Ten Years of Tax Benefits in Southern Italy!

Foreign pensioners receiving income from non-Italian sources may benefit from a highly advantageous tax regime by transferring their tax residence to Southern Italy. Under Article 24-ter of the Italian Income Tax Code (TUIR), eligible taxpayers can elect to pay a 7% substitute tax on their foreign-source income for up to ten tax years.

The preferential regime applies during the tax year in which residence is transferred to Italy and for the following nine years. It therefore represents a compelling opportunity for foreign retirees seeking to combine tax efficiency with the quality of life offered by Italy’s southern regions. (1)

Who Is Eligible for Italy’s 7% Tax Regime?

The 7% tax regime is available to pensioners whose pension income is paid by entities established outside Italy. To qualify, applicants must not have been tax resident in Italy during the five tax periods preceding their relocation.

They must also transfer their residence to a municipality with no more than 30,000 inhabitants in one of the following regions:

• Sicily
• Calabria
• Sardinia
• Campania
• Basilicata
• Abruzzo
• Molise
• Apulia

The population threshold was increased from 20,000 to 30,000 inhabitants by Article 26 of Law No. 34 of 11 March 2026, published in Official Gazette No. 68 of 23 March 2026 and effective from 7 April 2026.

Subject to the same population requirement, the tax benefit is also available in municipalities affected by the L’Aquila earthquake of 6 April 2009 and by the 2016–2017 earthquakes in Central Italy, as identified under Decree-Law No. 189/2016.

How the Population Requirement Is Determined

Eligibility is assessed using the official population figures published by ISTAT, the Italian National Institute of Statistics.

The relevant figure is the number of inhabitants recorded on 1 January of the year preceding the year in which the taxpayer first elects to apply the regime.

Once established, this population figure remains valid throughout the entire duration of the tax incentive. A new assessment is required only if the pensioner subsequently transfers residence to another eligible municipality.

From the second year onwards, beneficiaries may relocate to a different municipality, provided that the new location continues to satisfy all the statutory requirements.

Which Foreign Income Is Taxed at 7%?

The preferential 7% substitute tax applies not only to foreign pension income but, in principle, to all categories of foreign-source income received by the taxpayer.

The election becomes effective through the Italian income tax return for the year in which tax residence is transferred. The taxpayer must disclose:

• the last jurisdiction in which they were tax resident;
• the country in which the pension-paying entity is established;
• the foreign income covered by the preferential regime;
• any countries whose income they wish to exclude from the election.

The possibility of excluding specific jurisdictions may prove particularly useful where the ordinary Italian tax rules or an applicable double taxation treaty would produce a more favourable result.

Further institutional information is available from the Italian Revenue Agency’s guidance on the optional regime for foreign pensioners.

Payment, Revocation and Forfeiture

The 7% substitute tax must be paid annually in a single instalment by the deadline for payment of the balance of Italian income taxes. Payment is made using the F24 form and tax code 1899.

Taxpayers may voluntarily revoke the election. They may also forfeit the benefit if they cease to satisfy the statutory requirements or fail to pay the substitute tax correctly and on time.

An omitted or insufficient payment may be remedied by the deadline for payment of the following year’s tax balance, together with the applicable interest and penalties. However, both revocation and forfeiture prevent the taxpayer from subsequently opting into the regime again.

Careful preliminary planning and timely compliance are therefore essential.

The Additional Tax Rebate Introduced by Sicily

Foreign pensioners considering a move to Sicily should also be aware of a separate incentive introduced by Article 25 of Sicilian Regional Law No. 1/2026.

For a period of three years, the measure provides a contribution equal to 50% of the Italian personal income tax (IRPEF) due and paid, up to a maximum of EUR 100,000 per year.

The incentive is available to individuals who, between 2026 and 2028:

• transfer their residence and tax domicile from abroad to Sicily;
• receive employment income, equivalent income or pension income taxable in Italy;
• purchase or renovate a property within twelve months of relocating.

The contribution increases to 60% where the beneficiary purchases a home in a Sicilian municipality with fewer than 5,000 inhabitants.

However, this regional incentive cannot be combined with the national 7% tax regime for foreign pensioners. Prospective residents must therefore carefully compare the two alternatives, taking into account the nature and amount of their income, the location of the chosen municipality and their long-term financial objectives.

A Valuable Opportunity That Requires Careful Tax Planning

Italy’s 7% tax regime for foreign pensioners is one of the country’s most attractive measures for individuals considering retirement in Southern Italy. Its ten-year duration, broad application to foreign-source income and relatively straightforward payment mechanism can offer substantial tax advantages.

Nevertheless, relocating to Italy has wider legal and tax implications. These may include the application of double taxation treaties, reporting obligations concerning foreign assets, succession planning and the coordination of the Italian regime with the tax rules of the pensioner’s country of origin.

The practical implementation of the new Sicilian incentive will also determine whether the regional and national provisions operate in full harmony.

Before transferring tax residence, prospective beneficiaries should obtain a detailed assessment of their personal circumstances. Proper professional advice is indispensable to verify eligibility, compare the available incentives and ensure full compliance with Italian tax law.

(1) By Avv. Dr. Daniele Baldassare Giacalone, Co-founder of SLTG & Partners, Vice President of the Palermo Tax Chamber.

This article is intended for general information purposes only and does not constitute legal or tax advice. The applicable legislation and administrative guidance should be reviewed in light of each taxpayer’s individual circumstances.