Foreign pensioners in the South of Italy: 7% taxation
Foreign pensioners in the South of Italy: 7% taxation
Holders of a foreign pension who move to the South of Italy can benefit of a substitute tax to the IRPEF tax (income tax) at 7% for five fiscal periods. Exemption from Fiscal Monitoring and from the IVIE tax and the IVAFE tax for foreign pensioners who move to the southern regions of Italy.
Article 24-ter of Presidential Decree No. 917/86 (introduced by Law No. 145/2018) introduces a tax relief aimed at the repatriation of foreign pensioners in Italy.This is a facilitating rule aimed at encouraging arrivals in Italy, particularly in the southern regions, of pensioners getting a pension from a foreign source.
For the residence transfer in Italy (in the south), the legislator allows a 7% tax relief for five years and the exemption from Fiscal Monitoring of foreign patrimonial and financial assets. It corresponds therefore to the exemption from the compilation of the RW form and from the payment of IVIE tax and IVAFE tax.
This is the first kind of incentive for arrivals in Italy of pensioners living abroad. Caution however, the facilitation concerns only people who get pensions from non-Italian sources.
Beside of the many facilities offered by many European countries, particularly Portugal and Tunisia, Italy has also decided to provide a tax relief for foreign pensioners. This is a novelty for the Italian tax system.Below you will find all the information you need to benefit of this facilitation.
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Foreign pensioners: Tax relief to return to Italy
The legislator has introduced a special relief aimed at the return to Italy of pensioners living abroad. These are pensioners with a pension coming from a foreign source, regardless of the nationality.
This is about the Article 24-ter of Presidential Decree No. 917/86. Regulation introduced by Article 1, paragraphs 273-274 of Law No. 145/18. This rule introduces a substitute tax to the IRPEF tax for natural persons holding a pension from a foreign source.They must be people who transfer their proper tax residence to one of the Southern Italian Regions
These people, in compliance with the below conditions, can benefit from a substitute taxation. It is flat-rate taxation with a rate of 7% for the 5 periods of the optional regime validity.The mainspring of this rule is to push foreign people to move to one of the regions of Southern Italy to stimulate its economic growth.
Foreign pensioners in the South of Italy: effective date of the regulation
The regulation does not schedule a specific effective date. The tax relief plan in question is therefore applied for transfers of tax residence made from January 1st 2019.This means that the first effects of this tax regime will be reflected from the income declaration (PF Income model) of 2020 in relation to 2019.
For the application of this regulation, the indications already provided by the Income Revenue Authority for the tax regime of the “new-domiciled” in Italy must be valid. Tax regime referred to in Article 24-bis of Presidential Decree No. 917/86.
This means, for example, that the new tax regime could be applied even if the transfer of residence took place in 2018 (in compliance with the additional conditions of the regulation).The one with optional regime to carry out in the income tax return for the 2019 tax period.
Foreign pensioners in the South of Italy: subjective requirements
Foreign pensioner’s tax regime is aimed at natural persons with a pension from foreign sources who meet the following requirements.
Residence transfer in the South of Italy
This tax regime is relevant for people transferring their tax residence to Italy (as per Article 2, paragraph 2 of Presidential Decree No. 917/86)
The residence must be moved to one of the Municipalities belonging to the following Regions:
These must be municipalities belonging to one of these regions with a population not exceeding 20,000 inhabitants.
Foreign fiscal residence for 15 years
The second requirement to get the tax relief in question concerns the previous foreign tax residence.People must not have been resident in Italy for at least five tax periods prior to the one in which the optional regime becomes effective, that is to say, the tax period in which the transfer of tax residence in Italy will take place.
Foreign pensioners in the South of Italy: objective requirements
The optional regime regarding taxation of foreign pensioners can be applied to natural persons who transfer their residence from countries with which administrative cooperation agreements are in effect.This formulation must be understood as referring to States that allow an adequate exchange of information, in accordance to the Directive 2011/16 / EU.
Likewise, the States with which Italy has concluded bilateral or supranational agreements regulating this exchange are included. (For example, Conventions against double taxation, TIEA concluded by Italy, Multilateral Convention for mutual assistance for tax purposes and FATCA Agreement).
