Italy tax for expats:
the 7% flat tax and IRPEF brackets.

Social Security

Article 18(2) of the US–Italy treaty says Social Security payments are taxable "only" in the state of residence — Italy. This is unusual; the US model treaty normally gives the source country exclusive rights. But the saving clause (Art. 1(2)) preserves the US right to tax its own citizens regardless. Practical result for US citizens: both countries tax the income, with the Foreign Tax Credit (Form 1116) eliminating double taxation.

Exception for dual nationals: if you hold both US and Italian citizenship and live in Italy, the treaty Protocol provides that the saving clause does not override Art. 18(2) for Social Security. Only Italy taxes.

401(k) and Traditional IRA withdrawals

Article 18(1) gives the residence state exclusive taxing rights on private pensions — Italy. But the saving clause applies (Art. 18 is not listed among the exceptions in Art. 1(3)), so the US retains the right to tax its citizens on these withdrawals. Both countries tax; FTC resolves the overlap.

Italy classifies 401(k) distributions as pension income under Art. 49(2)(a) TUIR. Standard IRPEF rates apply: 23% up to €28,000, 33% on €28,001–€50,000, 43% above €50,000 — plus regional and municipal surtaxes. Lump-sum distributions may qualify for tassazione separata (separate taxation at the average effective rate from the prior two years), which is often lower than progressive rates.

Roth IRA — the grey area

The conservative interpretation: the growth component is taxable income in Italy, while original after-tax contributions are treated as return of capital — not taxable. Because the US doesn't tax qualified Roth withdrawals, there's no Foreign Tax Credit available to offset the Italian tax on the growth portion.

IVAFE exposure: Roth IRAs allow penalty-free access to contributions at any time. This unrestricted access may disqualify them from the IVAFE exemption that applies to pension assets with deferred availability — meaning the Roth balance could face the 0.2% annual IVAFE wealth tax as an ordinary foreign financial asset.

Before filing your first Italian return: submit an interpello ordinario to the Agenzia delle Entrate under Art. 11 of Legge 212/2000. They must respond within 90 days; silence constitutes acceptance.

Government and military pensions

Article 19(2)(a) gives the US exclusive taxing rights on government pensions — FERS, CSRS, military retirement pay, and state/local government pensions. Italy cannot tax them. You still declare them on your Italian return with the treaty exemption noted, but no Italian tax is due.

Exception: if you hold both US and Italian citizenship and reside in Italy, Art. 19(2)(b) may give Italy the taxing rights instead.

The 7% regime — what it means for Americans

If you qualify for the 7% flat tax (Art. 24-ter TUIR), it replaces IRPEF, all surtaxes, IVIE, and IVAFE on foreign income. But for US citizens, the saving clause creates an asymmetry:

• Italy taxes at 7%. The 7% is a bona fide income tax, creditable on your US return via FTC (Form 1116).
• If your US effective rate exceeds 7%, you owe the IRS the difference.
• Example: US $60,000 pension. Italy: 7% = US $4,200. US effective rate ~15% = US $9,000. FTC of US $4,200 offsets US tax. You still owe US $4,800 to the IRS. Total tax: US $9,000 (15%).
• Under standard IRPEF (say ~30% effective), the FTC would fully offset US tax. Under the 7% regime, the saving shifts to the IRS — but your total tax bill is still far lower.

Opt-out provision: Art. 24-ter comma 8 lets you exclude specific countries from the 7% regime, reverting that income to ordinary IRPEF with standard FTC. This may be strategic if generating higher Italian tax on US income creates larger credits to offset US tax on other income.

US state taxes — the exit matters

Nine states have no income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. If you're already in one of these, there's no state-level complication.

The "sticky states" to watch are California and New York. California's Franchise Tax Board actively audits expats and challenges residency changes years after the fact. New York focuses on your "intent to return" and whether you keep a permanent place of abode. Clean your ties before you leave.

What you still owe the US — the full picture

CPP / QPP

Under Article 18(2) of the Canada–Italy treaty, CPP/QPP payments are classified as pensions (not social security — the Protocol limits "social security" to OAS Act payments). Canada may withhold 15% on periodic pension payments exceeding CAD $12,000 per year in aggregate. Below that threshold, Canadian withholding may be zero.

Italy taxes the full amount at progressive IRPEF rates (23–43%) plus surtaxes. Under the standard regime, you claim a credit for Canadian withholding. Under the 7% regime, the credit is not available — but the combined rate (0–15% Canada + 7% Italy) is still far below standard IRPEF.

OAS (Old Age Security)

The treaty Protocol (paragraph (j)) classifies OAS as "social security," giving Canada exclusive taxing rights under Art. 18(3). Canada withholds 25% on OAS paid to non-residents, with no treaty reduction.

