How to Manage Your Taxes When Retiring in Italy as an Expat?
Jun 18, 2025
Manage Taxes When Retiring in Italy as an Expat | Mitos
Managing taxes is one of the most important aspects of retiring abroad, and Italy has specific tax rules that all expats must understand. If you plan to live in Italy under the Elective Residency Visa, you may be considered a tax resident, especially if you spend more than 183 days per year in the country. This means you may need to declare your global income, even if it is earned from foreign pensions, investments, or property outside Italy.
Understanding how Italian tax residency works, whether tax treaties apply, and how to avoid double taxation is essential before you relocate. Proper planning can help you remain compliant, reduce your tax burden legally, and avoid costly surprises after settling in. This section outlines the fundamental rules governing tax residency in Italy, including what income is taxable and the reporting obligations that expatriates should prepare for.
Understanding Tax Residency in Italy
To start, determining your tax residency status in Italy is key. You are considered a tax resident in Italy if
You spend more than 183 days per year in Italy. → This is an unofficial but widely applied criterion. It’s often easier to verify for non-EU citizens through passport stamps.
You are officially registered with the Italian population registry (Anagrafe). → This is the official legal criterion used to establish tax residence.
Once you become a tax resident, you will be subject to Italian taxation on your worldwide income. This means you must declare all income, whether from a foreign pension, property, or other assets.
Italy's tax system is progressive, meaning the more you earn, the higher your tax rate will be. That said, some special incentives with a flat tax are available for some qualifying expats - in particular, the 7% flat tax for retirees that relocate to southern Italy, and the €200,000 flat tax.
Before we dive in, a quick reminder:
Tax policy is complex and highly dependent on individual circumstances. This article is for informational purposes only and should not be considered tax advice. If you’d like, we can connect you with a qualified tax or financial advisor to discuss your specific situation.
Let’s review more on Italian taxes below.
Standard taxation regime
Under the standard taxation regime, meaning for those that do not qualify for any tax incentive, several types of taxes are applicable, which include.
Income Tax
Once you are a tax resident in Italy, you’ll be subject to Italian income tax on your local and foreign-sourced income. The standard income tax rates in Italy, applicable to local and expats alike, will be as follows.
If your income is up to €15,000, you are entitled to pay 23% tax.
On the income of €15,001-€28,000, the tax would be 25%
On the income from €28,001-€50,000, the tax rate would be 35%
For incomes above €50,001, the tax rate would be 43%
Wealth Tax (IVIE)
If you own property or assets outside of Italy, you may be subject to the Italian Wealth Tax (IVIE). As of 2025, tax on real estate properties owned outside of Italy is levied at 1.06% of the property’s taxable value. Previously, it was 0.76%. Moreover, the Wealth tax on investments owned outside of Italy (IVAFE) is 0.2% or 0.4% for financial investments held in tax havens.
The taxable value is typically the property’s purchase price or assessed value in the foreign country, depending on which is higher. You can, however, deduct foreign property taxes paid on the same property, which may reduce or eliminate your IVIE liability.
Capital Gains Tax
If you sell investments or financial assets, the Capital gains are generally subject to the regular Corporate Income Tax (CIT) flat rate of 26%, which includes interests and dividends. It’s essential to keep this in mind if you have significant investment income.
If you hold foreign bank accounts or investments, these must be reported to the Italian tax authorities. Failing to report these assets can result in penalties or fines. It is advisable to consult a tax advisor to understand how to report foreign investments, as the process can be complex, and penalties for non-compliance can be severe.
Property Tax
When buying a residential property in Italy, you will need to pay between 2%-9% of the total value of the house. If you are a tax resident and the building will be your main residence, you will pay a lower rate of 2%. However, for non-residents or second-home buyers, the tax rate will be 9%.
Whether you are a resident or non-resident, the tax amount will never be less than €1000, regardless of the value of the property. Land registry tax will be €50 to €200, depending on whether you are buying from a private seller or a company.
Inheritance Tax
Italy’s inheritance taxes are very favourable, given a high tax-free allowance and low rates, ranging between 4% and 8%, depending on the estate's value and the relationship of the beneficiary to the deceased.
Spouses and children are entitled to a tax-free allowance of €1,000,000 each, and they are taxed at a rate of 4% on the value of the inheritance exceeding this amount. Siblings receive a tax-free allowance of €100,000 each, with a tax rate of 6% applied to the value exceeding this allowance. Other relatives, up to the 4th degree, do not receive any exemption and are taxed at a rate of 6% on the full value of the inheritance. Unrelated beneficiaries, such as friends or distant acquaintances, also receive no exemption and are taxed at a rate of 8%.
