Italy's 7% Flat Tax for Foreign Pensioners: What Changed in 2026
Italy taxes foreign-source income of qualifying new resident pensioners at a flat 7% under Article 24-ter of the Income Tax Code, for the year of relocation plus the following nine tax periods. From 7 April 2026 the eligible municipalities are those with a population not exceeding 30,000 inhabitants, up from 20,000. The higher limit was introduced by Article 26(1) of Law 11 March 2026, no. 34, and it widens the map considerably — but the regime still requires a foreign pension, five clean years of non-residence, and foreign-source income. It does not shelter income produced in Italy.
Scope and date. This guide states the rules in force on 18 August 2026. The consolidated text of Article 24-ter of Presidential Decree 917/1986 and Circular 21/E of 17 July 2020 remain the principal references. Figures for municipal population change every year, so the eligibility of a specific town must be re-checked against the current ISTAT release before signing anything.
Quick summary
- The regime applies a 7% substitute tax to foreign-source income of any category, not only pension income, provided the taxpayer holds a pension paid by a foreign payer.
- It lasts for the tax period of relocation plus nine further tax periods.
- Eligible locations: municipalities in Sicily, Calabria, Sardinia, Campania, Basilicata, Abruzzo, Molise and Puglia, municipalities listed in annexes 1, 2 and 2-bis to Decree-Law 189/2016, and municipalities affected by the 6 April 2009 L'Aquila earthquake — in every case with a population not exceeding 30,000 inhabitants.
- The 30,000 limit applies from 7 April 2026; before that date the limit was 20,000.
- The applicant must not have been an Italian tax resident in the five tax periods preceding the first year of the option, and must relocate from a country with an administrative cooperation agreement in force.
- The option is exercised in the tax return for the year of relocation, not through a separate application. The tax is paid in a single instalment using tax code 1899.
- The regime exempts the taxpayer from foreign asset monitoring (Quadro RW) and from IVIE and IVAFE for the covered foreign assets.
- Income produced in Italy stays under ordinary progressive tax. This is the main planning trap for anyone still running a business.
- For US citizens, US filing obligations continue in full: the treaty's saving clause preserves US taxation of citizens, with relief through the foreign tax credit.
Contents
What Law 34/2026 actually changed
Article 26(1) of Law 11 March 2026, no. 34 — the annual SME law, published in Gazzetta Ufficiale no. 68 of 23 March 2026 and in force from 7 April 2026 — replaced the words "20,000 inhabitants" with "30,000 inhabitants" in Article 24-ter(1) of the Income Tax Code.
Three points matter more than the headline.
First, the limit is a single condition attached to all eligible categories. The consolidated text reads: municipalities of the eight southern regions, or municipalities listed in the earthquake annexes, or municipalities hit by the 2009 L'Aquila earthquake, "in any case having a population not exceeding 30,000 inhabitants". The Revenue Agency's official page states the same for the earthquake municipalities. Anyone telling you the seismic towns are exempt from the demographic test, or still capped at 20,000, is working from an outdated text.
Second, nothing else in the regime changed. The rate, the nine-year duration, the five-year non-residence requirement, the requirement of a foreign pension, the reporting exemptions and the forfeiture rules are unchanged.
Third, the change enlarges the eligible map into towns with real infrastructure. The practical consequence of moving from 20,000 to 30,000 is that a band of provincial towns with hospitals, direct rail links and international schools within reach now falls inside the regime, where previously the choice was often limited to villages.
There is one open point worth stating plainly: Law 34/2026 contains no express transitional rule. For a relocation completed in the early months of 2026, before the law entered into force, whether the old or the new threshold governs the first year of the option has not been settled by the Revenue Agency. If your target town sits between 20,001 and 30,000 residents and your move straddles 7 April 2026, that is a question for an advance ruling rather than a blog post.
Who qualifies
Four conditions must all hold.
- Foreign pension income. The taxpayer must hold pension income of the kind described in Article 49(2)(a) of the Income Tax Code, paid by foreign payers. A single qualifying foreign pension is enough to bring all foreign-source income into the 7% regime. An Italian INPS pension does not qualify as the entry ticket.