Watch the OAS clawback: if worldwide net income exceeds CAD $93,454 (2025 threshold, adjusted annually), OAS is clawed back at 15 cents per dollar above the threshold. File Form T1136 (OASRI) annually. OAS eligibility abroad requires 20+ years of Canadian residence after age 18.

RRSP / RRIF withdrawals

Canada withholds 25% on RRSP lump-sum withdrawals from non-residents — and the treaty does not reduce this rate for lump sums. For RRIF periodic withdrawals, the treaty-reduced rate of 15% on amounts above the CAD $12,000 aggregate threshold applies.

Strategy: convert your RRSP to a RRIF before emigrating. This shifts you from 25% flat withholding on RRSP lump sums to the treaty-reduced rate on RRIF periodic withdrawals — 0% on the first CAD $12,000 (combined with CPP and other periodic pensions), 15% above. The difference is significant on large balances.

Section 217 election: non-residents can elect to file a Canadian return. If your marginal tax as a Canadian resident would be lower than the 25% flat withholding, the excess is refunded. Useful in years with low worldwide income.

Employer DB pensions

Article 18(2) applies: Canada withholds at 15% on periodic payments above the CAD $12,000 aggregate threshold. Note: the CAD $12,000 threshold is aggregate across all Canadian periodic pension payments (CPP + employer pensions + RRIF), not per source.

Unlike some Canadian treaties, the Canada–Italy treaty does not give Canada exclusive taxing rights on government employee pensions. Federal, provincial, and municipal government DB pensions are treated the same as private pensions under Article 18.

TFSA — Italy doesn't recognise it

You can't make new TFSA contributions as a non-resident (1% per month penalty). Most advisers recommend liquidating before emigrating, since the account converts from tax-free to fully taxable the moment you become Italian tax resident.

Departure tax — the hidden bill

Under Section 128.1(4) of the Income Tax Act, when you cease Canadian residency you are deemed to have disposed of all property at fair market value. Capital gains are taxable in Canada at the 50% inclusion rate.

You can elect to defer the tax via Form T1244 (due by the balance-due date for the emigration year), but security may be required.

The 7% regime — what it means for Canadians

Canada doesn't tax citizens who leave — once you cease residency, only Canadian-source income is taxed. This makes the 7% regime cleaner for Canadians than for Americans:

• CPP + employer pension, CAD $50,000: Canada withholds ~CAD $5,700 (0% on first CAD $12K, 15% on CAD $38K). Italy at 7% = ~CAD $3,500. Total: ~CAD $9,200 (18.4%).
• Compare to standard IRPEF: ~25–28% effective on the same income, with credit for the Canadian withholding. The 7% regime typically wins.
• Important: the 7% is an imposta sostitutiva — no Italian FTC is available against it. Canadian withholding is paid on top of the 7%.

Country opt-out: you can exclude Canada from the 7% regime and tax Canadian income under ordinary IRPEF (with FTC for withholding). This may make sense for OAS, where the 25% Canadian withholding plus 7% totals 32% — versus standard IRPEF with a credit for the 25%.

Social security agreement

Canada and Italy have had a social security agreement since 1979 (revised 2017). It covers CPP/QPP and OAS, allows totalization of contribution periods, and ensures benefits are portable.

UK State Pension

Under Article 18 of the UK–Italy treaty, the State Pension is taxable only in Italy. The UK cannot tax it. Once you obtain an NT (No Tax) code from HMRC, your pension is paid gross.

For 2026/27, the full new State Pension is £241.30 per week (£12,548/year), a 4.8% increase under the triple lock. This annual uprating is protected for UK pensioners in Italy because Italy is an EU member state and the UK-EU Trade and Cooperation Agreement preserves pension uprating in EU/EEA countries. This is a major advantage over "frozen rate" countries like Australia, Canada, and New Zealand.

Under standard IRPEF, the State Pension alone typically falls within the lower brackets (23%). Under the 7% regime: 7% total — no UK tax, no Italian surtaxes.

Workplace pensions (DB and DC)

Article 18: taxable only in Italy. Applies to both defined benefit (final salary/career average) and defined contribution schemes, including USS (university). Apply for the NT code to receive payments gross.

SIPP and personal pension drawdown

Article 18 applies: SIPP drawdown payments are taxable only in Italy. The NT code process is the same. The Agenzia delle Entrate confirmed in Risposta n. 5/2024 that SIPPs are recognised as pension schemes under Art. 49(2)(a) TUIR.

The 25% tax-free lump sum (PCLS) — take it before you move

While you're still UK tax resident, the PCLS is genuinely tax-free — no UK tax, no Italian tax (you're not resident yet). Take the 25% before you establish Italian residency. Once you've moved, the opportunity is gone.