Foreign pensioners: income facilitation
The income of any of those categories is subject to a substitute tax:
- Perceived from a foreign source or
- Produced abroad identified through a “mirror” reading of the requirements provided in the Article 23 to identify those produced in the State territory.
Natural persons may express the right to not resort to the application of the substitute tax with reference to the income produced in one or more States or foreign territories.This possibility is permitted by giving specific indication during the fiscal year of the optional regime, or with subsequent modification.
For income produced in such foreign countries or territories, the ordinary tax regime is applied and is under the jurisdiction of the tax credit for income produced abroad.The use of credit for foreign taxation is, however, inhibited for income that is subject to the substitute taxation.
Foreign pensioners in the South of Italy: tax monitoring exemption
For all five tax periods of the optional regime validity, a further relief is provided. In particular, we refer to the exemption from the obligation to fill in:
The RW form of the PF Income model dedicated to the Tax Monitoring of foreign patrimonial and financial assets;The relevant sections dedicated to the calculation and to the payment of the IVIE tax and the IVAFE tax.Ultimately, it must be assumed that this tax regime cannot benefit from the profitable regulations regarding inheritance and donations. Regulations that, instead, are the responsibility of the “new domiciled”, referred to in Article 24-bis of Presidential Decree No. 917/86.
Foreign pensioners in the South of Italy: fiscal year of the optional regime
The optional regime is exercised in the income tax return related to the tax period in which the residence is transferred in Italy.In particular, this optional regime is effective starting from this tax period and for the first five subsequent tax periods.
For an optional regime, the natural persons in question need to indicate the jurisdiction or jurisdictions in which they had their last tax residence before the fiscal year of the optional regime validity.
The optional regime is revocable by the taxpayer and, in this case, without prejudice to the effects produced during the previous tax periods.
The effects of the optional regime stop where:
The non-existence of the expected normative requirements is ascertained, or, in case of default of those;In any case of omitted or partial payment of the substitute tax in the measure and in the terms established by law.In cases of revocation or forfeiture, the application of a new optional regime is precluded.
In other cases, in the absence of an express regulatory preclusion, it should be possible to renew the optional regime.
However, remember that with reference to the new domiciled regime referred in Article 24-bis of Presidential Decree No. 917/86, the possibility of renewing the regime at expiry is excluded. On this point it is useful to see the provisions of Circular No. 17 / E / 2017 of the Revenue Agency (Part III, § 6).
Foreign pensioners in the South of Italy: conclusions
Article 24-ter of Presidential Decree No. 917/86 offers an important possibility for those who get pensions from foreign sources. On this point, the first aspect to be dispelled is that the facilitation does not apply to Italian pensioners transferred abroad.
The return to Italy of a person with an Italian pension does not enter in the particular case of the regulation. This regulation, on the other hand, is aimed at attracting in Italy, people with an income from foreign sources.
It is clear that the legislator intention is to attract income from foreign sources to taxation in Italy. Income that thanks to the transfer to Italy becomes taxable in our country. Taxation is certainly facilitated; it is a flat-rate tax at 7% substituting the IRPEF tax and additional taxes.With this, the intent is to bring to Italy people with high earning capacity and to help to stimulate the economic recovery of disadvantaged areas of southern Italy.
The intent is certainly worthwhile, but to push a foreign person to move to a disadvantaged area of Italy, maybe the facilitation should have allowed greater tax relief. This was possible either by lengthening the period of use of the incentive, or by linking it to other kinds of incentive.
You see, for example, the non-attraction in Italy of other categories of income from foreign sources, or facilitation linked to the generational handover. Perhaps with a reduction of inheritance or donation taxes.
Online fiscal consulting
If this article seemed interesting to you and if you want more information or you wish to know if you can apply to this facilitation, contact me!Fill out the contact form that you will find on the following link and get in touch with me to receive a quote for a personalised consulting. I will analyse your situation and together we will check the requisites to get this tax relief.
In addition, if you wish, I will follow you from a fiscal point of view during your stay in Italy.