- Five tax periods of non-residence. The applicant must not have been tax resident in Italy, under Article 2(2), in the five tax periods preceding the year in which the option takes effect. Circular 21/E of 2020 is strict about people who never cancelled their Italian registry residence.
- Relocation from a cooperating jurisdiction. The previous jurisdiction of residence must have an administrative cooperation agreement in force with Italy. The United States qualifies.
- Residence transferred to an eligible municipality, as defined above, with the population test met.
Buying an Italian property in advance does not, by itself, create Italian tax residence and does not spoil the five-year requirement. What creates residence is registry enrolment, domicile or habitual abode for most of the tax year. If you are spending long periods in Italy while preparing the move, count the days and read our guide to Italian tax residency before you commit to a relocation date.
Which municipalities qualify, and how to verify one
The population figure that counts is the one published by ISTAT in the annual municipal population survey, referring to 1 January of the year preceding the first year of the option. For a relocation in 2026, that means the ISTAT figure at 1 January 2025.
Two consequences follow.
- The figure is frozen for the duration of the option. A town that later grows past 30,000 does not knock you out of the regime.
- If you move to a different eligible municipality from the second year onwards, the option survives, and the population test is applied to the new town using the figure at 1 January of the year before that move. Moving to a non-eligible municipality causes forfeiture.
Verify the specific town before you sign a preliminary contract or a lease. Do not rely on a list published by an agency or a law firm: those lists were drawn under the 20,000 limit in many cases, and population figures move.
What the 7% covers, and what it does not
The substitute tax applies to income of any category produced abroad, identified using the criteria of Article 165(2) of the Income Tax Code — in practice, the mirror image of the rules that determine when income is Italian-source under Article 23.
Covered, in principle: foreign pensions, foreign dividends and interest, foreign rental income, foreign capital gains, and other foreign-source items.
Not covered: anything produced in Italy. Italian rental income, Italian employment or self-employment income, and gains on Italian assets remain subject to ordinary progressive taxation and ordinary reporting.
Two further features are frequently misunderstood.
The tax is not creditable in Italy. Article 24-ter(6) states the substitute tax is not deductible from any other tax or contribution, and foreign taxes paid on income inside the regime do not generate an Italian foreign tax credit.
You can carve out individual countries. Under Article 24-ter(8), the taxpayer may elect not to apply the substitute tax to income produced in one or more specified foreign states. Income from an excluded state then falls under ordinary rules, and the ordinary foreign tax credit becomes available for it. This carve-out is the standard tool where a source country's withholding tax is high enough that the ordinary regime plus credit beats a 7% charge with no credit.
US retirement accounts: 401(k), IRA and SEPP withdrawals
This is where a US applicant needs to be careful, because the answer is favourable but not settled.
The requirement is not "you receive money from a retirement account". It is that the payment qualifies as pension income under Article 49(2)(a). Revenue Agency practice looks for genuine retirement purpose: contributions linked to working activity, funds that were not freely available before the event, and payment triggered by an age or retirement requirement.
Applying that test, published rulings point in different directions depending on the product:
- Ruling 616/2021 accepted that substantially equal periodic payments (SEPP) under Section 72(t) from an IRA can be pension income for these purposes, notwithstanding that the payments start before normal retirement age, because the arrangement had a retirement purpose and was structured as a periodic benefit.
- Ruling 244/2021 denied the regime to a holder of an Irish approved retirement fund, treating the product as an investment vehicle rather than a pension.
- Ruling 150/2022 denied access where the benefit did not meet the Article 49(2)(a) requirements.
Two cautions apply. An advance ruling binds the Revenue Agency only towards the taxpayer who requested it, on the facts presented; it is guidance, not law. And there is no published ruling dealing squarely with an ordinary 401(k) or IRA lump-sum or ad hoc withdrawal, as opposed to a SEPP stream. The favourable reading — that a 401(k) built through employment, with distributions taken as a retirement income stream, is pension income — is defensible and widely applied, but it remains an interpretation.
