's what you need to know to take advantage of this tax incentive.
What is the 7% Flat Tax for Expats?
The 7% flat tax is a special tax regime introduced by the Italian government in 2019 to attract foreign retirees and others with foreign-sourced income.
Essentially, if you move to certain regions in Italy and qualify, you can pay just 7% on income earned from outside Italy. This applies for up to 9 years, and it's designed to give expats an easier way to manage their tax obligations while enjoying the Italian lifestyle.
Who Qualifies for the 7% Tax?
Here’s where it gets interesting. Not everyone can qualify for this low tax rate, but the eligibility rules are pretty straightforward:
New Residents: You must be a new resident in Italy, meaning you haven’t lived here for the last 5 years.
Retirees and Foreign-Sourced Income: While this tax was originally aimed at retirees, it also covers those who earn income from foreign sources. This can include pensions, rental income, dividends, and other non-Italian income. So for me, working as a freelance writer, I qualify.
Where You Live Matters: The 7% flat tax isn’t available everywhere in Italy. You must settle in one of the southern regions, like Sicily, Calabria, Sardinia, Campania, or Puglia. These areas are beautiful but have dwindled in population over the decades, so the tax incentive is part of a broader strategy to boost the local economies.
How Does the 7% Tax Work?
Here’s how the tax regime functions:
Flat Rate: You pay a flat 7% tax on all foreign income. This makes it simple because you won’t have to calculate taxes under Italy’s regular, more complex tax brackets. Nor will you be able to claim business expenses.
Duration: The reduced tax rate lasts for up to 9 years, giving you a significant tax break for almost a decade.
Foreign Income Only: This 7% rate applies only to income from outside Italy. If you earn money within Italy—through a business or job—you’ll be taxed at the normal Italian rates on that income.
Why Consider the 7% Flat Tax?
If you’re looking to relocate to a country with a lower cost of living but still enjoy a high quality of life, Italy’s 7% tax incentive can be a game-changer. Here’s why:
Significant Savings: Italy’s regular tax rates can go as high as 43% on income, so paying just 7% on foreign-sourced income is a huge relief.
Living in Italy: The regions offering this incentive--Calabria, Sicily, Sardinia, and others--are some of the most beautiful places in Europe. Imagine spending your retirement or work-from-anywhere life surrounded by Mediterranean landscapes, historic towns, and fresh Italian food!
Attractive to Retirees: If you’re receiving a pension or other passive income from abroad, this tax deal makes Italy an even more appealing retirement destination.
Things to Keep in Mind
While the 7% flat tax is a great incentive, there are some things to watch out for:
Tax Filing Obligations: You’ll still need to file an annual tax return in Italy, even if you’re paying the 7% flat tax. This applies to any foreign income you earn.
Double Taxation Treaties: Italy has agreements with many countries, including the U.S., to prevent double taxation, but it’s always wise to check if your home country’s tax laws align with Italy’s.
Regional Focus: Since this incentive is limited to specific southern regions, you won’t be able to benefit from it if you choose to live in places like Rome or Milan.
The idea of paying 43% in taxes is daunting, and maybe I'll never reach that threshold. But in the meantime, over the next nine years, I plan to make as much as I can to take advantage of this tax incentive!
If you've got questions not answered here, you may want to speak to a commercialista who has experience working with American (and other) expats. Reach out and I'll give you a referral!
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