Picture this: You’re 65, retiring from your career in California or London, and you’re staring at a tax bill that’ll eat 30-40% of your pension income for the rest of your life.
Now imagine moving to a charming town in southern Italy – let’s say Puglia or Sicily – where you’d pay just 7% tax on ALL your foreign income for nine years. No state tax. No local tax. Just 7% flat.
Sounds too good to be true, right?
Well, it’s not. It’s called the “7% flat tax regime for new residents” – and it’s one of Italy’s most aggressive incentives to attract wealthy retirees from abroad.
But here’s the catch: most people who try to apply for it get rejected. Why? Because they don’t understand the requirements, the paperwork, or the traps hidden in the fine print.
And if you’re American? There’s a whole separate layer of complexity.
I’m Jacopo Tartaglia, founder of Valente Italian Properties. I explain the Italian real estate market in plain English. In this article, we’re breaking down exactly how the 7% flat tax works, who qualifies, how to actually get it, and – critically – whether US citizens can benefit or if Uncle Sam ruins the party.
WHAT IS THE 7% FLAT TAX? (AND WHY ITALY CREATED IT)
The Problem Italy Is Trying to Solve
Let’s start with why this law exists in the first place.
Italy has a demographic crisis. The population is aging fast, young people are leaving for better job opportunities abroad, and entire towns – especially in the south – are emptying out.
Meanwhile, Italy has some of the highest income tax rates in Europe. If you’re a resident, your top marginal rate can hit 43% on income over €50,000, plus regional and municipal surcharges. That’s brutal.
So in 2019, Italy looked around and said: “Wait. Portugal has the NHR regime that attracts rich retirees. Spain has the Beckham Law. What do we have?”
The answer: beautiful weather, incredible food, cheap real estate in small towns, and… high taxes that scare everyone away.
So they created Law 145/2018, Article 1, Paragraph 273 – effective January 1, 2019 – which introduced a flat 7% substitute tax on foreign-sourced income for new residents who move to southern Italy or small towns. Documentazione Economica e Finanziaria – Dettaglio Articolo
The goal? Attract wealthy foreigners – especially retirees with pensions – to repopulate declining areas and inject cash into local economies. Now I am talking about “declining areas”, but this is no always the case (as I will show you later).
And you know what? It’s working. Applications have tripled since 2020.
But here’s the thing: the law is complicated, it’s written in dense Italian bureaucratic language, and the requirements are strict. One mistake and you’re paying standard Italian tax rates instead.
How It Works (The Basics)
Here’s the deal:
If you qualify, you pay a 7% flat tax on ALL your foreign-sourced income – pensions, dividends, capital gains, rental income from properties abroad – for up to 9 years (the first year you claim it, plus 8 renewals).
You pay this instead of Italy’s progressive income tax rates (23%-43%).
And here’s the kicker: Italian-sourced income is taxed normally. So if you earn money in Italy, that’s taxed at standard rates. But your foreign pension, your US Social Security, your dividends from a UK brokerage account? 7%.
Let’s put that in perspective with a quick example:
Sarah, 67, retired teacher
- Total foreign income: $84,000/year (~€77,000)
Without the flat tax, living as a normal Italian resident, she’d pay roughly €18,000-€22,000 in Italian income tax (effective rate around 26-28%).
With the 7% flat tax: €5,390/year.
Savings: ~€13,000-€16,000 per year.
Over 9 years? That’s €117,000-€144,000 she keeps instead of giving to the Italian tax authority.
That’s life-changing money.
WHO QUALIFIES? (THE REQUIREMENTS ARE STRICTER THAN YOU THINK)
Okay, so you’re thinking: “Sign me up!”
Not so fast. The requirements are very specific, and this is where most people get tripped up.
Requirement 1: You Must Not Have Been an Italian Tax Resident in the Last 5 Years
This is the big one.
You cannot have been a tax resident of Italy in any of the 5 calendar years before you apply.
What does “tax resident” mean? In Italy, you’re considered a tax resident if you meet any of these conditions for more than 183 days in a year:
- You’re registered in the Italian civil registry (Anagrafe)
- Your habitual residence is in Italy
- Your center of vital interests (family, economic ties) is in Italy
So if you lived in Italy in 2020, you can’t apply until 2026 at the earliest.
And be careful: the 5-year clock is based on tax years, not calendar years. If you were registered as a resident in Italy for even one day in 2020, that entire year counts.
Requirement 2: You Must Move to a Town with <20,000 Inhabitants in the south of Italy (or Specific Regions)
Here’s the geographic restriction:
You must establish residency in one of these areas:
- Sicily
- Calabria
- Sardinia
- Campania
- Basilicata
- Abruzzo
- Molise
- Puglia
Or in the municipalities in this list in center of Italy: COMUNI-CRATERE-SOTTO-I-20MILA-ABITANTI.pdf
That means that you CAN choose to live in cities like:
📍 Tropea (Calabria)
Population: ~6,300 inhabitants
Why it’s ideal :“A stunning seaside town with turquoise waters, dramatic cliffs, and historic charm, perfect for foreigners seeking beauty, affordability, and authentic Italian coastal life.”
