The idea of living abroad has gained in popularity for many U.S. citizens as they plan for how to spend their retirement years. Italy, an already popular retirement destination for many Americans, introduced a tax incentive in 2019 that may help further attract foreign retirees. Italy is home to some of the most historic architecture, beautiful cities, and amazing food and culture. Living in Italy may be a dream for some individuals and a 7% flat tax could help make this dream a more practical reality.
While retiring to Italy may sound like an appealing prospect, U.S. citizens must keep in mind that they remain taxable in the United States even if living abroad. Navigating the U.S. and Italian tax and financial system is a complex undertaking. It requires an understanding not only of each jurisdiction’s tax legislation but, more importantly, how these laws interact with one another. In this article, several of the key benefits around the 7% flat tax incentive are outlined and how they pertain to U.S. citizens seeking la bella vita through a retirement in Italy.
How can a U.S. expat retiree qualify for special Italian tax treatment?
Individuals who qualify under Article 1 (273-274) of Law N.145/2018 (the so-called Legge di Bilancio 2019) may reap the benefits of this tax regime for 10 years. The exemption begins in the year in which the tax residence is transferred to Italy and the following nine years thereafter. In order to qualify for the tax incentive, an individual must be a nonresident of Italy (regardless of nationality) who receives a non-Italian pension (public or private sector) and meets the following basic criteria:
- Has not been a tax resident of Italy for the last five years.
- Transfers their tax residence to Southern Italy in a qualifying municipality with a population of 20,000 or fewer residents. The qualifying regions are Sicily, Calabria, Sardinia, Campania, Basilicata, Abruzzo, Molise and Puglia. Bear in mind: to qualify as a tax resident, an individual must spend at least 183 days each year within the country.
- Previously been a resident of a country that has a tax treaty arrangement with Italy.
Individuals who meet these requirements may qualify for the special 7% Italian flat tax regime. Remember that this special tax rule does not apply to all of Italy and only to the specific regions mentioned above. A move to other parts of Italy will require more sophisticated tax planning.
What are the benefits of making this 7% flat tax Italian election?
The income tax rates in Italy tend to be on the higher end. For example, any income earned above 75,000 EUR is subject to a standard Italian income tax rate of 43%. Under the new preferential tax regime, an individual would be exempt from income taxes at the normal scale on all foreign income and only pay 7%. This includes pension income, capital gains and dividends, overseas business income, rental income and Social Security. This is an enormous benefit for U.S. citizens who may face higher taxation in Italy under normal rates.
In addition, individuals qualifying under the special tax regime would be exempt from declaring foreign assets as well as being subject to any wealth taxes on foreign assets. It is important to note that this regime does not extend to any Italian-sourced income. Any Italian-sourced income (such as wages from working in Italy) will be subject to the normal marginal rates. This is likely not an important factor for many U.S. expat retirees who do not plan to work while they reside in Italy, but it should be considered.
What are the implications for U.S. citizens moving to Italy?
It is critical to remember that a U.S. citizen or permanent resident (green card holder) will always remain taxable by the United States. This is true even for people living in Italy and paying taxes. The United States imposes taxes based on citizenship, not residency. The passage of the Foreign Account Tax Compliance Act (FATCA) and the surrounding media attention has been instrumental in making more U.S. citizens living overseas aware of their tax obligations.
Fortunately, U.S. residents would be entitled to a foreign tax credit on their U.S. income tax return for the 7% tax paid to Italy. So, in effect, there is no incremental tax cost, only a sharing of the U.S. tax liability between the United States and Italy. In contrast, living in other regions of Italy would subject an individual to a higher net Italian tax on income and capital gains. Beyond U.S./Italian income taxation issues, there are significant cross-border financial planning issues to consider for a U.S. expat in Italy:
- How will Italy tax my IRA, Roth IRA and 401(k) accounts?
- What brokerage firm will work with American expats in Italy?