If your entire eligibility rests on the characterisation of a US retirement account, the sensible route is an advance ruling filed before, not after, the first return. The cost of a ruling is trivial next to the difference between 7% and progressive rates up to 43% on a decade of income.
The US treaty layer: who taxes what
The Italy-US double tax convention signed in Washington on 25 August 1999 was ratified by Law 3 March 2009, no. 20 and applies from 2010. Note the law number: the frequently cited "Law 88/2009" is a different statute.
Three provisions drive the outcome for a US retiree in Italy.
- Article 18(1): private pensions and similar remuneration for past employment are taxable only in the state of residence of the recipient. For an Italian resident, that points to Italy — which is what allows the 7% regime to apply to the pension.
- Article 18(2): payments under a state's social security legislation to a resident of the other state are taxable only in the paying state. US Social Security therefore keeps a different treatment from a private pension, and it is not simply swept into the Italian base by the same logic.
- Article 1(2)(b), the saving clause: the United States continues to tax its own citizens as if the convention did not exist, with the exceptions listed in Article 1(3). Relief is delivered through Article 23, which the saving clause preserves.
The practical consequence for a US citizen: relocating to Italy under Article 24-ter does not end US filing. Form 1040 on worldwide income, FBAR where foreign account balances exceed the threshold, and Form 8938 where applicable all continue. What the Italian regime removes is on the Italian side: the foreign asset monitoring form (Quadro RW), IVIE and IVAFE for the covered foreign assets.
One genuinely unresolved point: whether the Italian 7% substitute tax is a creditable foreign income tax for US foreign tax credit purposes on Form 1116. The IRS has published nothing specifically on Article 24-ter. A 7% charge measured on net foreign income has a stronger claim to creditability than a fixed lump-sum charge of the kind used by Italy's separate high-net-worth regime, but the position is interpretive, and it is the single most important question to put to a US preparer before relocating. If the credit fails, the tax saving may be smaller than the arithmetic suggests, because the US tax bill drives the total.
Distributions from your own business
If part of your income is distributions from a company you own — an LLC, an S-corporation, or a partnership — do not assume the 7% simply applies.
The starting principle is favourable: distributions from a foreign company are, as a rule, foreign-source capital income and therefore inside the regime. The risk lies elsewhere. If the entity is fiscally transparent and you continue to run the activity from your new home in Italy, the Revenue Agency can treat the underlying income as produced in Italy — business or self-employment income under the Article 23 source rules, or income attributable to a permanent establishment. Income treated as Italian-source falls outside Article 24-ter entirely and is taxed at ordinary progressive rates, with social contributions to consider.
There is no published ruling on US LLC or S-corporation distributions under Article 24-ter specifically. The dividing line, in practice, is whether you are receiving a return on capital from an activity genuinely run by other people abroad, or continuing to work while calling the proceeds a distribution. The first is compatible with the regime. The second is a reassessment risk, and it interacts badly with the immigration point below.
The immigration constraint most tax articles skip
A US citizen is a non-EU national and needs a residence title before registering as an Italian resident. For a retiree living on passive income, the usual route is the elective residency visa, based on Article 11(1)(c-quater) of Presidential Decree 394/1999 and the Ministry of Foreign Affairs decree of 11 May 2011.
That visa is reserved for applicants able to support themselves without carrying out any work activity. Consular guidance is explicit that no employment and no self-employment is permitted. The income requirement commonly quoted at around €31,000 per year for a single applicant is consular and administrative practice derived from the decree's self-sufficiency parameters, not a figure fixed in primary legislation, and consulates apply it with differences.
Put the two constraints side by side and the conflict is obvious. A plan that relies on continuing to manage your own business from Italy is inconsistent with an elective residency visa, and the same activity is what would push your business income into the Italian-source column for tax purposes. If active management is going to continue, the correct analysis starts with a work-based immigration route, not with the tax regime.
The 7% regime and citizenship by residence
This is the part of the plan that most often goes wrong, and it has nothing to do with the tax rate.
