Italy plans a 4% tax for returning pensioners: how the regime works and how it differs from 7%

Italy is preparing a new tax regime for a narrow group of people returning home: foreign (non-tax residents of Italy) pensioners who receive an Italian pension and choose to relocate to small towns in the country’s inland, depopulated areas.

The headline figure looks impressive: a flat 4% on all income worldwide for 15 years. But the key feature of the proposal is something currently missing from existing Italian schemes: the Italian pension itself would also be taxed at 4%.

If the initiative is approved, it would become Italy’s fifth tax regime designed to attract human capital—and the third that is built directly into the income taxation system under Testo Unico delle Imposte sui Redditi (TUIR, “Consolidated Text of Income Tax Laws”). Two existing “in-TUIR” regimes are: the scheme for new residents (with a fixed amount) and the 7% regime for foreign pensioners.

The other two—impatriate (for returning professionals) and the regime for researchers and academics—are governed by separate rules and serve different purposes.

How the 4% regime would work

The eligibility criteria are fairly strict, but coherent:

1) the applicant must receive a pension paid by an Italian public or private social security institution;

2) for at least the previous five tax periods, the person must have been a non-resident of Italy;

3) tax residency must be moved to a municipality falling under the national strategy for inland areas (Inner Areas) in the categories “intermediate,” “peripheral,” or “ultra-peripheral”. The municipality’s population must be up to 5,000 residents.

Once the regime is selected via the tax return for the year of relocation, a fixed 4% rate applies for 15 consecutive years. It covers all income arising in Italy and abroad, but with an important limitation: only to the portion that was not already taxed in Italy.

The 4% regime can be revoked (it is lost) if the required “substitute tax” (substitute tax) is not paid. A five-year standstill also applies: after losing the regime, a new application can be submitted only after 5 years.

Why the Italian pension is the “decisive factor”

The importance of Article 24-quater becomes clearest when compared with the two existing “flat tax” style regimes in Italian law.

The flat tax regime for high-wealth individuals was introduced in 2017. It aims to attract wealthy taxpayers through a fixed annual payment on foreign-sourced income. The amount increased gradually: from €100,000 at launch to €200,000 in 2024, and from January 1, 2026 to roughly €300,000 under the current budget rules. For pensioners with moderate international assets, this format is usually out of reach.

The 7% regime for foreign pensioners has been in place since 2019. It applies a flat rate to all foreign income, provided the move is to a small municipality in southern Italy. However, it is suitable only for those who receive a pension from abroad. People who lived in Italy throughout their working life, then retired in Italy, and only afterward moved abroad effectively fall outside the logic of this regime.

This is exactly the gap the new initiative is intended to close. In the explanatory report to the bill, Senator Domenico Matera explicitly states that Article 24-quater is meant for “many residents abroad” who receive an Italian pension and cannot use:

• the €300,000 regime (it doesn’t match their economic reality);
• the 7% regime (because their pension is Italian, not foreign).

The document also notes the possibility of returning to Italy and paying 4% under IRPEF (Imposta sul Reddito delle Persone Fisiche—personal income tax) on all incoming income, including the Italian pension, but only for the portion that was not already taxed in Italy.

The phrase “not already taxed in Italy” is the key “anti-errosion” mechanism. It does not work based on the income category; instead, it is based on fact: you cannot “repackage” into a more favorable regime the flows that already generated taxation in Italy while the person was abroad.

For instance, if a pensioner (a non-resident) had—over many years—rented out an apartment in Bologna and paid Italian tax under a 21% regime on rental income, then after returning the rent would not automatically become 4%. A similar approach applies to dividends, interest, and capital gains related to Italian financial assets that were previously subject to tax in Italy.

Under the 4% rate, in particular, are income streams that—considering the taxpayer’s situation—previously did not create an Italian tax base at all: the Italian pension (typically paid to the country of residence under double tax treaty rules), income from foreign sources (not declared in Italy while the individual was a non-resident), and also new Italian income after the move—such as rental income from property acquired after returning, or interest on Italian bonds bought while the person was already resident.

Key figures behind the initiative

The economic rationale relies on data from INPS, Italy’s national social security institute, included in the explanatory report.

INPS pays pensions to recipients in about 160 countries. In 2023, more than 310,000 pensions were paid abroad, totaling about €1.6 billion (roughly €1.9 billion), which is 2.3% of all INPS pension payments. In addition, there is a separate stream of pensions under international agreements (where insurance periods are aggregated through bilateral or multilateral arrangements): 36% of those are paid abroad, with a total volume of approximately €562 million (about €658 million) per year.

The explanatory report also states that pensions paid abroad are in most cases taxed in Italy, except when double tax treaties allocate the taxing right to the country of residence. In practice, this means that a significant portion of the €1.6 billion in pensions paid abroad does not generate personal income tax revenue in Italy.

According to the authors, the 4% rate for returning individuals would “activate” part of that previously non-revenue base. Therefore, the draft claims there is “no negative impact on public finances”, and even suggests budget inflows.

In the initial version, the scope was limited only to non-EU returns. At that stage, the potential pool was estimated at around 30,000 people after excluding traditional migration regions (the Americas, the EU, and Oceania).

The amendment under consideration expands the group to returns from EU countries, substantially increasing the target audience: popular destinations for Italian pensioners in recent years—Portugal, Spain, Cyprus, and Greece—are within the EU.

Where the bill stands

The proposal is progressing along two parallel tracks.

A separate bill, S. 1495, was filed in May 2025 by Senator Matera (Fratelli d’Italia) and sent to the Senate’s Finance Commission. Discussions began in January 2026, and the rapporteur is Senator Filippo Melchiorre.

At the end of April 2026, an updated and expanded version was submitted as an amendment to the conversion bill for the decree-law 38/2026 (the so-called fiscal decree). The amendment was signed by Senators Matera and Roberto Orsomarso.

The amendment expands the framework in two ways: it allows returns both from EU and non-EU countries, and it raises the population limit for municipalities—from 3,000 to 5,000 residents.

The conversion of decree-law 38/2026 must be completed by May 26, 2026. If the amendment is approved, Article 24-quater would enter into force at that point, while implementation details would be finalized in the following months through measures by the Italian tax authority (Agenzia delle Entrate).

What advisors and investors should keep in mind

For investment migration professionals and clients monitoring Italy’s “entry” tax landscape, the initiative highlights three practical points.

First, the regime fills a segment that is scarcely covered by the current framework: long-term Italian expat pensioners with relatively moderate foreign assets, but with a substantial Italian pension.

Second, the tax difference can be meaningful. For example, a pension of around €80,000 would typically result in IRPEF of roughly €27,000, whereas under the 4% substitute tax it would be about €3,200. That kind of saving can genuinely influence the decision to relocate.

Third, the territorial limitation remains strict: eligible municipalities are small and concentrated in specific regions. This creates additional advisory opportunities—from finding housing and accessing healthcare to planning local infrastructure and integration.

At the same time, it remains unclear whether the wording will stay unchanged during the conversion process. In particular, the “not already taxed in Italy” clause is likely to require a text clarification or an interpretation from the tax authority to ensure reliable large-scale application.

Even so, compared with recent years, this looks like one of the most concrete changes to Italy’s “entry” tax map since the introduction of the 7% regime in 2019. Therefore, clients with a relevant profile—Italians living abroad for a long time, receiving an Italian pension, and considering a return—should follow the amendment’s progress.

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