Article 24-ter of the Consolidated Income Tax Act (TUIR)-introduced by the 2019 Budget Law-provides for an optional 7% flat substitute taxation scheme for the benefit of individuals holding pension income from a foreign source who transfer their tax residence to Italy, in certain territories and under specific conditions.

• Beneficiaries: individuals holding pension income or assimilated treatments from a foreign source (i.e., disbursed by a foreign entity), regardless of citizenship (applies to both foreign pensioners and Italian citizens formerly resident abroad who have returned) . Non-residence for tax purposes in Italy for at least 5 tax periods preceding the one in which the option is exercised is required.
• Territorial requirement: the transfer of residence (according to art. 2, paragraph 2, TUIR) must take place in a municipality with less than 20,000 inhabitants, located in the regions indicated by the rule. In particular, the regions in the South included are: Sicily, Calabria, Sardinia, Campania, Basilicata, Abruzzo, Molise and Puglia. Extension 2022: DL 4/2022 ("Decreto Sostegni-ter") temporarily extended the benef cio also to municipalities under 20,000 inhabitants in the regions of Central Italy affected by the 2009-2017 earthquakes (e.g., Camerino, Norcia, etc.), expanding the geographical audience eligible.
Object of the relief: Earnings of any category produced abroad by the beneficiary (not only the pension, but also e.g., interest, dividends, foreign rental income) are subjected to IRPEF substitute tax of 7 percent instead of ordinary taxation. This is done as an exception to the ordinary principle of worldwide taxation of residents: foreign income does not flow into the IRPEF taxable income, but it separately bears 7%. Note: The Internal Revenue Service has clarified that foreign income other than pensions, of whatever nature, as long as it is produced abroad, also falls under the scheme, confirming the breadth of the relief. The scheme also entails exemption from tax monitoring obligations (Form RW) and from wealth tax on foreign real estate (IVIE) and foreign financial assets (IVAFE) for the period of validity.Duration and effects:The option is valid for 10 years from the tax periods in which the transfer of residence to Italy takes place. During this 10-year period, the taxpayer pays an annual flat tax equal to 7% of the declared foreign income, with no possibility of deductions/deductions on this tax. There are no extensions beyond the 10 years: at the end, the person returns to the ordinary tax regime for any income still received abroad.
• Mode of exercise: Adherence to the regime is by means of an option to be made in the tax return for the year of transfer (or the first tax year for which the regime is intended to be applied). Payment of the 7% substitute tax is made in a lump sum by the deadline for the ordinary IRPEF balance. It is possible to revoke the option early (losing the benefit for the remaining years) or to forfeit it in case of transfer of residence outside the facilitated municipalities.

From a regulatory point of view, Art. 24-ter TUIR represents a scheme aimed at combining tax attractiveness with repopulation policies: in fact, the Italian state incentivizes the settlement of well-off foreign retirees in demographically weak areas, contributing both to new (albeit reduced) tax revenues and to stimulating the local economy with the spending of new residents.

Aside from the regime dedicated to retirees, the Italian legal system provides - as of 2017 - a tax regime to attract so-called High Net Worth Individuals (HNWI), commonly known as the "neo-residents" or non-dom resident regime. This regime, introduced by Art. 24-bis TUIR (Law no.232/2016, Art.1 paragraphs 152-159), allows individuals who transfer their tax residence to Italy to opt for the payment of an annual flat-rate substitute tax on income produced abroad in lieu of ordinary taxation on such income. Here are the highlights in technical language:

• Beneficiaries and conditions of entry:New residents who have not been tax residents in Italy for at least 9 of the 10 tax periods preceding the start of validity of the option are eligible for the scheme. Transfer of residence is to be understood according to Art. 2, paragraph 2 TUIR (criterion of the longest annual stay >183 days, center of interest). There are no constraints on location in Italy (unlike the 7% pensioner scheme, here residence can be in any municipality). The rule is designed to attract individuals with high foreign assets and income, regardless of activity (entrepreneurs, managers, sportsmen, wealthy retirees, etc.).
Object of the flat tax: all income produced abroad by the opting individual is excluded from ordinary IRPEF and additional taxes, being subject to a "flat" substitute tax of €100,000 annually (fixed amount, not commensurate with the amount of foreign income). There is an option to extend the regime to family members (e.g., spouse, children) relocated to Italy, paying for each an additional substitute tax of €25,000 annually. Update 2024: Decree-Law No. 113/2024 ("Omnibus") provided for an increase in the basic flat tax from €100,000 to €200,000 annually for new entrants to the regime , effective for those who will transfer their tax residence to Italy after the decree comes into force (indicatively, new residents from 2025 onward). The addition for each member family member remains firm at €25,000 (which may also be subject to regulatory revaluation). This change does not affect individuals who had already joined the scheme before the reform, who retain the original benefit (€100k per year for 15 years) for the remaining duration of the option, thanks to safeguard clauses approved during conversion.Excluded income and property tax regime: one important limitation concerns capital gains on qualified shareholdings (Art. 67, para, lett. c TUIR) realized in the first 5 years of the option: these capital gains do not fall under the flat tax regime and remain subject to ordinary taxation (capital gains at 26% or progressive taxation if arising from qualified shareholdings). Otherwise, the regime entails exemption from tax monitoring (Form RW) and IVIE/IVAFE for financial and capital assets held abroad in the jurisdictions covered by the option. Indeed, it is the taxpayer's option to exclude one or more foreign states from the scope of the flat tax (in which case income earned there will be taxed ordinarily and must be declared, with a RW filing requirement for those countries)-an option useful, for example, to avoid double taxation not covered by tax credits.
• Duration and Effective Date: The New Residents' regime has a maximum duration of 15 years from the first year of the option. The option is exercised in the tax return (Form RM) and involves the payment of the flat tax by the due date of the IRPEF balance for each year. It is not renewable beyond 15 years. The taxpayer can revoke the option early (losing the regime for the remaining years) or forfeit it automatically by moving residence outside Italy. Forfeiture for failure to pay or late payment of the annual due is also allowed.