For retirees moving to southern Italy who draw their pension from abroad , one of Europe's most attractive tax regimes has been available since 2019: instead of the standard Italian income tax, a flat rate of just 7 per cent applies to all foreign income, for a maximum of ten years. The scheme was originally introduced to support demographic development in the structurally weaker regions of the Mezzogiorno, without imposing a specific income threshold. On 7 April 2026, an important reform came into force that considerably broadens the range of eligible municipalities. For retirees considering a move in retirement , the options have opened up noticeably as a result.
What the 7 per cent regime for retirees is
The so-called Regime dei pensionati esteri is enshrined in Article 24-ter of the Italian Income Tax Consolidation Act, the TUIR (Testo Unico delle Imposte sui Redditi), and was introduced with the 2019 Budget Law. Foreign retirees who take up residence in a qualifying southern Italian municipality pay a flat-rate substitute tax of 7 per cent on all income earned abroad, rather than the standard Italian income tax (IRPEF), which ranges from 23 to 43 per cent depending on income level. The regime applies not only to the pension itself but also to other foreign income such as dividends, interest, rental income and capital gains. As the Italian specialist portal La Legge per Tutti documents in its detailed analysis, the Agenzia delle Entrate has confirmed in several rulings that proceeds from the dissolution of foreign companies also fall within the scope of the regime.
Requirements and conditions
Several clear requirementsapply to those wishing to take advantage of the regime. Applicants must not have been tax-resident in Italy during the five tax years prior to their move, and must come from a country with which Italy has concluded an agreement on administrative cooperation in tax matters. This requirement is met for Germany, Austria and Switzerland, among many other countries. Applicants must also receive a pension from abroad; not only state pensions are recognised, but also occupational pensions and private pension insurance policies. The maximum duration is ten years, counted from the year of the move including the nine subsequent tax years. The regime is optional and is activated via the Italian income tax return in the first relevant tax year.
Unlike the Neo-Residenti regime for high-net-worth individuals, which provides for an annual flat rate of 300,000 euros, the 7 per cent regime has no upper income limit, making it particularly attractive for retirees with moderate foreign income. The substitute tax is paid in a single payment at the standard tax deadline and covers all foreign income items, without each individual income source needing to be taxed separately. The Italian wealth taxes IVIE on foreign property and IVAFE on foreign assets do not apply, though the reporting obligation in the Quadro RW section of the tax return remains in place.
Which municipalities qualify
The geographical scope of the regime is clearly defined. Only municipalities in the eight regions of the Mezzogiorno qualify: Abruzzo, Molise, Campania, Puglia, Basilicata, Calabria, Sicilia and Sardegna. Within these regions, only municipalities below a certain maximum population threshold are eligible. The relevant reference point is the ISTAT population survey as at 1 January of the preceding year. Those activating the regime in 2026 must therefore refer to the population figures as at 1 January 2025. In addition, municipalities affected by the 2009 earthquake in the central Italian regions qualify regardless of the population threshold.
For those considering a move, the choice of municipality is crucial. Small mountain villages inland often offer a very different daily life from the larger coastal towns that have been newly admitted to the regime under the current reform. Those seeking an existing German-speaking community or adequate medical infrastructure would do well to examine individual municipalities carefully before making a decision. Property prices also vary considerably between regions and should be factored into any choice of location.
The 2026 reform: from 20,000 to 30,000 inhabitants
The most significant change of 2026 concerns the population threshold for eligible municipalities. As the Italian legal portal Fiscomania documents in its detailed analysis of the new rules, Article 26 of Law No. 34 of 11 March 2026, the so-called Legge PMI (Legge annuale sulle piccole e medie imprese), has raised the maximum population of qualifying municipalities from 20,000 to 30,000. The new provision came into force on 7 April 2026 and applies to all changes of residence carried out in the current tax year.
The expansion opens the regime to numerous townsthat had previously been excluded on account of their population size, despite offering better infrastructure and greater cultural appeal than smaller mountain villages. Among the best-known newly qualifying towns are Acireale, Mazara del Vallo and Ragusa in Sicily, Crotone and Lamezia Terme in Calabria, Nocera Inferiore, Nola and Portici in Campania, and Molfetta, Altamura and Andria in Puglia. As the Italian specialist portal FiscoeTasse notes in its assessment of the reform, the increase is expected to bring around 74 new municipalities into the regime in total, with the aim of making Italy more competitive in the European market for retiree tax schemes.
Which income is covered
The regime covers all income from foreign sources . In addition to the foreign pension itself, dividends from foreign shares, interest from foreign accounts, rental income from property abroad, capital gains from the sale of foreign securities and other foreign income are all subject to the substitute tax. As the specialist portal ITAXA notes in its legal analysis, the Agenzia delle Entrate clarified, in its response to interpellation request No. 292 of 2025, that proceeds from the liquidation of foreign companies are also covered by the regime.
Income from Italian sources is excluded from the regime and is taxed in the normal way under standard Italian rates. Those who take up a secondary activity in Italy or let a property during the period the regime is in force must declare such income separately and pay standard IRPEF on it. Social security contributions on current income also remain due regardless of the 7 per cent regime.
How to apply for the regime
The application for the regime is made via the Italian income tax return of the first year in which the transfer of residence to Italy was completed. Two steps are required before filing the tax return: registration with the Anagrafe of the new municipality of residence (residenza anagrafica) and an application for the Codice Fiscale at the local Agenzia delle Entrate. For a broader grounding in the essentials of moving to Italy, the reference article Moving to Italy: What You Absolutely Need to Know provides a comprehensive overview of the Codice Fiscale, registration of residence and health insurance.
For the practical implementation of the regime, it is advisable to work with an Italian tax adviser (Commercialista), who will complete the tax return in such a way that the 7 per cent option is correctly selected and the necessary supporting documents from the country of origin (double taxation agreements, pension certificates) are included. The effort involved in the first year is considerable; in subsequent years, the tax return is limited to the regular updating of foreign income. The substitute tax is paid in a single payment by the standard due date (30 June of the following year).