Government pensions — civil service, military, police

NHS pensions are classified as non-government by HMRC (INTM343040). NHS employees work for NHS Trusts, not the Crown — so NHS pensions fall under Art. 18 (Italy only), not Art. 19. Apply for the NT code. They are eligible for the 7% regime.

If you hold dual UK-Italian nationality, the government pension exclusion may not apply — the pension may become taxable in Italy instead.

The 7% regime — the cleanest win

For UK pensioners with private pensions, the 7% regime produces the simplest result of any nationality:

• Art. 18 gives Italy exclusive taxing rights. You get the NT code — 0% UK tax.
• The 7% regime replaces all Italian taxation on foreign income.
• Total tax: 7%. No surtaxes, no IVIE, no IVAFE.

Government pensions (Art. 19) stay taxed in the UK at UK rates and cannot benefit from the 7% regime — but they're also not taxed by Italy.

Getting the NT code — step by step

To stop HMRC deducting tax from your pension at source:

• Establish Italian tax residency — you cannot apply before moving
• Complete the DT-Individual form (from GOV.UK)
• Obtain a certificate of tax residency (certificato di residenza fiscale) from the Agenzia delle Entrate
• Submit both to HMRC
• Allow 12–16 weeks for processing
• Once issued, your pension provider pays gross

Until the NT code is in place, HMRC deducts at the default rate. Reclaim the overpayment through your UK Self Assessment return or by writing to HMRC.

Voluntary National Insurance — the 2026 change

Each qualifying NI year adds about 1/35th to your State Pension — roughly £358/year. At £957/year in contributions, the payback period is under 3 years. For most people with gaps, still worth it.

Healthcare — the S1 form

UK State Pension recipients can get an S1 form from NHSBSA, which transfers healthcare cost responsibility from the UK to Italy. Register the S1 with the local ASL (Azienda Sanitaria Locale) and you can access Italy's SSN (Servizio Sanitario Nazionale) public healthcare. The UK GHIC covers emergency treatment during temporary visits back to the UK.

The treaty — unusually favourable

The 1982 Australia–Italy DTA is one of the most retiree-friendly treaties Australia has signed. Article 18(1) covers "pensions (including government pensions)" and says they are taxable only in the state of residence. This is a major departure from the standard OECD model, which typically reserves government pension taxing rights for the paying state. Under this treaty, Italy gets exclusive rights on all Australian pensions — private super, government super, and the Age Pension alike.

Age Pension

The Age Pension is payable in Italy indefinitely via the Australia-Italy social security agreement. But after 26 weeks abroad, the rate may be proportionally reduced based on Australian Working Life Residency (AWLR):

• 35+ years AWLR: full rate
• 25 years: ~71% of means-tested rate
• 20 years: ~57%
• 15 years: ~43%

Several supplements are lost overseas: Rent Assistance stops after 26 weeks, Energy Supplement and the excess Pension Supplement drop after 6 weeks.

Superannuation — the gap between Australian and Italian treatment

This is the biggest issue for Australian retirees. In Australia, super withdrawals after age 60 from a taxed fund are completely tax-free. Italy doesn't recognise this.

Under standard IRPEF, Italy taxes super income streams at progressive rates (23–43%) plus surtaxes. Because Australia charges no tax, there's no Foreign Tax Credit to offset the Italian tax. You go from 0% to up to 47% (including surtaxes) simply by changing where you live.

Under the 7% regime: super income is taxed at 7%. That's 7 percentage points more than the 0% you had in Australia — but dramatically less than the 23–43% under standard IRPEF.

Self-managed super funds (SMSF)

If the SMSF fails these tests, it becomes non-complying and is taxed at 45% on the market value of all assets. Consider rolling into a retail or industry fund before moving permanently, or appointing an Australian-resident trustee with genuine decision-making authority.

Government superannuation (CSS, PSS, MSBS)

Because Art. 18 explicitly includes government pensions, Italian residents receiving CSS, PSS, or MSBS pensions are taxed only in Italy. Australia should not withhold. This is unusual — under most other Australian treaties, these pensions would be taxed only in Australia under Art. 19. The treaty structure means government super is eligible for the 7% flat tax regime when received in Italy.

The 7% regime — transformative for Australians

The combination of the treaty (Italy has exclusive taxing rights, Australia cannot withhold) and the 7% regime produces the cleanest possible outcome:

• Australia: 0% tax (treaty gives Italy exclusive rights)
• Italy: 7% flat on all foreign income. No IVIE, no IVAFE, no surtaxes.
• Total tax: 7% — on income that was 0% in Australia.