For a US citizen with no Italian ancestry or marriage claim, naturalisation by residence under Article 9 of Law 91/1992 requires ten years of legal residence. Shorter periods exist for specific categories — four years for EU citizens, and reduced terms for people born in Italy or descended from Italian citizens under Article 9 as amended in 2025 — but the ordinary non-EU term is ten years. If you have an Italian-born ancestor, the alternative route is descent rather than residence; see our guide to citizenship by descent.
Naturalisation applications also require proof of income. Prefectures apply the long-standing thresholds of €8,263.31 for a single applicant and €11,362.05 where there is a spouse, plus €516.46 for each dependent child, measured over the last three years, and they assess income subject to Italian income tax as declared in Italian returns.
Here is the unresolved interaction, and we would rather flag it than paper over it: no primary source states whether foreign income taxed under the 7% substitute regime satisfies that income requirement. The income does appear in the Italian return, which supports one reading. But it does not form part of the IRPEF taxable base, which supports the opposite reading, and prefecture practice is not uniform. We have found no Revenue Agency or Ministry of the Interior document resolving it.
For anyone whose plan is "7% for ten years, then citizenship", the consequence is concrete: the tax regime should be designed with the citizenship file in mind from year one — for example by keeping a documented stream of ordinarily taxed income, or by using the country carve-out under Article 24-ter(8) — rather than discovering the problem in year nine. Ask the competent prefecture in writing, and treat any confident answer that cites no source with suspicion.
How to exercise, pay and keep the option
- Exercise. In the tax return for the tax period in which residence is transferred to Italy, in the RM section (lines RM33 to RM36). There is no separate application and no prior authorisation.
- What is reported. Confirmation of non-residence in the previous five periods, the jurisdiction of last tax residence, the amount of foreign income covered, and any states excluded under Article 24-ter(8). The Revenue Agency forwards the last-residence information to the foreign tax authority under cooperation instruments.
- Payment. A single instalment by the deadline for the balance of income tax, using tax code 1899, established by Resolution 19/E of 21 April 2020.
- Duration. The year of relocation plus nine tax periods.
- Revocation. Available at any time; effects already produced in earlier periods stand.
- Forfeiture. The regime fails if the requirements are found not to exist or later cease, and also on omitted or partial payment of the substitute tax — although late payment made by the balance deadline of the following tax period rescues the option, with penalties under Article 13 of Legislative Decree 471/1997 and interest. Revocation or forfeiture bars a new option, which is why sloppy administration here is expensive.
- Reporting relief. No Quadro RW, no IVIE and no IVAFE for the foreign assets covered by the regime, for its entire duration.
Sequencing checklist
- Characterise your income first. Split it into: foreign pension, other foreign-source income, income at risk of being Italian-source, and Italian-source income.
- Test the entry ticket. Confirm that at least one stream qualifies as foreign pension income under Article 49(2)(a). If the answer depends on a 401(k) or IRA, plan for an advance ruling.
- Confirm the five clean years, including registry position and day counts.
- Choose the municipality and verify its ISTAT population at 1 January of the year before the move, against the 30,000 limit.
- Fix the immigration route before the tax plan, and check it against any intention to keep working.
- Run the US side, including the Form 1116 creditability question, before setting the relocation date.
- Model the country carve-out for any source country with heavy withholding.
- Decide the citizenship strategy in year one if naturalisation is part of the plan.
- Set the relocation date deliberately, since residence for most of the tax year determines which year is the first year of the option.
- Diarise the payment deadline and the tax code, because a missed payment can end a ten-year benefit.
Common mistakes
- Assuming the regime covers worldwide income. It covers foreign-source income; Italian-source income is taxed normally.
- Using a municipality list published before 7 April 2026, or assuming earthquake municipalities have no population limit.
- Treating an advance ruling obtained by someone else as authority for your own facts.
- Moving under an elective residency visa while continuing to work in the business that generates the distributions.
- Forgetting that the substitute tax generates no Italian foreign tax credit, and failing to test the carve-out for high-withholding countries.