The 7% Tax Regime for Retirees in Southern Italy
One of the most attractive tax incentives for foreign retirees is the 7% tax rate regime, introduced in 2019. This scheme allows retirees to pay a flat 7% tax on foreign income in Italy, including pensions. Moreover, those qualifying for this incentive are exempt from paying wealth taxes.
The regime is available to those who transfer their tax residency to specific municipalities with less than 20,000 inhabitants in southern Italy, or to selected municipalities in central Italy affected by past earthquakes.
Here’s what you need to know:
Past residency: You must not have been a tax resident in Italy for the last five years.
Pension Withdrawals: You must be able to demonstrate that you are receiving a foreign pension before applying for this scheme. That said, working is still permitted, provided it complies with the conditions of your visa.
Duration: The flat 7 percent tax is available for up to 10 years.
Income: The tax applies to all foreign income, including pensions and other forms of compensation.
Geographic availability: The scheme is only available in the regions of:
Sicily, Calabria, Sardinia, Campania, Basilicata, Abruzzo, Molise, and Puglia, and in towns with populations of fewer than 20,000 residents
Lazio, Abruzzo, Umbria, Marche, in towns affected by certain past earthquakes. This tax incentive is particularly popular among expats who want to make smart financial decisions and benefit from tax incentives and a lower cost of living in southern Italy, where living expenses tend to be lower. To qualify for this scheme, it’s important to comply with the timing and location requirements, so consulting an expert is highly recommended.
The €200,000 Lump Sum Regime
Italy also offers a separate tax incentive for new residents, under which all foreign income is taxed at a flat lump sum of €200,000 per year, for up to 15 years.
This scheme is not related to pensions and is available to individuals who have not been tax residents in Italy for at least 9 of the previous 10 years.
It is particularly beneficial for expats with higher income levels (typically from €500,000 per year and above). If you think this might apply to you, it’s strongly recommended to consult with a qualified tax professional to assess whether it suits your personal situation.
Handling Foreign Income and Pensions
If you are receiving a foreign pension or other income while living in Italy, it will be subject to Italian tax laws. However, Italy has agreements with many countries, including the UK, the US, and Canada, to prevent double taxation. These double taxation agreements (DTAs) allow retirees to pay taxes in their home country while receiving tax exemptions or reductions in Italy.
It’s important to review the DTA between Italy and your home country to understand how it applies to your foreign income. By doing so, you may be able to avoid double taxation or reduce the amount you owe on pensions and other foreign income.
U.S. citizens are generally required to pay federal taxes in the United States, regardless of where they live. If Italy also taxes your income, it typically only applies to the difference between the U.S. and Italian tax rates, thanks to the U.S.-Italy tax treaty.
In contrast, citizens from countries like the UK often cease to have tax obligations on foreign pensions once they become non-residents, with the exception of certain government pensions, such as those for civil servants. In these cases, retirees become fully liable to pay tax in Italy, which may still result in significant savings if they qualify for a favorable tax regime.
Understanding Italian Inheritance
As mentioned above, Italy imposes inheritance taxes on estates, and these taxes depend on the estate’s value and the relationship between the deceased and the heir. The tax rates for close family members, such as spouses and children, tend to be lower than for distant relatives.
Besides taxes, it is important to understand inheritance laws. Italy’s inheritance laws are based on the principle of forced heirship, which means that a fixed portion of your estate—known as the “reserved quota”—must go to close family members, regardless of what your will states. For example, if you have a spouse and one child, each is entitled to at least one-third of your estate, while with two or more children, they collectively receive at least half, divided equally, and the spouse gets a quarter. Parents are only entitled if there are no children.
This system can have a major impact on expats relocating to Italy, as it may override testamentary freedom common in other countries and may disrupt estate planning strategies.
That said, inheritance laws are complex and depend on several factors, including your residency, domicile (a more enduring concept reflecting your long-term ties to a country), how long you’ve lived abroad, and where your assets are located.
Expats should seek legal advice to ensure their wishes are respected and to understand potential tax implications for their heirs
Filing Your Taxes as an Expat in Italy
Filing taxes in Italy involves a straightforward process, but it requires accurate documentation. To file your taxes, you will need:
Codice fiscale (Italian tax identification number).
Documentation detailing both foreign and domestic income.
Information on any foreign investments or bank accounts you hold.
It’s highly recommended to work with a qualified tax advisor to ensure your annual tax return is completed accurately, especially given the complex and detailed nature of the forms required in Italy.
ance.
Besides convenience, a reason to work with an expert is to understand which types of deductions may be applicable to you.
