Basically, if they decide to transfer their fiscal residence to one of the municipalities of Southern Italy, with a maximum of 20,000 inhabitants, they can opt for a substitute tax or flat rate of 7%
The 2019 Italian Budget Law introduced a new special tax regime, aimed at attracting individuals who hold foreign pensions to transfer their tax residence to one of southern Italy’s municipalities. This is known as the “Foreign Pensioners’ regime” as it requires the individual to be already in receipt of a foreign pension. That said, starting from 1 January 2019, beneficiaries of this special regime, may opt to pay a substitutive tax of 7% on all foreign source income rather than to apply the progressive tax rates, which in Italy may range from 23% to 43% plus 3% as local taxes. Moreover, they can benefit from the exemption from the declarative obligations regarding fiscal monitoring and from the payment of Ivie and Ivafe. Indeed, this is a tax measure very similar to the 2017 “New Resident regime”, aimed at attracting high net worth individuals by allowing them to pay a flat tax of 100.000 euro on their foreign sourced income, irrespective of the actual amount of income.
The measures in details - This special regime, which took effect from 1 January 2019, allows taxpayers holding foreign pensions, who have not qualified as Italian tax residents for at least the previous five tax periods, to opt for the application of a flat tax of 7% to all foreign source income. Particularly, taxpayers can opt for the flat tax of 7%, regardless of their age and citizenship if they: transfer their tax residence from a country with an administrative cooperation agreement with Italy to one of the following Italian southern regions: Abruzzo, Basilicata, Calabria, Campania, Molise, Puglia, Sicily and Sardinia, in a Municipality with a population of less than 20,000 inhabitants; and have not been tax residents in Italy for at least five tax periods prior to the transfer to Italy; and currently are in receipt of a foreign pension.
How to claim the benefit - Taxpayer can exercise the option for the flat tax in the tax period in which they transfer the tax residency to Italy. To begin, the option can be exercised through the first Italian tax return and it is valid for that tax period and the following five tax periods. Moreover, by claiming the special tax regime, taxpayers will be exempt from additional income tax, local taxes and wealth taxes on all foreign source income. Furthermore, for the entire length of the option no foreign asset monitoring obligations will apply, as specified above.
When to pay - The flat tax should be paid in a lump sum, for each period of the application and within the ordinary deadline for paying individual income taxes. Obviously, ordinary individual progressive income tax still applies to Italian source income.
Other features - The “Foreign Pensioners regime” has certain particular features: no anti-abuse clause applies to capital gains realized from the disposal of qualified shareholdings in the first five years; inheritance and gift taxes are not covered by the 7% flat tax; the option cannot be extended to family members , unless such members currently hold foreign pensions. The option can also be applied only to some foreign countries and it does not apply to foreign source income everywhere. Where an individual who elects for this option also has income from a country not covered by this, the ordinary progressive income tax rates would apply to income from that country and foreign tax credits would be available.
The measures aim at financing higher education in Southern Italy - Finally, it is foreseen that the resources coming from the extra-revenues deriving from the implementation of the regime are addressed to the financing of the universities that have their headquarters in Sicily, Calabria, Sardinia, Campania, Basilicata, Abruzzo, Molise and Puglia (to be identified with a ministerial decree ), in which at least one department is present in technical-scientific and sociological disciplines.
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