More and more Americans are discovering that retirement doesn’t have to mean staying put. Italy’s slower pace of life, rich culture, and stunning landscapes are attracting retirees from around the world — and for U.S. citizens, Italy’s “7% tax regime” can make living la dolce vita not just a dream, but a tax-smart reality.

But how does this unique incentive work? Where does it apply? And what should you consider before making the leap from the U.S. to a charming town in Southern Italy? Here’s what you need to know.

What Is the 7% Tax Regime?

In an effort to revitalize smaller communities in the South, Italy introduced this special flat tax regime in 2019. It offers qualifying foreign retirees the opportunity to pay a flat 7% tax on all foreign-sourced income, instead of Italy’s standard progressive income tax rates, which can run from 23% up to over 40%.

This means that U.S. Social Security payments, IRA distributions, rental income from property abroad, or even dividends and capital gains sourced outside of Italy can all be taxed at just 7% in Italy — a significant advantage for retirees looking to stretch their income in retirement.

Key Requirements: Who Can Apply?

Not everyone can benefit from this regime. Here are the main criteria you must meet:

✅ Receive Foreign Pension Income: You must receive a pension from outside Italy — for U.S. citizens, this includes Social Security, 401(k) or IRA withdrawals, and certain private or employer pensions.

✅ New to Italy: You must not have been a tax resident of Italy at any time during the preceding five tax years. This requirement is designed to attract new residents, not reward those who are already living in the country.

✅ Settle in a Qualifying Municipality: You must transfer your residenza anagrafica (your official registered residence) to a town with fewer than 20,000 residents located in one of the approved regions: Abruzzo, Basilicata, Calabria, Campania, Molise, Apulia (Puglia), Sardinia, and Sicily.

Your new residence must be in a town that meets the population threshold as recorded by the Italian National Institute of Statistics (ISTAT).

✅ Stay Compliant: You’ll need to formally opt into this regime when filing your Italian tax return and maintain proper residency status each year to continue benefiting from the reduced rate, which can be renewed for up to 10 years.

Where Does the 7% Regime Apply?

One of the most attractive parts of this tax break is the chance to discover some of Italy’s hidden gems — places that combine authentic local life with incredible natural beauty.

Here are just a few examples of where U.S. retirees are choosing to settle under the 7% regime:

🏝️ Sicily: Charming towns like Cefalù, with its golden beaches and medieval streets, or Noto, known for Baroque architecture, offer a laid-back lifestyle at a fraction of the cost of bigger cities.

🌊 Calabria: Villages like Tropea, perched above turquoise waters, or inland hamlets in the Aspromonte mountains provide stunning sea views and mountain escapes.

🌳 Puglia (Apulia): Think whitewashed towns like Ostuni or the Itria Valley with its iconic trulli houses. This region is popular for its warm climate, excellent cuisine, and easy access to the Adriatic Sea.

🏞️ Sardinia: While coastal hotspots may exceed the population limit, inland Sardinian villages offer peace, affordability, and a chance to be part of small, tight-knit communities.

What About Double Taxation for U.S. Citizens?

While the Italian 7% regime is incredibly favorable, U.S. citizens must remember they are still taxed on their worldwide income by the United States, even when living abroad. However, the U.S.–Italy Tax Treaty, together with the Foreign Tax Credit, can help you avoid double taxation.

The mechanics can be tricky — not all types of income qualify for the same credits, and coordinating your filing dates and forms is crucial to staying compliant. It’s strongly recommended to work with a cross-border tax advisor familiar with both systems to make sure you’re filing correctly in both countries.

Why the 7% Regime Appeals to U.S. Retirees

For many, the cost of living in Italy’s lesser-known towns can be surprisingly low. From local produce to regional wine and the absence of big-city crowds, the lifestyle benefits often go hand-in-hand with significant savings compared to staying in the U.S.

Add in the 7% tax rate, and many retirees find they can afford more than they ever could at home — more travel, more local experiences, more time to truly embrace the rhythms of Italian life.

Plus, Italy’s world-class healthcare system — with affordable access once you’re properly registered — is another key benefit that makes retiring here even more attractive.

Practical Tips Before You Move

Here are a few planning points to keep in mind:

Do Your Research: Not every town under 20,000 is created equal — some offer more amenities, healthcare access, or expat communities than others.

Visit First: Spend time in your chosen region during different seasons to see if it feels like a good fit year-round.

Coordinate Immigration & Tax Planning: Make sure your residency status aligns with your visa and your tax goals. For U.S. citizens, this means understanding how your Social Security or retirement accounts will be reported and taxed.

Plan Your Estate: Moving assets or buying property abroad? Cross-border inheritance and gift planning are just as important as income tax planning.

Final Thoughts

Italy’s 7% tax regime is one of the most attractive incentives in Europe for retirees — but it works best when you pair its benefits with smart cross-border planning.

If you’re dreaming of spending your retirement sipping espresso in the piazza, exploring medieval villages, and enjoying life at a slower pace, now could be the time to start turning that dream into reality.

David Cantor is a cross-border lawyer and dual U.S.-Italian national based in Florence. He advises individuals and families on immigration, tax, and global mobility matters.