- How do I invest to mitigate exchange rate risk between the U.S. dollar and euro?
- Can I receive U.S. Social Security while living in Italy?
- Does Italy have estate and inheritance taxes?
- Will my U.S. estate plan still pass assets to intended beneficiaries?
- Are there other financial, legal and tax issues to be considered when moving to Italy?
As one can see, there are many unique and distinct issues. Planning before moving to Italy often leads to the optimal financial outcome. In some instances, such as receiving a U.S. inheritance while Italian domiciled, the results may be extreme and unexpected. It is vital that U.S. citizens retiring in Italy are prepared and understand the implications that living in another country brings.
Conclusion: Cross-border financial planning for Americans moving to Italy
Retiring and living abroad can be complex as there are many financial issues to consider with regard to personal finances, taxes and estate planning. Fortunately, American expat financial planning and expat investing issues can be successfully managed with a financial advisor knowledgeable in matters related to American expats. With proactive planning and working with experienced U.S. expat financial advisors, retirees can fulfill their retirement dreams and spend a desired amount of time abroad in Italy.
Cerity Partners offers the expertise to allow individuals to enjoy a prosperous retirement abroad while satisfying all their financial goals. Many financial advisors may only be familiar with one jurisdiction and overlook issues that will create complexity in the other—which is why it is vital to work with an American expat fiduciary financial advisor familiar with Italian taxation. With careful planning and the right advice, American expats can invest their savings efficiently and build long-term wealth while enjoying all Italy has to offer.
Cerity Partners LLC (“Cerity Partners”) is an SEC-registered investment adviser with office locations throughout the United States. Registration of an Investment Advisor does not imply any level of skill or training. The foregoing is limited to general information about Cerity Partners’ financial market outlook. You should not construe the information contained herein as personalized investment, tax, or legal advice. There is no guarantee that the views and opinions expressed in this commentary will come to pass. The information presented is subject to change without notice and should not be considered as an offer to sell or a solicitation of an offer to buy any security. Material economic conditions and/or events may affect future results. Before making any decision or taking any action that may affect your finances or your company’s finances, you should consult a qualified professional adviser. For information pertaining to the registration status of Cerity Partners, please contact us or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov). For additional information about Cerity Partners, including fees, conflicts of interest, and services, send for our disclosure statement as set forth on Form CRS and ADV Part 2 using the contact information herein. Please read the disclosure statement carefully before you invest or send money.
Under the new preferential tax regime, an individual would be exempt from income taxes at the normal scale on all foreign income and only pay 7%. This includes pension income, capital gains and dividends, overseas business income, rental income and Social Security.What is the flat tax for retirees in Italy? ›
7% flat tax requirements
In order to qualify for the 7% flat tax regime for pensioners, you must receive a private or public pension, it doesn't matter whether you are a citizen of Italy or not, but you must receive a foreign sourced pension.
Can expats retire in Italy? Yes, everyone can retire in Italy. Non-EU citizens need to apply for an Elective Residency Visa, also known as Italy Retirement Visa.Is my US pension taxable in Italy? ›
As a general rule, American pensions are taxed in Italy. However, there are few exemptions as explained by the double taxation treaty with US.What is the new bonus in Italy? ›
The bonus ristrutturazione allows you to apply for a 50 percent tax reduction on renovating your property, on expenses up to 96,000 euros, until the end of 2024.Do foreigners pay tax in Italy? ›
Non-tax resident individuals
Tax non-resident individuals are subject to PIT (IRPEF) only on 'income produced' in Italy (i.e. employment income related to the work activity performed in Italy). Therefore, the foreign incomes are not relevant to the purposes of taxation in Italy.
Individuals enrolled in other mandatory contribution regimes: Rate is equal to 24%. Individuals with a VAT number enrolled in the exclusive way into the separate social security regime (Gestione separata INPS): Rate is equal to 26.23% for FY 2022 (25.98% for FY 2021).
