Living in a foreign country often comes with questions surrounding tax liability and beneficial tax regimes. This article will outline a few of Italy’s flat tax regimes and in what situations you may be eligible to take advantage of them.
Tax Residency in Italy
When moving to Italy, or simply residing there for a period of time, you may wonder if you are obligated to pay taxes. In fact, to be considered a tax resident in Italy, known as residenza fiscale, you must be living in Italy for more than 183 days during a year, which is calculated cumulatively.
Alternatively, having residency in Italy from a legal standpoint (meaning, being registered with the Anagrafe at the municipal registry office in the municipality where you are living) qualifies you as a tax resident.
Meeting any of these two criteria categorizes you as a tax resident of Italy and subject to pay income tax on your worldwide income. Income tax, imposta sul reddito delle persone fisiche (IRPEF) in Italian, is calculated on a progressive bracket system, where the more money you earn, the more taxes you are subject to pay.
Regarding dual citizens of Italy and the U.S., it is important to note that the two countries have signed various treaties to avoid or reduce double taxation.
What is a flat tax regime?
In general terms, a flat tax is one income tax rate that is applied to the taxable amount, regardless of income level. This is opposed to progressive tax rates that increase based on the amount of the taxpayer’s income. Individuals are often attracted to flat tax regimes to lower their financial impact. There are certain categories where individuals, such as high-net-worth individuals, may qualify to pay a lower flat tax, or certain areas where residents can opt to pay a flat tax.
7% Flat Tax for Pensioners
First introduced in the 2019 Budget Law, Italy has a flat tax regime intended for individuals receiving a pension from abroad. This regime is not only popular with foreign retirees but also with Italians who have left the country and have been living abroad, creating an incentive for them to return. The tax regime features a flat tax of 7% on all income if they establish their tax residence in one of the designated municipalities in Southern Italy. The goal is to attract people to the regions that have experienced the greatest amount of population loss.
Requirements to benefit from this flat tax regime include:
- Receiving a pension from a private or public institution abroad
- The individual must not have resided in Italy for the 5 years prior
- Establishing legal residence in an Italian municipality in Southern Italy, (Abruzzo, Calabria, Campania, Molise, Apulia, Sardinia and Sicily regions), that has less than 20,000 inhabitants.
- The flat tax can be applied for 9 consecutive years
While you don’t need to be an Italian citizen to retire and establish residence in Italy, if you are a non-EU citizen, you will need a long-term visa in order to stay longer than the 90-day stay limit for non-EU citizens. One type of long-term visa is the Elective Residence Visa, also called the “Retirement Visa”, which is designed for those with passive income, like pensions, who meet a yearly minimum income of €31,000. Other requirements include showing proof of housing in Italy when applying for the visa, such as a property deed or rental agreement, as well as private health insurance coverage.
Flat Tax for High-Net-Worth Individuals
Italy has in place a flat tax regime to attract high-net-worth individuals to become tax residents of the country. Generally speaking, high-net-worth individuals (HNWI) maintain liquid assets above a certain threshold. There is not set amount, but they typically have financial assets valued over $1 million. These individuals are often looking for countries and tax regimes that reduce and streamline their tax liability. In Italy, HNWIs who transfer their tax residence to the country, becoming new residents, are able to pay a flat annual tax on their foreign income, regardless of how much they earn. This is seen as an appealing and favorable tax regime for such individuals, encouraging them to live and invest in Italy.
Details of this flat tax regime include:
- A flat tax on foreign-sourced income for new residents, which has recently increased from €100,000 to €200,000 per year (Law Decree No. 113 of August 9, 2024, published in the official gazette on August 10, 2024)
- The individual must not have been a tax resident of Italy for at least 9 of the previous 10 years
- The flat tax regime is extended to immediate family members, for an extra €25,000 per person
- The flat tax can be applied for up to 15 years
This flat tax regime is available for Italian and non-Italian citizens who transfer their tax residency to Italy and meet the set requirements. If you are a non-EU citizen requiring a long-term visa to secure a residence permit, one popular option is the Investor Visa. Qualifying requires making a significant investment into the Italian economy, starting at €250,000.
Flat Tax for Individual Businesses
There is also a flat tax regime in Italy designed for individuals who run a business or are involved in artistic or professional activities. This flat tax regime, or regime forfettario in Italian, is particularly appealing to small business owners and entrepreneurs. One of the main draws is the flat tax rate of 15%, and in some specific cases, a reduced tax rate of 5% for the first 5 years of the business. The flat tax only applies to new businesses and the individual must not have operated artistic, professional or business activity in the previous three years. Also, having the flat tax regime means the business does not need to apply VAT (value added tax, or IVA in Italian) on invoices to physical and commercial entities.
Additional conditions include:
- The individual must be a tax resident of Italy (except those residing in an EU country or country in the European Economic Area who produces at least 75% of their overall income in Italy)
- The individual must not have received employment income during the previous year above €35,000 (increased from €30,000 to €35,000 in the 2025 Budget Law)
- The business revenues or compensation must not exceed €85,000 annually
- Employee expenses do not exceed €20,000, including those for contract work, employee salaries, and payment to collaborators
Qualification criteria can be complex and there are further exclusions to be aware of, so it’s important to advise with a tax professional regarding your tax liability and eligibility for flat tax regimes.
Should you have further questions regarding taxation in Italy, please contact our team at [email protected].
