Italy's 7% Tax Rule: What the 2026 Expansion to Larger Towns Actually Means

Italy has just made its most significant update to the 7% flat tax regime for foreign pensioners since the scheme launched in 2019. As of April 7, 2026, the population threshold for eligible municipalities has risen from 20,000 to 30,000 inhabitants — unlocking 74 new towns across Southern Italy and designated earthquake-reconstruction zones in the centre. Some genuinely attractive places are now in the mix for the first time.

This post covers what changed, which towns are worth knowing about, and — more usefully — our honest assessment of whether this expansion addresses the real reasons the scheme has underperformed since its launch.

What the 7% Regime Is (and Isn't)

The regime allows foreign pensioners who transfer their tax residency to qualifying municipalities to pay a flat 7% tax on all foreign-sourced income — pension income, rental income abroad, investment income — for up to ten years. It replaces Italy's standard progressive income tax, which rises to 43% at higher income levels.

To qualify you must: receive a foreign pension, not have been an Italian tax resident in any of the previous five years, and take residency in an eligible municipality in one of eight southern regions — Sicily, Calabria, Sardinia, Campania, Basilicata, Abruzzo, Molise, Puglia — or in towns designated as reconstruction zones following the 2016 central Italy earthquakes (parts of Abruzzo, Lazio, Marche, and Umbria).

The eligible towns are not all of the south. Each comune must sit below the population threshold and be located within the qualifying regions. The 2026 change lifts that ceiling from 20,000 to 30,000 residents.

What Changed on 7 April 2026

Seventy-four new municipalities have entered the eligible perimeter. The regional gains break down as follows: Campania gains the largest number in absolute terms, with 23 new towns. Sicily and Puglia each add 18. Sardinia gains 7. Abruzzo adds 5. It is worth noting that the separate sisma2016 eligibility list remained unchanged.

The government's likely rationale for the change is significant: by raising the ceiling, they want to direct foreign retirees toward medium-sized towns with better infrastructure, services, and transport connections — not just the smallest villages. That is a meaningful acknowledgement, and we'll come back to it.

Notable Towns Now in the Mix

Noto, Sicily

Noto is one of the more compelling additions. A UNESCO World Heritage site rebuilt in honey-coloured limestone after a 1693 earthquake, it is widely considered the finest example of Sicilian Baroque. It has a functioning historic centre, a real food culture (it's home to what many consider Sicily's best gelato), and sits in the Val di Noto in the southeast of the island, reasonably accessible from Catania airport. Its inclusion is genuinely interesting for retirees who want beauty, authenticity, and a town with some life to it year-round.

Ostuni, Puglia

Ostuni is the addition that will get the most attention, and for good reason. The "white city" — its hilltop centro storico a stack of whitewashed buildings above an ancient olive-grove landscape — has been on the international radar for years as one of Puglia's most beautiful and liveable towns. At just under 30,000 inhabitants, it sat above the old cap. It now qualifies. Ostuni has a real year-round community, an established foreign-buyer market, a growing food and wine scene, and reasonably good access to Brindisi airport. It is not undiscovered — which cuts both ways on price — but for retirees who want somewhere with existing infrastructure and some international community, it is one of the more compelling additions to the eligible list - although it's worth noting it may soon pass the 30,000 threshold.

Other Notable Additions

The full list includes several other towns worth knowing about. In Puglia, Manduria (29,665) is the heartland of Primitivo wine production — a genuine agricultural town rather than a tourist one, with a well-preserved historic centre. In Sicily, Milazzo (29,830) sits on a promontory in the northeast of the island and serves as the main gateway to the Aeolian Islands, giving it a strategic location and year-round ferry connectivity that most Sicilian towns lack. From Campania, Pompei (23,647) is the obvious name, though it functions as a real town — not just an archaeological site — with all the infrastructure of a mid-sized southern city. In Abruzzo, Sulmona (21,759) is a medieval market town in the mountain interior, famous for its confetti sweets and a quality of life that punches well above its size; and Roseto degli Abruzzi (25,882) offers straightforward Adriatic coast living with better transport links than much of the south.

One note of caution: a number of towns appearing in media coverage of this expansion were already eligible under the old 20,000 cap, or enter through the separate earthquake-zone designation rather than the threshold change. Always verify against the official Agenzia delle Entrate list before making decisions based on a secondary source.

The Broader Picture

Beyond these headline names, the 74 new entries include a number of mid-sized coastal and near-coastal towns across Campania, Sicily, and Puglia that are more plausibly liveable for foreign retirees than many of the rural villages that have always been on the list. This is the more important pattern: the expansion is quietly shifting the scheme toward places where daily life is more navigable, even if those places are not the ones making headlines.