In order to retire to Italy, a foreign citizen must comply with a few requirements. Among these, the foreign citizen must be retired and have a minimum annual income of EUR 31,000. For married couples seeking to retire in Italy, the minimum amount necessary is EUR 38,000.How much is the yearly property tax in Italy? ›
Property tax ranges from 0.4% to 0.7% of fiscal value, depending on location and property type. There is no wealth tax in Italy.Can I collect my Social Security if I move to Italy? ›
How Benefits Can Be Paid. If you have Social Security credits in both the United States and Italy, you may be eligible for benefits from one or both countries. If you meet all the basic requirements under one country's system, you will get a regular benefit from that country.
Can I Collect Social Security if I Live Outside the U.S.? If you are a U.S. citizen and qualify for Social Security retirement, family, survivor or disability benefits, you can receive your payments while living in most other countries.Do I pay US taxes if I retire abroad? ›
Key Takeaways. The United States is one of the few countries that taxes its citizens on their worldwide income. This means that Americans who retire overseas still have tax obligations. If you're retiring abroad, there's a good chance you'll be subject to double taxation by the United States and your new home country.What countries do not tax US Social Security? ›
- Czech Republic.
- Lombardy. Caption: Lombardy offers a world-class cultural scene and unparalleled natural beauty. ...
- Sicily. Sicily offers beautiful beaches and some of Italy's lowest living costs. ...
- Puglia. Puglia is known for its spectacular beaches and fresh local cuisine. ...
- Lazio. ...
A town in the south of Italy is offering up to €30,000 to those willing to relocate there. Presicce-Acquarica has been struggling with a declining population and abandoned homes. To help lure new homeowners, the town has promised grants to people who buy a house and register as residents of the town.What is the renovation bonus in Italy 2023? ›
An overview. In Italy, thanks to the 110% Superbonus scheme, anyone who completes renovation works by 31st December 2023 will receive a 110% detraction on costs incurred for interventions that will improve the energy efficiency of buildings and reduce seismic risk.Why does Italy pay you to live there? ›
The monetary incentive is intended to entice potential residents to move to the town, which has been experiencing a decline in the birth rate.What do Americans need to move to Italy? ›
Americans must have an entrance visa which should be obtained at an Italian consulate before coming to Italy, in order to remain in Italy more than three months and gain resident status.Does Italy have free healthcare? ›
Italy Healthcare System
The national health service in Italy, Servizio Sanitario Nazionale (SSN), provides residents with free or low-cost healthcare that includes access to general practitioners (GPs), treatment at public hospitals, subsidised medicines, lab services, ambulance services and certain specialist care.
There is no limit on US citizens buying or selling properties in Italy thanks to something called mutual agreements. These apply between Italy and foreign citizens meaning that you don't need any special documents or pay higher taxation on property when compared to citizens from within the EU.
How many Americans live in Italy? There Are 15,658 Americans living in Italy today. Although most of them reside in bigger cities like Rome and Milan, there're plenty of beautiful Italian destinations to choose from, depending on your priorities.Do I have to pay social security in Italy? ›
Italy's social security system
The Italian social security system is a contributory system. People in Italy pay a part of their income from employment to one of a number of national social security schemes. Employers also pay a contribution on behalf of employees.
The residency permit allows you to stay in Italy for a period of time which ranges from 2 to 5 years, and which generally allows you to travel to other Schengen countries for up to 3 months every 6 months.Where do most American expats live in Italy? ›
Milan is a great destination for expats in Italy and it is also one of the most sought-after affordable expat cities in Europe. Lastly, if you plan to live in Milan, you will have to speak Italian (my favorite language) because not many can speak English and hey – Italian is a really romantic language!Is it cheaper to retire in Italy than in the US? ›
Housing Costs in Italy
Italy is far less expensive than the U.S. when it comes to housing. According to August 2022 data from Numbeo.com, average rents in Italy are almost 59% lower than they are in the U.S. For a one-bedroom city center apartment, you can expect to pay about $690 per month in rent.