📍 Alberobello (Puglia)
Population: ~10,300 inhabitants
Why it’s ideal: Famous for its fairytale trulli houses, Alberobello offers a unique lifestyle, strong community spirit, and high international appeal in the heart of southern Italy.
📍 Castelsardo (Sardegna)
Population: ~5,700 inhabitants
Why it’s ideal: A picturesque medieval town overlooking the sea, offering tranquility, natural beauty, and a mild climate for those seeking a relaxed Mediterranean lifestyle.
So you have options. You’re not stuck in the middle of nowhere.
Requirement 3: You Must Transfer Tax Residency to Italy
This means you need to:
- Register in the Italian civil registry (Anagrafe) within 60 days of arrival
- Spend more than 183 days per year in Italy
- Have your “center of vital interests” in Italy (family, property, economic activity)
You can’t be a tax resident of two countries at once. If you’re American and claim the flat tax, you’re still a US citizen (and still file US taxes – more on that nightmare later), but you’re now an Italian tax resident, not a US tax resident.
Requirement 4: You Must Have Foreign-Sourced Income
The tax applies to income sourced outside Italy. If all your income is Italian (you have an Italian pension, Italian rental properties, Italian dividends), this regime does nothing for you.
But if you have:
- Foreign pensions (US, UK, Canada, Australia, etc.)
- Social Security from another country
- Dividends or capital gains from foreign investments
- Rental income from properties abroad
Then the 7% rate applies to all of it.
What About Italian-Sourced Income?
Here’s the catch: any Italian-sourced income is taxed at normal progressive rates (23%-43%).
So if you:
- Buy a rental property in Italy and earn rental income → taxed normally
- Get a part-time job in Italy → taxed normally
- Earn capital gains from selling Italian property → taxed normally (26% on gains)
This is why the regime works best for pure retirees who have foreign pensions and don’t plan to work or earn money in Italy.
THE APPLICATION PROCESS
Alright, you meet the requirements. Now what?
Step 1: Move to Italy and Register Residency
First, you physically move to Italy. You find a place to live (buy or rent), and within 60 days you register your residency at the local town hall (Comune).
This is called iscrizione anagrafica – registration in the civil registry.
You’ll need:
- Valid passport
- Proof of address (rental contract or property deed)
- Codice fiscale (Italian tax ID – you can get this at any tax office in a few minutes)
Once registered, you’re officially a resident. But you’re not a tax resident yet – that happens automatically if you stay more than 183 days.
Step 2: File Your Application for the Flat Tax Regime
Within your first Italian tax return (filed by September 30 of the year after you move), you must elect into the flat tax regime.
This is done through your Modello Redditi PF (the Italian personal income tax return) and specifically in the Quadro RM section.
You check a box that says: “I elect the substitute tax regime under Article 24-ter.”
But – and this is critical – you must also include a detailed declaration stating:
- You were not an Italian tax resident in the prior 5 years
- You meet the geographic requirements
- You’re transferring your tax residency to Italy
And here’s the killer: you must prove your foreign income is actually foreign-sourced.
Step 3: Pay the 7% Tax Annually
Once approved, every year you file your Italian tax return and pay 7% of your foreign income.
You don’t pay estimated taxes quarterly (like in the US). You file once a year and pay a lump sum.
The deadline is September 30 each year (for income earned the prior calendar year).
THE US CITIZEN PROBLEM (DOES UNCLE SAM RUIN EVERYTHING?)
Okay, here’s where it gets messy.
If you’re American, you already know the nightmare: the United States taxes you on worldwide income no matter where you live.
You could live on Mars. If you’re a US citizen, you owe Uncle Sam.
So the question every American asks: “If I move to Italy and use the 7% flat tax, do I still pay US taxes?”
The United States taxes its citizens based on citizenship, not residence.
This means that even after moving to Italy, Americans must:
- Continue filing U.S. tax returns
- Declare their worldwide income
- Pay federal taxes if due
When an American pays the 7% tax in Italy, that amount can usually be used as a Foreign Tax Credit in the U.S.
However, this credit does not eliminate U.S. taxation.
It only reduces it.
📌 Example
Let’s say an American retiree earns:
- $50,000/year from a U.S. pension
In Italy:
- 7% → $3,500
In the U.S.:
- Federal tax (15%) → $7,500
After tax credit:
- $7,500 – $3,500 = $4,000 still due to the IRS
Total tax paid:
- $3,500 (Italy)
- $4,000 (U.S.)
= $7,500 total (15%)
But it’s not over yet.
Italy and the US have a tax treaty that says Social Security is ONLY taxable in the country of residence.
Translation: If you’re an Italian tax resident, your US Social Security is taxed in Italy, not the US.
