“Inbound Pensioners” – General Overview
In recent years, mostly inspired by the experience of other States, Italy has introduced several special tax regimes aimed at encouraging non-resident individuals to move (or to return to) and invest in the country.
The Italian Stability Law for 2019 (approved on 30 December 2018), added a new special tax regime to the list. Under the rules laid down by article 24-ter of the Income Tax Act (hereinafter “ITCA”) foreign pensionerstransferring their tax residence respectively to the southern regions of Italy and to municipalities affected by certain defined seismic events are entitled to opt for a substitute tax of 7%, in lieu of ordinary taxation, on all of their non-Italian sourced income.
In this respect it is recalled that taxpayers can exercise the option for the flat tax in the tax period in which they transfer the tax residency to Italy; the option can be exercised through the first Italian tax return and it is valid for that tax period and the following 9 tax periods.
The flat tax should be paid in a lump sum, for each period of the application and within the ordinary deadline for paying individual income taxes.
Ordinary individual progressive income tax still applies to Italian sourced income.
This special tax regime also enables the taxpayers to be exempt from additional income tax, and wealth taxes on all foreign investments (IVIE and IVAFE). Moreover, for the entire length of the optimal period of 10 years, no foreign assets disclosure obligations (so called RW Form) apply along the period for which the option is in place.
Amendments to Art. 24-ter of ITCA
Law No. 25/2022, which converted the so-called "Sostegni-ter" Decree-Law (Decree-Law No. 4/2022), has recently modified the scope of application of the substitute tax regime for inbound pensioners, as provided for by Article 24-ter of the ITCA.
Before the amendments, taxpayers could apply for the regime if at the time they met the following conditions:
- they transferred their tax residence from a country with an administrative cooperation agreement with Italy to a municipality in one of the following Italian Southern regions: Abruzzo, Basilicata, Calabria, Campania, Molise, Puglia, Sicily and Sardinia, with a population of fewer than 20,000 inhabitants or to a municipality included among those affected by the seismic events indicated in annexes 1, 2 and 2-bis of the Legislative Decree 189/2016, with a population not exceeding 3,000 inhabitants; and
- had not been tax resident in Italy for at least five tax periods prior to the transfer to Italy (e.g. Look-backperiod); and
- were in receipt of a foreign pension.
The legislator, in article 6-ter of the Decree-Law No. 4/2022, intervened by altering some of the above-mentioned conditions, on the one hand, widening access to this special tax regime to the municipalities affected by the earthquake of 6 April 2009 and, on the other, standardizing the population limit set at 20,000 inhabitants, also for municipalities affected by seismic events, as well as for the Italian Southern regions in general.
Therefore, medium-sized municipalities (e.g. Camerino, Castelraimondo, Corridonia, Matelica, Norcia, San Severino Marche and Tolentino, affected by the seismic events of 24 August 2016 and 26-30 October 2016, with a population of more than 3,000 inhabitants and fewer than the new limit of 20,000 inhabitants) may be included in this special tax regime.
On the other hand, individuals transferring their tax residence to municipalities that, although affected by the above-mentioned seismic events, exceed the limit of 20,000 inhabitants, such as Teramo, Chieti, Rieti, Ascoli Piceno, Fabriano, Macerata and Spoleto, will still be unable to avail of this benefit.
It is also worth noting that the above-mentioned regulatory amendment does not provide for a specific entry into force clause, with the result that, based on the general entry into force provision of the Conversion Law, it is effective as of March 29 (the day following the day of publication of Law 25/2022 in the Official Gazette).
In this regard, a doubt arises as to the transfers affected by the amendment, given that the option for the relief provided by Article 24-ter (ITA), is exercised in the tax return relating to the tax period in which the residence in Italy is transferred and is effective as of that tax period.
According to the rules of entry into force, the amendments should concern only transfers of residence made in 2022, with the consequent option in the income tax return relating to that period (REDDITI PF 2023).
On the other hand, it is uncertain whether the option can also be exercised by those persons who moved in 2021 to one of the new municipalities that have become the subject of this tax regime. This possibility, it is noted, would not be supported by the regulatory data but would be justified by reasons of equity.
Edited by Giulia Sorci