How does the flat tax regime work? New residents opting for this flat-tax regime will pay, instead of ordinary tax rates, a flat-rate tax of € 100,000 per year on all their non-Italian sourced income; this option lasts up to 15 years.Do homeowners in Italy pay property taxes? ›
Learn more about property tax in Italy. Home owners in Italy pay property taxes to the Comune. The tax components together are called IUC, Imposta Unica Comunale. Until 2014, property owners had to pay only IMU (Imposta Municipale Unica and waste disposal tax (TARI or Tassa sui Rifiuti).How much tax do you pay on rental income in Italy? ›
Flat Rate “Cedolare Secca”
Under this regime you pay tax at 21% on the gross rent. There is a reduced rate for “protected tenancies” i.e. contracts where the tenant has special legal rights under a protected tenancy, and so not usually applicable to short term lettings.
If you are a U.S. citizen, you may continue to receive payments outside the United States as long as you are eligible for payment and you are in a country where we can send payments.Do I lose my Social Security if I become a citizen of another country? ›
Generally speaking, if you have qualified for Social Security by working and paying into the program for 40 quarters, then you will be eligible to collect benefits as an expatriate and retire in a foreign country.
If you leave the U.S., we will stop your benefits the month after the sixth calendar month in a row that you are outside the country. You can make visits to the United States for specific periods of time, depending on how long you've been outside, to continue receiving your benefits.Do US citizens living abroad pay Social Security tax? ›
If a US employer employs you, you will generally be required to pay into US Social Security regardless of where you live and work. If a foreign employer employs you, you will generally NOT be required to pay into US Social Security.What countries can you live in and still collect Social Security? ›
- What you need to know before moving abroad. The first question that most would have is whether you can receive your Social Security benefits if you live in a foreign country, yes you can. ...
- Panama. ...
- Costa Rica. ...
- Mexico. ...
Elective Residence Visa
The foreign citizen must be retired with a minimum annual income of €31,000. For married couples, this annual income amount increases to €38,000. If children will accompany the retiree/s, a minimum of €20,000 annually is required for each dependent child.
In order of top to bottom, the following top 10 countries to retire abroad include Portugal, Mexico, Panama, Ecuador, Costa Rica, Spain, Greece, France, Italy, and Thailand.Where do most US expats retire to? ›
- Panama. This Central American country, Panama, frequently ranks as a top retirement option for expats worldwide. ...
- Costa Rica. Costa Rica is another Central American country that's popular among American retirees. ...
- Portugal. ...
- Malta. ...
- Mexico. ...
- Ecuador. ...
- Portugal. Portugal has been deemed a secret hot spot for a European retirement. ...
- France. The close second to Portugal for retirees came to France. ...
- Slovenia. Making its way close to the top of the list for countries in Europe to retire went to Slovenia. ...
- Italy. ...
Retirement in the U.S. offers a predictable and familiar lifestyle, and you'll be close to your friends and family. But it can be expensive and lead to a boring routine. Retiring abroad can bring new and exciting experiences, a change of scenery, and a lower cost of living.What US states do not tax retirement income? ›
Eight states have no income tax whatsoever, which means that retirement benefits — including Social Security retirement benefits — remain untouched by the state taxman. Let's start with the eight states that have no income tax whatsoever: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming.What is the tax exemption for US citizens living abroad? ›
The Foreign Earned Income Exclusion (FEIE, using IRS Form 2555) allows you to exclude a certain amount of your FOREIGN EARNED income from US tax. For tax year 2022 (filing in 2023) the exclusion amount is $112,000.
Climate, environment, and costs vary throughout the country, but the overall cost of living is about 38 per cent lower than in the United States, and housing is 72 per cent lower on average making it one of the cheapest countries to retire in, based on June 2022 data.
