Italy's 7% flat tax for retirees: how it works

The deal

Retirees who receive a foreign pension and move their tax residence to an eligible town can pay a flat 7% substitute tax on all foreign-source income (pensions, investments, rentals) for 10 years, instead of ordinary progressive rates of up to 43%.

Eligibility

• You receive a pension from a foreign source
• You were not an Italian tax resident in the previous 5 years
• You move to a town with fewer than 20,000 residents in Sicily, Sardinia, Calabria, Campania, Apulia, Basilicata, Abruzzo or Molise, or to certain earthquake-affected towns in central Italy
• You come from a country with an administrative cooperation agreement with Italy (the US qualifies)

Things to check

• US citizens still file US returns. The Foreign Tax Credit for a 7% tax is small, so model it with a CPA
• Life in small towns means a car, distance from hospitals, and quiet winters
• Combine it with the Elective Residence Visa if you're not an EU citizen