Tax Residency: You Are Taxed on Your Worldwide Income

If you are considered an Italian tax resident, you are subject to taxation on your worldwide income, regardless of where it is earned or received. This includes pensions from foreign sources.

Italian tax residency is generally triggered if you:

  • Spend more than 183 days per year in Italy;
  • Have your registered residence (residenza anagrafica) in Italy;
  • Have your center of vital interests (family and social ties) in Italy.

Once you become tax resident, foreign pensions become part of your overall taxable income in Italy, unless exempted by a tax treaty.

Foreign Pensions Are Treated Like Employment Income

Foreign pensions, once taxable in Italy, are treated similarly to employment income. This means:

  • They are subject to Italian progressive income tax (IRPEF);
  • They are also subject to regional and municipal surtaxes (addizionali regionali e comunali);
  • The income is reported annually in the Italian tax return (Modello Redditi PF).

As a result, the total tax burden depends on your overall income and the region/municipality where you are resident.

Tax Treaties Usually Assign Taxation to Italy (Article 18 OECD Model)

In most cases, double tax treaties (DTTs) assign the exclusive right to tax pensions to the country of residence, i.e., Italy if you reside there.

These treaties are generally based on Article 18 of the OECD Model Convention, which states:

"Pensions and other similar remuneration paid to a resident of a Contracting State in consideration of past employment shall be taxable only in that State."

This means that the foreign country should not withhold tax on your pension once you are resident in Italy, provided the treaty is applied correctly.

You may need to file forms or provide certificates of residence to claim the exemption abroad and avoid double taxation.

Exceptions: Government Pensions, Severance Payments, and Special Cases

Some pensions are treated differently under most treaties:

  • Government or public service pensions (e.g., military, police, civil servant pensions) are usually taxable only in the source country, unless the recipient is also a national of the residence country. In that case, taxation may shift to Italy.
  • Severance payments follow specific rules under tax treaties and may be taxable in the source country, depending on the type of payment and the applicable agreement.

Each treaty has specific provisions (usually under Article 19 or others) which should be reviewed in detail.

No Tax Treaty? Italy Taxes Everything

If there is no double taxation agreement between Italy and the country paying the pension, then the pension is fully taxable in Italy.

There is no protection from double taxation unless domestic foreign tax credit rules apply, which often is not sufficient or automatic. You may end up being taxed in both countries.

The 7% Pensioners Tax Regime: A Unique Opportunity

Italy offers a special tax regime for new residents who receive foreign pensions: the 7% flat tax regime, available under Article 24-ter of the Italian Income Tax Code.

Key features:

  • Applies to foreign pensioners who move to a qualifying town in Southern Italy (under 20,000 inhabitants);
  • Offers a 7% flat tax on all foreign income (not just pensions);
  • No additional regional or municipal taxes apply;
  • Duration: valid for up to 10 years.

To qualify:

  • You must become an Italian tax resident;
  • You must not have been tax resident in Italy in the previous 5 years;
  • You must receive a foreign pension that is taxable in Italy.

Important: If your pension is not taxable in Italy due to a tax treaty, then you cannot use the 7% regime.

Final Thoughts and Recommendation

If you are planning to retire in Italy and receive a foreign pension, here are your key steps:

  1. Verify your Italian tax residency status;
  2. Review the applicable tax treaty, if any;
  3. Determine whether your pension is taxable in Italy;
  4. Explore eligibility for the 7% pensioners regime;
  5. File the appropriate paperwork to avoid double taxation.

At Move to Dolce Vita, we help retirees and international individuals structure their relocation properly and assess the best tax regime for their situation. Contact us for a personalized consultation.

Disclaimer: This guide is for informational purposes only and does not constitute legal or tax advice.

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