- Panama. Panama tops most lists of the best countries to retire in, and there are good reasons for that. ...
- Costa Rica. ...
- Portugal. ...
- Ecuador. ...
- Greece. ...
- Belize. ...
- Nicaragua. ...
- The Philippines.
As a general rule, American pensions are taxed in Italy. However, there are few exemptions as explained by the double taxation treaty with US.Is it easy for Americans to retire in Italy? ›
It is also useful to know that the conditions for those interested in retiring in Italy are relatively easy compared to other countries. As a matter of fact, Italy is among the top 10 best countries in the world to retire to.What is the cheapest part of Italy to live in? ›
- Turin, Palermo, and Naples are the cheapest cities to live in in Italy.
- The cost of living in Milan is just slightly higher than the living costs in Rome.
- The cost of living in Florence is only slightly lower than the cost of living in Rome.
There are seven tax brackets for most ordinary income for the 2022 tax year: 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent and 37 percent.What are the types of tax incentives? ›
Individual tax incentives are a prominent form of incentive and include deductions, exemptions, and credits. Specific examples include the mortgage interest deduction, individual retirement account, and hybrid tax credit. Another form of an individual tax incentive is the income tax incentive.What are examples of tax incentives? ›
- Earned Income Tax Credit.
- Advance Child Tax Credit.
- Tax Benefits for Education.
- Energy Tax Incentives.
- Tax Relief in Disaster Situations.
- Federal Tax Deductions for Charitable Donations.
- Income taxes. Income taxes can be charged at the federal, state and local levels. ...
- Sales taxes. Sales taxes are taxes on goods and services purchased. ...
- Excise taxes. ...
- Payroll taxes. ...
- Property taxes. ...
- Estate taxes. ...
- Gift taxes.
2023 Standard Deduction
Taxpayers who are at least 65 years old or blind can claim an additional standard deduction of $1,500 is allowed for 2023 ($1,850 if you're claiming the single or head of household filing status).
For the 2022 tax year, seniors filing single or married filing separately get a standard deduction of $14,700. For those who are married and filing jointly, the standard deduction for 65 and older is $25,900. The standard deduction for a widow over 65 is also $25,900 if they qualify.How much of Social Security is taxable? ›
between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits. more than $34,000, up to 85 percent of your benefits may be taxable.What are the 3 types of incentives? ›
- Economic Incentives – Material gain/loss (doing what's best for us)
- Social Incentives – Reputation gain/loss (being seen to do the right thing)
- Moral Incentives – Conscience gain/loss (doing/not doing the 'right' thing)
- Have worked and earned income under $59,187.
- Have investment income below $10,300 in the tax year 2022.
- Have a valid Social Security number by the due date of your 2022 return (including extensions)
- Be a U.S. citizen or a resident alien all year.
- Not file Form 2555, Foreign Earned Income.
- Self-employment tax deduction. ...
- Deduct for business expenses. ...
- Contribute to a retirement plan. ...
- Contribute to an HSA. ...
- Donate to charity. ...
- Child Tax Credit.
Positive incentives can include praise, bonuses, career advancements, earning extra vacation days, gift certificates and other monetary rewards.What are the most common forms of incentives? ›
Here are five common examples.
- Tax Incentives. ...
- Financial Incentives. ...
- Subsidies. ...
- Tax rebates. ...
- Negative incentives.
The 2023 tax year will have the same seven federal income tax brackets: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Your filing status and taxable income, including wages, will determine the bracket you're in.Why is everything taxed in America? ›
We pay taxes to fund our federal, state and local governments so they can function properly and provide necessary services. Each particular government has its particular focus, with the big-picture spending on things like defense and Social Security placed in the hands of the federal government.
The tax brackets for 2023 are the same as 2022: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Your tax bracket will depend on your 2023 income and filing status. The IRS made significant adjustments to the tax income thresholds for 2023, which means that some people may be in a lower tax bracket than they were previously.