Our Take: A Good Development — With Eyes Open

We think this is a genuinely positive move. The authorities have shown real awareness of why the scheme hasn't reached its potential, and the response — expanding toward more functional, better-connected towns — is the right one. The addition of places like Ostuni and Noto to the eligible list matters precisely because people already want to live there. That is how tax incentives work well: as a meaningful benefit layered on top of a destination that stands on its own merits.

The parallel with Italy's flat tax for high-net-worth individuals is instructive. That scheme generated real movement and genuine relocation flows — evidence that tax incentives, designed well, do work. The 7% regime for pensioners has the same potential, and expanding to larger, more liveable towns brings it closer to delivering on it.

That said, understanding why some clients who investigate the scheme don't ultimately proceed is useful — not as a reason to dismiss it, but as a way of knowing whether Southern Italy is the right fit for you specifically.

From client conversations, two things come up most:

Getting around without a car. The south of Italy is magnificent, but it is built for people who drive. Public transport links — between towns, and to international airports — are thinner than in Northern Europe or even other parts of Italy. The 2026 expansion helps here: a town of 25,000 is genuinely more likely to have a train station and bus connections than a village of 3,000. But if driving isn't part of your plan, it's worth mapping out your daily logistics concretely before committing.

Daily life in Italian. Southern towns are not international hubs, and English isn't widely spoken in everyday settings — local shops, public offices, medical practices. What they do offer instead is something harder to quantify: Italians in the south are exceptionally warm and community-oriented, and many clients find that integration happens naturally over time. But it takes an appetite for immersion. If you're looking for a ready-made expat community where English is the default, the south of Italy is probably not your destination — and that's not a criticism, just an honest read of what it is.

Healthcare is the one area where we'd encourage careful research specific to the town you're considering, rather than generalising. Quality varies significantly across the south — some areas are well served, others less so. The expansion to larger towns generally means better-resourced local facilities, which is a real improvement. It's worth asking specifically about the nearest hospital, specialist access, and waiting times before you decide.

Who This Expansion Genuinely Helps

The 2026 change is most useful for people who were already close to committing to a Southern Italian destination and were either just outside the eligible perimeter — their preferred town was at 22,000 or 25,000 inhabitants — or who needed a slightly larger, more functional base than the original list offered.

If you've already identified a region you love, already have some Italian, already understand how healthcare access works in that part of the country, and were essentially looking for confirmation that your town qualifies — this expansion is genuinely good news. The eligible pool is larger, the towns are generally more liveable, and the tax benefit remains compelling: a flat 7% rate on foreign income for a decade is a serious financial incentive for a retiree with meaningful pension or investment income abroad.

If you're starting from "I want to try Italy and the tax sounds interesting," the expansion is a useful development — and the new additions to the eligible list genuinely improve the options available. The questions around transport, healthcare, and language are still worth working through honestly before you commit, but they're navigable for the right person. Learn more on our blog post How to Navigate the Italian Healthcare System When Moving?.

Practical Steps If You're Considering the 7% Regime

The regime requires a formal application to the Italian tax authority (Agenzia delle Entrate) in your first tax return. It is not automatic and requires careful structuring — particularly around how your pension income is classified, whether your home country has a double taxation agreement with Italy (the UK does; some countries do not), and how the transition in and out of Italian tax residency is timed.

One element that deserves close attention and is often overlooked: the treatment of taxes already paid abroad. Opting into the flat tax means waiving the foreign tax credit on income covered by the substitute rate. In practice, this means that if your source country withholds tax on your pension or other income, you cannot offset that against your Italian liability — you effectively pay both. However, the regime does allow you to exclude income from specific countries from the flat tax election and keep those on the standard Italian tax regime instead, which can make a significant difference to the overall picture depending on where your income originates. This is one of the more consequential structuring decisions, and it requires proper tax advice rather than a general reading of the rules.

Reach out to us or find independently an Italian 'commercialista' who specialises in this regime before you make any decisions. The ten-year benefit is real, but the paperwork is not trivial, and errors in the application year can have consequences.

Read more on our blog post How to Manage Your Taxes When Retiring in Italy as an Expat?.

The Bigger Point About Tax Incentives and Mobility

Italy's experience with mobility incentives over the past decade is worth reflecting on. The flat tax for high earners created enormous interest — and genuine movement — but most of the beneficiaries chose Milan, Rome, or the north, not the south the government most needed to revitalise. The 7% pensioner scheme was designed specifically to route people toward the Mezzogiorno, but from what we see in client interest, it has not yet generated the pull that comparable incentives in Greece or Cyprus have.

The lesson is not that tax incentives don't work. They demonstrably do, when the underlying destination is competitive on its own terms. The lesson is that tax incentives work best as the final push for people who were already close to moving — not as the reason to move somewhere they would otherwise not choose. The most useful thing Italy's 2026 expansion does is extend the eligible pool to include some places that are already genuinely attractive on non-tax grounds. Noto is a real place that people actually want to live. That matters more than the population ceiling.

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