One key example is health costs. As a retiree in Italy, you will likely need to obtain health insurance. Italy’s public healthcare system is available to residents, but many expats opt for private health insurance as well. You can read more in this article on healthcare for expats in Italy.
The cost of private healthcare insurance premiums and medical costs can usually be deducted from your total taxable income at 19%, which can lower your overall tax bill. Public health insurance premiums are not usually deductible.
By properly managing your tax obligations, you can avoid unnecessary stress and costs and focus on enjoying your retirement in Italy.
How to Manage Expat Taxes In Italy
Taxes for retirees in Italy may seem overwhelming. But to manage your taxes effectively when retiring in Italy, consider the following steps.
Consult a Financial Advisor: Before moving, work with professional tax and/or financial advisors with a good understanding of both your home country (like the UK, US, or Canada) and Italy. This will help you structure your income in a tax-efficient manner and avoid costly mistakes when filing your taxes.
Consider Transferring Your Tax Residency to Southern Italy: If you want to qualify for the 7% flat tax regime, relocating to one of Italy’s southern regions can significantly reduce your tax burden. Be sure to consult with a legal professional to meet the requirements.
Understand Your Pension’s Tax Treatment: If you’re receiving a foreign pension, be sure to understand how it will be taxed in Italy. Depending on your home country’s tax treaties with Italy and your type of pension, you may be subject to different rules.
Track Your Assets: Keep a close eye on any foreign assets you own, such as real estate or investments. These may be subject to additional taxes, such as the IVIE or capital gains tax. Knowing your properties and assets will allow you to determine the exact tax rate while moving to Italy.
Keep Records: Maintaining thorough records is one of the most important steps in managing your taxes as an expat. This includes keeping detailed documentation of all income, investments, and expenses, as well as any tax-related documents from your home country. These records will make it easier to file your tax return and provide support if there are any discrepancies with the tax authorities.
Stay On Top of Tax Deadlines: Make sure you meet all filing and payment deadlines to avoid late penalties or interest charges. The Italian tax system follows a fixed schedule for filing tax returns and making payments.
Managing Your Taxes with Mitos Relocation
The expat taxes in Italy operate in a multi-tiered manner. The income tax on foreign income can go up to 43%, but by leveraging the flat 7% tax regime, you can manage your tax burden efficiently. To get the most out of it, it is advisable to work with professionals who understand the complexities of dual taxation. They will guide you through each step and help prevent unexpected costs.
At Mitos Relocation, we guide you through every step of your retirement move to Italy—beyond just taxes. From choosing the right region and understanding residency rules, to navigating pension taxation, securing incentives like the 7% regime, and handling legal, healthcare, and lifestyle matters, we take a comprehensive approach tailored to your goals. Whether you’re at the early decision stage or ready to relocate, our team is here to make your transition smooth, confident, and well-informed.
Book a free consultation call to get started on managing your taxes as you prepare to retire in Italy.
FAQs
Do retired expats pay taxes in Italy?
Yes, retired expats who become tax residents in Italy must pay taxes on their worldwide income, including pensions. However, there are tax incentives, such as the 7% tax rule, for retirees moving to certain regions, including Sicily, Calabria, Sardinia, Campania, Basilicata, Abruzzo, Molise, and Puglia.
Do I need to pay Italian taxes on my foreign pension?
Yes, if you are a tax resident in Italy, your foreign pension is subject to Italian taxes. The amount you pay depends on your country of origin, type of pension, and tax scheme applicable to you, as well as whether you benefit from Italy’s tax treaties to avoid double taxation.
How can I avoid double taxation when retiring in Italy?
Italy has double taxation agreements with multiple countries, like the UK, the US, and Canada, to prevent double taxation. These treaties allow you to pay taxes only in Italy, depending on the type of income. Understanding their applicability before moving can help avoid double taxation.
What is the 7% tax rule in Italy?
The 7% tax rule is a special tax regime for retirees who transfer their tax residence to specific southern and central Italian regions. It allows them to pay a flat 7% tax on foreign income, including pensions, instead of the higher standard tax rates. This reduces taxes on foreign income, including pensions, for up to 10 years.
Which regions in Italy are eligible for the 7% tax regime?
Southern Italian regions, including Sicily, Calabria, Sardinia, Campania, Basilicata, Abruzzo, Molise, and Puglia, are eligible for the 7% tax regime. Only towns with fewer than 20,000 residents qualify, and some of these offer excellent relocation opportunities for foreign retirees
Additionally, some towns in Lazio, Abruzzo, Umbria, Marche - affected by certain past earthquakes - are also eligible.