Italy has introduced one of the most favorable tax incentives in Europe for international retirees: the 7% flat tax regime. Aimed at foreign pensioners who relocate to specific small towns in southern and parts of central Italy, this policy significantly lowers the tax burden on foreign-sourced income—including Social Security, private pensions, IRA and 401(k) withdrawals, dividends, overseas rental income, and capital gains.

Foreign retirees who establish Italian tax residency in qualifying municipalities (towns under 20,000 residents across regions such as Sicily, Calabria, Campania, Basilicata, Puglia, Molise, and parts of central Italy) can elect to pay a flat 7% tax on all foreign income for up to 10 years. Unlike Italy’s standard progressive tax rates that can reach 45% with surcharges, participants benefit from:

• No regional or municipal surcharges
• No Italian wealth taxes on foreign assets
• No obligation to report foreign property or bank accounts

This has positioned Italy as a highly attractive destination for US, British, and Northern European retirees looking for both financial and lifestyle benefits.

Eligibility Criteria for the 7% Regime

To take advantage of this program, applicants must meet specific requirements:

No Recent Italian Tax Residency

Applicants must not have been Italian tax residents in the five years prior to applying.

Foreign Pension Income

Eligibility requires foreign pension income. For US citizens, this includes Social Security, IRA distributions, and 401(k) withdrawals.

Move from a Cooperating Jurisdiction

Applicants must relocate from a country with a tax cooperation agreement with Italy. The United States qualifies.

Residency in a Qualifying Municipality

Only designated municipalities with fewer than 20,000 residents are eligible. This requirement is strictly enforced.

Importantly, the regime is not limited to Italian nationals. It welcomes retirees from any country who meet the criteria.

Recent Trends and Top Destinations for US Expats

More US retirees are moving into these “7% towns,” drawn by low living costs, high quality of life, and favorable tax treatment. Many settle in overlooked yet picturesque areas of Sicily, Calabria, Puglia, Campania, Abruzzo, Basilicata, and Molise, as well as select towns in Lazio, Marche, and Umbria.

Italy’s offering is frequently compared with Greece’s 7% flat tax regime for retirees. While Greece extends benefits for up to 15 years, its requirements differ—often involving passive income thresholds or investment minimums. Italy’s simplified reporting rules and wider geographic options make it especially compelling for US expats.

Why Move to a 7% Town? Key Benefits for Retirees

Significant Tax Reductions

The 7% flat tax dramatically lowers effective tax liability compared to the standard Italian tax brackets.

No Foreign Asset Reporting

Participants do not need to declare foreign accounts, real estate, or investments—simplifying annual compliance.

No Italian Wealth Taxes on Foreign Assets

Residents under the regime avoid Italy’s IVIE and IVAFE taxes on overseas assets.

Predictable, Stable Taxation

A flat rate means no unexpected jumps in tax liability or complicated regional variations.

Lower Cost of Living

Qualifying towns often offer affordable homes, lower daily expenses, and welcoming local communities.

Quality of Life

Southern and central Italy offer a blend of culture, climate, cuisine, and access to world-class healthcare.

US Tax Considerations for Americans in Italy’s 7% Regime

US citizens remain subject to US taxation on worldwide income, even when living abroad. The 7% Italian tax paid on foreign income is generally eligible for the Foreign Tax Credit, which can offset US tax liability.

However, coordination between US and Italian tax systems requires careful planning—especially regarding pension withdrawals, investments, and reporting obligations. Working with a cross-border tax advisor is essential to optimize outcomes and avoid double taxation.

Italy vs. Greece: Flat Tax Regimes Compared

Quick Comparison: Italy’s and Greece’s 7% Regimes

Feature	Italy (7% Towns)	Greece (7% Regime)
Flat tax rate	7% on foreign income	7% on foreign income
Duration	10 years	15 years
Qualifying towns	Under 20,000 residents in designated regions	Nationwide (investment or passive income minimums)
Pension/income required	Must have foreign pension	€3,500/month or €250,000 investment
Wealth/asset tax	None on foreign assets	None on foreign assets
Additional notes	No asset reporting; no surcharges	Investment or property purchase often required

Both countries offer strong incentives, but Italy’s simplicity, lifestyle appeal, and broad eligibility make it especially attractive to American retirees.

Key Takeaways: Is the Italian 7% Flat Tax Regime Right for You?

Italy’s 7% flat tax regime continues unchanged for 2025 and remains one of Europe’s most generous programs for foreign retirees. For those seeking a European lifestyle without heavy tax burdens, the regime’s benefits are significant: lower taxes, streamlined reporting, and access to Italy’s culture, climate, and everyday quality of life.

As with any cross-border move, planning is essential. Choosing the right town, structuring income wisely, and consulting with tax advisors can ensure a smooth transition and maximize the benefits of this special regime.

About ItalianTaxes.com

ItalianTaxes.com is a streamlined online platform that helps residents and non-residents file and pay taxes in Italy with bilingual support. Whether navigating IMU, TARI, rental income, or the complexities of cross-border filing, the platform offers clear guidance and digital tools to simplify Italy’s tax system. It is especially useful for newcomers benefiting from special regimes such as the 7% flat tax.