What is the 7% tax regime in Italy?

The 7% regime (Article 24-ter TUIR) is a special tax incentive designed for foreign retirees who decide to move to certain towns in Southern Italy. Instead of paying progressive tax rates that can reach up to 43%, eligible pensioners pay a flat 7% tax on all their foreign-source income, including pensions, dividends, rental income, and capital gains.

👉 For more technical details, check our in-depth guide: The Italian 7% Pensioners Tax Regime.

US citizens: worldwide taxation and the 7% advantage

One of the key reasons why the Italian 7% regime is especially convenient for US citizens is the fact that Americans are taxed on their worldwide income even if they permanently relocate outside the United States. This means that a US retiree living in Italy must file US tax returns every year.

Here’s where the Foreign Tax Credit (FTC) plays a crucial role:

  • The 7% tax paid in Italy is fully creditable in the US.
  • Since the Italian tax is very low, it does not create double taxation.
  • In practice, US pensioners can live in Italy, pay just 7% on their foreign income locally, and then fully offset this amount against their US liability.

This makes the regime not only attractive but also highly efficient from a US tax perspective, ensuring no additional burden compared to staying in the US.

Who can apply for the 7% regime?

To qualify, US pensioners must meet specific requirements:

  • Foreign-source pension income: it must qualify as a pension under Italian tax law. Certain investment products may not be considered pensions. This requires case-by-case legal and tax analysis.
  • No Italian tax residency in the last 5 years.
  • Relocation to a small town in Southern Italy (under 20,000 inhabitants, in regions such as Puglia, Calabria, Sicily, Sardinia, Campania, Basilicata, Abruzzo, Molise).

⚠️ Important: not every income stream that looks like a “pension” in the US is automatically treated as such in Italy. Proper planning is essential.

Why is this regime attractive for US retirees?

  • Ultra-low tax rate: only 7% compared to Italian progressive rates up to 43%.
  • No risk of double taxation thanks to US Foreign Tax Credit.
  • Clear framework: a simplified substitute tax instead of complex progressive brackets.
  • 10-year duration: long enough to plan a retirement strategy.
  • Lifestyle upgrade: access to Southern Italy’s traditions, Mediterranean diet, affordable cost of living, and healthcare system.

Example: moving to Puglia under the 7% regime

Let’s consider Mary, a retired US citizen moving to a small town in Puglia with 18,000 inhabitants. She receives annual foreign income of $60,000.

  • Under ordinary Italian tax, her liability could exceed €20,000.
  • With the 7% regime, she pays €3,900/year in Italy.
  • This amount is fully creditable in the US, so she avoids double taxation.
  • Over 10 years, the savings are substantial, while she enjoys life in one of Italy’s most authentic regions.

Limitations and considerations

  • Only foreign-source income benefits from the 7% rate. Any Italian income (such as local rentals) is taxed at standard rates.
  • The definition of “pension” depends on Italian law, not US labels. This must be carefully assessed before applying.
  • The regime is available only in small towns in the South. Larger cities like Rome, Florence, or Milan are excluded.
  • After 10 years, the regime ends and ordinary taxation applies.

How to apply for the 7% regime?

  1. Establish tax residency in Italy by registering in a qualifying municipality.
  2. File your first Italian tax return and opt into the 7% regime.
  3. Consider filing a tax ruling (interpello) to confirm eligibility in advance.

FAQs

Do I still have to file a US tax return?
Yes, all US citizens must continue filing annually, but the 7% Italian tax is creditable, so no extra burden applies.

What if my income is not considered a pension in Italy?
Then it might not qualify for the 7% regime. Each case needs careful legal review.

Can my spouse apply too?
Yes, provided they also receive qualifying foreign pension income and move to Italy with you.

Can I move after retirement or do I need to relocate immediately?
You can move after retirement, but eligibility depends on meeting the residency and pension conditions.

Conclusion: why US retirees should consider the 7% regime

For US pensioners, Italy’s 7% tax regime represents a unique opportunity:

  • A clear, low, and predictable tax system.
  • No additional burden from the US side, thanks to the Foreign Tax Credit.
  • Access to the beauty and lifestyle of Southern Italy.

👉 Contact Move to Dolce Vita, Tax and Legal Advice in Italy today to assess your eligibility and design the best relocation strategy for a tax-efficient retirement in Italy.

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