Under the 7% flat tax, that’s great – you pay 7% instead of the US rate.
But, Interestingly, according to IRS data, around 62 % of U.S. expats who file from abroad end up owing $0 in U.S. federal income tax after credits and exclusions. That doesn’t mean they are exempt from filing; it means that tax breaks like the Foreign Earned Income Exclusion and Foreign Tax Credit often reduce their taxable U.S. income to zero
What If You’re from the UK, Canada, or Australia?
If you’re NOT American, life is much simpler.
Most countries only tax you if you’re a tax resident. Once you move to Italy and become an Italian tax resident, you’re no longer a UK/Canadian/Australian tax resident (assuming you don’t maintain ties there).
So you:
- Pay 7% to Italy on your foreign pension
- Pay 0% to your home country (because you’re no longer a resident)
- Done.
This is why the 7% flat tax is insanely attractive for British, Canadian, and Australian retirees.
For Americans? It’s still good, but not as good.
THE MATH – REAL CASE STUDIES
Let’s look at three scenarios with real numbers.
Case Study 1: British Retiree in Puglia
David, 66, retired accountant from London
- UK private pension: £50,000/year (~€58,000)
- UK state pension: £10,000/year (~€11,600)
- Total income: €69,600
Scenario A: Lives in London
- UK tax:
£12,000 (€13,900) - Effective rate: 20%
Scenario B: Moves to Lecce, Puglia with 7% flat tax
- Italian tax: €4,872 (7% of €69,600)
- UK tax: £0 (no longer a UK resident)
- Total tax: €4,872
- Effective rate: 7%
Savings: €9,028/year Over 9 years: €81,252
American Retiree in Sicily
For example, an American retiree earning around one hundred thousand dollars a year could save between five and nine thousand dollars annually by moving to Italy, thanks to the 7% flat tax and the U.S.–Italy tax treaty on Social Security.
Let’s say this retiree earns about one hundred thousand dollars a year. For example, forty thousand comes from U.S. Social Security, and the remaining sixty thousand comes from a private pension, a 401(k), or investments.
In the United States, most of that income would still be taxable, especially because up to eighty-five percent of Social Security can be taxed when your total income is high. In this case, the total tax bill could easily be close to twenty thousand dollars a year.
If the same person moves to Italy and qualifies for the 7% flat tax regime, the entire foreign income is taxed at seven percent in Italy. On top of that, under the tax treaty, U.S. Social Security is no longer taxed in the United States.
As a result, the total tax bill can drop to around twelve thousand dollars a year.
That’s why I say the savings are usually between five and nine thousand dollars. If most of the income comes from Social Security, the savings are closer to nine thousand. If more income comes from private pensions or investments, the savings are closer to five thousand.
IS IT WORTH IT? (WHO SHOULD DO THIS AND WHO SHOULDN’T)
Let’s be honest: this regime is NOT for everyone.
You Should Do It If:
- You’re 60+ and retired
- You have significant foreign pension/investment income (€50k+/year)
- You’re okay living in smaller towns or southern Italy
- You want to relocate full-time, not just visit
- You’re from the UK, Canada, Australia, or another country that doesn’t tax non-residents
You Should NOT Do It If:
- You’re under 60 and still working (better to use the “impatriate regime” for workers – different law)
- You have mostly Italian-sourced income
- You want to live in Rome, Milan, or Florence
- You plan to spend less than 183 days/year in Italy (you won’t qualify as a tax resident)
VALENTE’S Buyers SERVICE (HOW WE HELP)
Look, moving to Italy as a retiree is complicated. The bureaucracy is dense, the language barrier is real, and one mistake with the flat tax application can cost you tens of thousands of euros.
That’s why we created a full buyer agent service at Valente Italian Properties for international clients who want to move to Italy, buy a property and maximize the 7% regime.
Here’s what we do:
1. Tax Strategy Consultation We connect you with our network of cross-border tax advisors who’ll run your numbers and tell you if the 7% regime makes sense for your situation.
2. Location Scouting We help you choose the right town based on your budget, lifestyle, and proximity to services. We have a database of 200+ qualifying towns with population data, cost-of-living breakdowns, and expat community info.
3. Property Search we handle the search, negotiate on your behalf, and do full due-diligence (urbanistic compliance, cadastral checks, etc.) so you don’t buy a property with hidden legal issues.
5. Flat Tax Application We introduce you to a commercialista to prepare and file your flat tax election, gather all required documentation, and handle any follow-up with the Agenzia delle Entrate.
6. Post-Move Support We help you set up utilities, open bank accounts, get a fiscal code, and navigate Italian bureaucracy. And we can also manage your property if you want to rent it.
Our clients are expats from the US, UK, Canada, Australia and from a lot of other countries who want a seamless, stress-free move to Italy.
If you’re planning to relocate in the next 6-12 months and want to explore the 7% flat tax, book a strategy call with us. Send a message throuhg the chat on this page or an E-mail at info@valenteit.com.
