Italy’s 7% Flat Tax for Retirees: What’s Real, What’s BS, and What You Actually Need to Know
- Caesar Sedek
- 4 days ago
- 5 min read
Updated: 13 hours ago
Let’s get one thing straight: the internet is full of opinions. And nowhere is that more obvious than in Facebook groups. While it can be a helpful starting point, much of what gets posted there is half-informed, anecdotal, or just plain wrong. Not to mention for every question asked, you get dozens of answers, only half of which have any sort of factual, verifiable information.
So let’s clear the air—with facts.
If you’re an American retiree dreaming of life in Southern Italy, this is your exhaustive, fact-based guide to the 7% flat tax regime: how it works, how it affects your U.S. taxes, what income qualifies, what doesn’t, and how to make sure you’re playing by the rules.
What Is the 7% Flat Tax Scheme?
In 2019, Italy introduced a special tax regime for foreign retirees moving to certain towns in the south of the country. The goal: revitalize economically struggling areas by attracting pensioners with steady income.
If you qualify:
All of your foreign-source income is taxed at a flat 7%
You pay that 7% annually for up to 10 years
No wealth taxes apply (unlike the standard tax regime)
You must live in a qualifying comune—that is:
In Southern Italy (The Red Portion of the map below)
With a population under 20,000
Where you have not lived in the last 5 years
How to find your idyllic Italian village with population under 20k? Here's a link to Italian government census search:
In Umbria, Lazio, and Le Marche, several towns affected by past earthquakes have been specifically designated as eligible. See the map link below:
📌 Legal Reference: Italian Budget Law 2019, Article 1, Paragraphs 273–275
Who Is Eligible?
To qualify, you must:
Be a new tax resident of Italy
Move to a Southern Italian town under 20,000 residents
Or in designated earthquake-affected areas (Umbria, Lazio, Le Marche)
Have not resided in Italy in the last 5 years
Have foreign income (i.e., income earned outside Italy)
Opt into the regime when filing your first Italian tax return
What Income Is Taxed at 7%?
Here’s what counts as eligible foreign-source income:
✅ U.S. Social Security
✅ U.S. federal pensions (FERS/CSRS)
✅ Military pensions
✅ IRA and 401(k) withdrawals
✅ Private annuities
✅ Rental income from U.S. property
✅ Dividends, interest, and capital gains from U.S. assets
⚠️ Roth IRA/401(k) withdrawals may be taxed by Italy, even if tax-free in the U.S. Italy generally does not recognize Roth accounts as tax-exempt, so distributions may be treated as regular foreign income. Consult a cross-border tax advisor to plan your withdrawal timing and structure.
What Doesn’t Qualify?
❌ Italian-sourced income (employment, business, rental)
❌ Capital gains from Italian assets
❌ Italian pensions
❌ Income earned before becoming a tax resident
What About U.S. Taxes?
U.S. citizens must file a federal return no matter where they live. Here’s what to expect:
• You’ll report all global income, including pensions, Social Security, rental income, etc.
• You can claim the Foreign Tax Credit to reduce U.S. tax owed, thanks to the 7% already paid to Italy
• You can’t use the Foreign Earned Income Exclusion (FEIE) for retirement income—only earned income (from a job) qualifies
You’ll likely need to file:
Form 1040 – U.S. federal income tax return
Form 1116 – To claim the Foreign Tax Credit
FBAR / FinCEN 114 – If you have over $10K in foreign accounts
Form 8938 (FATCA) – If your foreign assets exceed $200K (joint filers)
Treaty Talk: Are U.S. Pensions Exempt?
Maybe—but not always.
Article 19 of the U.S.-Italy Tax Treaty states that government service pensions may be taxed only by the U.S. if:
• They are paid from public funds
• For services rendered to the U.S. government
BUT:
• Not all FERS/CSRS pensions qualify
• Social Security is usually taxable in Italy, even with the treaty
👉 Always consult a commercialista to determine if your specific pension qualifies.
Avoiding Wealth Taxes
Under the regular tax regime, you’d owe:
• IVIE: 0.76–1.06% annually on foreign real estate (e.g., your U.S. home)
• IVAFE: €34 per foreign bank account with >€5,000 and 0.2% on foreign-held financial assets
✅ If you’re under the 7% regime, these wealth taxes are waived.
What If You Don’t Use the 7% Regime?
You’ll pay Italy’s standard progressive rates on all your foreign income:
• 23% on first €28,000
• 35% on €28,001–€50,000
• 43% over €50,000
• Plus 1–3% regional and municipal taxes
• Wealth taxes (IVIE and IVAFE) will also apply
What Proof Do You Need to Prove Residency?
To claim the 7% regime, you must live full-time in the qualifying town and prove it.
Keep:
• Rental or purchase contract in your name
• Certificato di Residenza from your local comune
• Registration with the Anagrafe (town hall registry)
• Utility bills and service usage data
• Evidence of physically spent time in the home
Nota Bene: Italian tax residency requires you to spend at least 183 days per year in Italy, not necessarily in your specific town—but your residenza anagrafica must remain in the qualifying municipality, and you must not appear to live elsewhere full-time.
⚠️ The Agenzia delle Entrate has started cross-checking utility consumption and digital records to detect fraud.
How to Elect the 7% Regime
You opt in by:
1. Filing your first Italian tax return (Modello Redditi PF)
2. Selecting the 7% regime option
3. Including your qualifying documentation
4. Paying your tax either in full or in agreed installments
👉 A commercialista is essential to get this right—don’t DIY it.
Final Thoughts
The 7% regime is real, powerful, and potentially life-changing. But it’s not automatic and not without rules.
If you’re an American retiree with income from the U.S. and are planning a move to Southern Italy, you need:
• A clear understanding of your pension and Social Security treatment
• A qualified commercialista to handle your filings
• A legally provable primary residence in a qualifying comune
• A tax-savvy strategy for managing U.S. and Italian compliance
For a downloadable FAQ about the 7% Tax Regime Click HERE - it's a living, breathing document so check periodically for updates. And if you find something that isn't correct - please let me know. Facts matter, even if they're honest mistakes.
One Last Rant (But an Important One)
Nothing irks me more than the kind of opinion-based research people seem to rely on in places like Reddit, Facebook, or expat forums. Yes, some folks out there genuinely know their stuff—but for every one of them, you’ll scroll past ten others confidently throwing around half-truths, outdated anecdotes, or pure guesswork.
Why trust your future—and potentially tens of thousands of dollars in tax exposure—to some rando with a fake name or a Reddit handle? Would you trust them to prepare your taxes or make your investments for you? Yea...I didn't think so.
I stand by the facts in this post because I don’t just skim headlines or regurgitate secondhand stories. I spend an almost insane amount of time researching both English-language resources and original Italian legal texts, tax circulars, and official government guidance. If I can’t verify it in writing—preferably from an official or legal source—it doesn’t make the cut.
Actual Official References, Not Opinions:
Ready to Plan Your Escape?
If you’re thinking about taking advantage of the 7% tax regime and want help finding the right town, setting up a timeline, or getting a vetted commercialista referral—book a free intro session here. I’ve helped other Americans plan the move, and I’d love to help you Caesar The Day.
Book your Comprehensive Relocation Strategy session:
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