Italy expands the 7% flat tax for foreign pensioners: the municipal population threshold rises to 30,000

As of 7 April 2026, Italy has updated the conditions for applying the reduced 7% flat tax regime for recipients of foreign pensions. The key change is an increased eligible municipal population size: previously, the benefit applied to towns with up to 20,000 residents, but the threshold has now been raised to 30,000. Estimates suggest this will allow an additional 74 municipalities—mostly in southern regions—to offer the regime.

The amendment is formally legal in nature: a change to Law No. 34 dated 11 March 2026 updated Article 24-ter of Italy’s tax code by replacing the wording “20,000 residents” with “30,000 residents.” However, the practical impact for pensioners and their families is broader than what a single line of legislation might imply.

In practice, Italy’s 7% flat tax is widely regarded as one of the most attractive options in Europe, because it helps avoid Italy’s progressive taxation rules on part of foreign-source income. Expanding the set of eligible municipalities makes the arrangement accessible to a larger number of candidates—particularly from southern regions.

How the 7% flat tax works for foreign pension income

The regime works as follows: a foreign pensioner who relocates their tax residence to a qualifying Italian municipality may choose to pay a substitute tax (substitute tax) of 7% on income received from sources outside Italy.

Importantly, this is not limited to the pension itself. Once a taxpayer opts into the regime, the other categories of income that also have a foreign source can fall under the same 7% rate.

The opt-in period lasts for 10 years, starting from the year in which the taxpayer first makes the relevant election.

To apply the regime, several conditions must be met:

• receive pension income from a foreign entity;
• be outside Italy for at least 5 consecutive years (this requirement applies both to foreigners and to Italians registered via AIRE);
• formally register the move to the selected municipality through residenza anagrafica.

After the election, the 7% rate applies in the year the regime begins and then for another nine years—meaning it is applied throughout the full 10-year period.

A further point concerns income classification: to cover the entire foreign income stream, it is typically enough to have at least one type of foreign pension. After that, other foreign income can be included within the selected framework.

Income that has a source in Italy remains subject to the general rules—i.e., taxed under Italy’s standard tax system.

Why the 7% rate is valued more than it looks at first glance

A fixed substitute tax instead of progression and extra add-ons

By its nature, 7% is a substitute tax: it replaces Italy’s income tax on the portion of income with a foreign source. As a result, the regime does not involve a progressive bracket system, surcharges, or other add-ons that typically come with a growing taxable base.

Another advantage for many pensioners is the lack of obligations related to IVIE and IVAFE—taxes on foreign real estate and foreign financial assets. For those who already hold assets outside Italy, this can translate into a noticeable difference in annual payments.

Less bureaucracy: reduced reporting on foreign assets

There is also a practical benefit in the form of exemption from completing the RW section of the Italian return, where taxpayers usually report foreign accounts and assets. For individuals with several overseas banks, investment portfolios, or foreign property, this lowers administrative burden and reduces the risk of mistakes when filing documents.

Separate benefit for U.S. citizens and green card holders

The regime is often especially attractive to U.S. citizens and holders of a green card. The reason is straightforward: the U.S. applies the principle of worldwide income, meaning income can be taxed regardless of where the person lives.

When moving to Italy, obligations toward the IRS remain. However, Italy’s 7% structure can work effectively alongside the tax treaty between the U.S. and Italy.

In typical scenarios, Italian tax paid on income that is also subject to U.S. taxation can be credited through the Foreign Tax Credit (FTC). Because this involves actual tax paid on income, for some taxpayers the effective rate on the foreign pension base may end up very low or close to zero.

In essence, it is one of the few European regimes capable of accounting for the “U.S. context,” rather than ignoring it.

Interpello: the option to obtain a position before relocating

If the situation is atypical—for example, the pension has a complex structure, income comes from multiple countries, or there are doubts about qualification under the treaty—taxpayers may submit an interpello request.

This request is filed with the Agenzia delle Entrate and allows the taxpayer to receive a written clarification on whether the rule applies to their specific circumstances. For planning before relocation, it improves predictability and reduces the risk of disputes arising from differing interpretations.

In complex cases, interpello is often treated in practice as a standard tool for legal preparation.

How the return is filed and when payment is due

Filing under the regime involves a simplified format. Typically, there is no need to separately disclose foreign assets, and there are no obligations related to IVIE/IVAFE. There is also no requirement to provide a detailed breakdown of calculations for each foreign instrument.

Payment is made as a single amount—by 30 June of the following year. Instalments are not provided: the 7% rate applies to the total foreign income for the year, and the tax is paid in one lump sum as 7%.

Duration of the regime and termination cases

The regime lasts for 10 years and is not renewable. Application may end if the taxpayer:

• moves to a municipality that no longer meets the criteria;
• fails to pay the tax by the required deadline;
• does not report the election in the tax return.