- Planning ten years of 7% taxation and only then reading the income requirements for naturalisation.
- Assuming US filing stops. It does not.
Frequently asked questions
Is the municipality limit now 30,000 for every eligible town?
Yes. Article 24-ter(1), as amended by Article 26(1) of Law 34/2026, applies the "not exceeding 30,000 inhabitants" test to the southern regions and to the earthquake municipalities alike. The limit has applied since 7 April 2026; before that date it was 20,000.
Do I need to receive a pension already, or is being retirement age enough?
You must hold pension income paid by a foreign payer that qualifies under Article 49(2)(a). Age alone is not the test, and neither is having a retirement account balance.
Does an Italian INPS pension let me into the regime?
No. The qualifying pension must be paid by a foreign payer. An Italian pension does not open the regime, although its presence does not necessarily prevent an otherwise valid option based on a separate foreign pension.
Are 401(k) and IRA withdrawals accepted as pension income?
Periodic SEPP withdrawals under Section 72(t) were accepted in ruling 616/2021, and employment-based plans paid as a retirement income stream are generally treated as pension income. There is no published ruling on an ordinary ad hoc 401(k) or IRA withdrawal, and products judged to be investment vehicles have been refused. Where the whole plan depends on this point, request an advance ruling.
Can I keep running my US company from Italy and still pay 7% on the distributions?
Not safely. If you carry out the activity from Italy, the income can be treated as Italian-source business or self-employment income, outside the regime and taxed at ordinary rates. It would also be inconsistent with an elective residency visa, which prohibits work.
Will the US give me credit for the Italian 7% tax?
The convention preserves foreign tax credit relief, but the IRS has not addressed the creditability of this specific substitute tax. Treat it as an open question and resolve it with a US preparer before relocating, because the answer changes the total tax cost materially.
Does the 7% regime help or hurt an application for citizenship by residence?
It does not shorten the residence requirement, which remains ten years for a non-EU national. Whether income taxed at 7% counts towards the income requirement applied by prefectures is not settled by any primary source. Plan the two files together and ask the competent prefecture in writing.
How long does the regime last, and can I renew it?
The year of relocation plus nine further tax periods. It cannot be renewed, and revocation or forfeiture bars a new option.
What happens if I move to another town during the ten years?
If the new municipality is also eligible, the option survives and the population test is re-applied using the figure at 1 January of the year before the new move. If it is not eligible, the regime is lost.
Is this the same as the flat tax for inbound workers?
No. That is a different regime for employment and self-employment income of relocating workers; see our guide to the impatriate regime. Article 24-ter is for foreign pensioners and taxes foreign-source income at 7%.
Sources
- Article 24-ter, Presidential Decree 917/1986 (Income Tax Code), consolidated text.
- Law 11 March 2026, no. 34, Article 26(1) — Gazzetta Ufficiale no. 68 of 23 March 2026, in force 7 April 2026.
- Revenue Agency, "Regime opzionale per i pensionati esteri", official guidance page, updated 8 May 2026.
- Revenue Agency, Circular 21/E of 17 July 2020.
- Revenue Agency, Director's Provision no. 167878 of 31 May 2019.
- Revenue Agency, Resolution 19/E of 21 April 2020 (tax code 1899).
- Revenue Agency rulings 244/2021, 616/2021 and 150/2022 on the characterisation of foreign pension benefits.
- Italy-US double tax convention of 25 August 1999, ratified by Law 3 March 2009, no. 20, Articles 1, 18, 19 and 23.
- Presidential Decree 394/1999, Article 11(1)(c-quater), and Ministry of Foreign Affairs decree of 11 May 2011, on the elective residency visa.
- Law 91/1992, Article 9, on naturalisation by residence.
- ISTAT, annual municipal population survey.
Reviewed on 18 August 2026. This article provides general information and does not replace advice based on your income sources, immigration status and family situation. Where a point is described as unsettled, it is unsettled: ask for an advance ruling rather than relying on a general guide.
Rosario Emmi|August 18, 2026