In addition, a voluntary withdrawal is possible. Once the right is lost or the election is cancelled, it cannot be reinstated under the regime.

What changed geographically: 20,000 → 30,000

Previously, the regime applied to municipalities:

• in Southern Italy where the population was up to 20,000; and
• in certain areas of Central Italy affected by the 2009 and 2016 earthquakes.

Now, the threshold has been increased to 30,000 residents.

For southern regions, this means 74 additional municipalities become eligible. Importantly, this is not limited to very small villages: a significant share of the new candidates are medium-sized towns with functioning infrastructure, social life, and transport accessibility.

Separate clarification for earthquake-affected areas in Central Italy. For the territories of Abruzzo, Lazio, Marche, and Umbria, the list of qualifying municipalities is maintained on the reconstruction authority resource sisma2016.gov.it. Because applying the 30,000 threshold in these areas requires an additional cross-check against the lists, it is advisable to confirm the latest position with specialists before choosing a specific location.

Distribution of the 74 new municipalities by region

Population figures are based on ISTAT data as of 1 January 2025.

Campania

23 municipalities

Sicilia

18 municipalities

Puglia

18 municipalities

Sardegna

7 municipalities

Abruzzo

5 municipalities

Calabria

2 municipalities

Molise

1 municipality

Basilicata

0 municipalities

In Basilicata, there were effectively no qualifying municipalities in the 20,001–30,000 resident range. After the two regional hubs (Potenza and Matera), where population exceeds 50,000, the largest city—Policoro—already falls below the former threshold (approximately 17,700 residents).

How the “advantageous towns” map is changing

Based on ISTAT data as of 1 January 2025, the increase is 74 municipalities, i.e., the pool expands by roughly 3%.

However, for people planning a move, the impact is felt more strongly: the newly eligible towns are, on average, larger and usually offer more developed infrastructure than the smaller municipalities that formed the core of the previous list.

A telling example is Apulia: the relative increase there reaches +8%. Among the towns commonly mentioned within the expanded list are Ostuni, Manduria, and San Giovanni Rotondo. These destinations attract steady interest from international tourists and diaspora communities, and they also suit those returning from the U.S. and Australia.

Familiar names in the new list

Among the 74 added municipalities, there are places that are easy to recognize even for people who rarely follow tax news.

Pompei is an ancient Roman city included in the UNESCO list: after the eruption of Mount Vesuvius in 79 AD, it survived as a kind of “frozen” record of that era and now meets the updated criteria.

Noto is a jewel of Sicilian Baroque, rebuilt after a devastating earthquake that changed the city’s fate.

Ostuni is the so-called “White City,” where snow-white districts and hills create a distinctive landscape and offer views over olive groves.

In Apulia, Alberobello boosts appeal thanks to its unique trulli—stone houses with conical roofs. Polignano a Mare features the rocky Adriatic coastline and is home to one of the most photographed beaches, Lama Monachile. The list also includes Taormina, a hilltop resort with a theater overlooking Mount Etna and a recognizable “holiday” atmosphere.

Why Italy is strengthening incentives for incoming pensioners

The expansion of the favorable geography fits into Italy’s broader policy of retaining and attracting new residents. Beyond the 7% incentive for pensioners, the country also develops other mechanisms—for example, a regime for individuals with high capital at around €300,000 (Article 24-bis TUIR), as well as benefits for impatriates—professionals and entrepreneurs relocating to Italy.

As a result, Italy competes not only with “classic” European jurisdictions, but also with countries where pension programs are being changed or scaled back. Against the backdrop of the end of Portugal’s NHR regime, adjustments to tax initiatives in Malta, and “pension” schemes in Greece, the Italian version is increasingly perceived as more pragmatic and easier to understand.

Raising the threshold to 30,000 residents also reflects a recognition that depopulation affects not only tiny villages, but also larger cities in southern regions that need an inflow of people, income, and demand for local services.

Expert view: why a 30,000 threshold may generate more “quality” relocations than it seems

From a relocation-practice perspective, raising the limit to 30,000 rarely means a purely mathematical expansion of the list. It typically changes the structure of demand: in the “new” municipalities, people relocate not only for quiet surroundings, but also for access to healthcare, logistics, and everyday services (pharmacies, banks, English support, regular routes). A lesser-known detail is that precisely the “transitional-sized” municipalities often have stable service-related budget commitments. This reduces the likelihood that a pensioner will need to find additional solutions outside the town—meaning the real value of the tax benefit for the family increases. Therefore, the threshold expansion can be seen as an attempt not just to “grant eligibility,” but to strengthen the viability of the tax incentive on the ground.

Italy has expanded the 7% flat tax regime for foreign pensioners by increasing the municipal population threshold to 30,000—potentially making relocation and tax planning more accessible. If you’re considering a move to Europe and want to understand how such frameworks fit into your documents and status preparation, the Digital Nomad team can help you assess your case and plan the next steps.

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