That 7% is the cost of the Italian lifestyle. Without the regime, the same income faces 23–47% effective rates. The regime is worth tens of thousands per year on a decent super balance.

CGT on departure — don't forget your Australian home

CGT Event I1 deems all assets (except Taxable Australian Property) to be disposed at market value when you cease residency. You can elect to defer, but the 50% CGT discount is then apportioned based on days of Australian residency versus total ownership.

The main residence exemption trap: from 1 July 2020, non-residents at the time of sale generally lose the main residence CGT exemption. If you plan to sell your Australian home, do it before leaving to preserve the full exemption.

Medicare

Medicare eligibility continues for up to 5 years from departure. After that, it lapses. Medicare only covers treatment in Australia when you visit. There is a reciprocal healthcare agreement between Australia and Italy — it covers emergency treatment during temporary visits. For ongoing care, register with the Italian SSN as a resident.

The timing play for Australians

Because super goes from 0% (Australia) to at least 7% (Italy with the regime), the pre-residency window matters:

• Take super lump sums while still Australian tax resident (0% after age 60)
• Sell the Australian home before departure (preserves main residence exemption)
• Crystallise capital gains while still in Australia (full 50% discount)
• Roll SMSF into a retail fund if maintaining compliance from abroad is impractical

The treaty — clean for private pensions

The 1995 SA–Italy treaty follows the OECD model closely. Article 18 gives the residence state (Italy) exclusive taxing rights on private pensions and annuities. South Africa has no saving clause — once SARS confirms you as non-resident, SA stops taxing your worldwide income. The result: Italy has sole taxing rights on your private pension income, and under the 7% regime, that's 7% total. No SA tax, no Italian surtaxes, no IVIE, no IVAFE.

This makes the Italy–SA combination one of the cleanest outcomes available — on par with the UK and Canada.

GEPF — government pensions stay in SA

Article 19 of the treaty gives South Africa exclusive taxing rights on GEPF pensions paid in respect of government service. Italy cannot tax them — you declare them on your Italian return with the treaty exemption noted, but no Italian tax is due. GEPF pensions are not eligible for the 7% regime because Italy doesn't tax them.

Exception: if you hold both SA and Italian nationality and reside in Italy, Art. 19(2)(b) may give Italy the taxing rights instead.

Retirement annuities and preservation funds — the three-year wait

Since 1 March 2021, SARS — not the Reserve Bank — determines your non-resident status for retirement fund purposes. To withdraw your retirement annuity (RA) or preservation fund before retirement age, you must:

• Complete tax emigration through SARS (cease to be SA tax resident)
• Remain non-resident for 3 uninterrupted years
• Obtain a Non-Resident Tax Status Confirmation Letter from SARS
• Apply for a tax directive from SARS for the withdrawal

The withdrawal is taxed in SA under the retirement lump-sum tax tables: 0% on the first ZAR 550,000, then 18%, 27%, and 36% on higher amounts. From 11 April 2025, SARS discontinued the RST02 refund request for non-residents — you can no longer claim a DTA-based refund through that route. Instead, apply for relief via the mutual agreement procedure or directly through the tax directive process.

The two-pot system — from 1 September 2024

South Africa's retirement system was restructured into three components:

Seed capital of 10% of your pre-September 2024 savings (capped at ZAR 30,000) was transferred into the savings component. If you've already left SA, any savings-component withdrawal is taxed as income — in Italy, that means IRPEF rates or 7% under the regime.

Exchange control — getting money out of SA

• Single Discretionary Allowance (SDA): ZAR 2 million per calendar year — doubled from ZAR 1 million in March 2026. No SARS approval needed, but you must have a valid tax number.
• Foreign Investment Allowance (FIA): ZAR 10 million per calendar year with a SARS Tax Compliance Status (TCS) PIN. Available to SA tax residents; non-residents use the emigration channel instead.
• Non-resident transfers: once SARS has confirmed your non-resident status, retirement fund lump sums and other capital can be transferred via your authorised dealer (bank) with the appropriate tax clearance.

Pension/annuity income (not lump sums) can be transferred offshore without using your SDA or FIA allowances — regular pension payments are current-account transfers, not capital movements.

The 7% regime — transformative for South Africans

The combination works because SA doesn't tax non-residents on foreign-source income, and the treaty gives Italy exclusive rights on private pensions:

• South Africa: 0% (treaty gives Italy exclusive rights; you're confirmed non-resident)
• Italy: 7% flat on all foreign income. No IVIE, no IVAFE, no surtaxes.
• Total tax: 7% — on income that was building up in a high-tax environment.

GEPF pensions stay taxed in SA under Art. 19 — they can't benefit from the 7% regime. But they're also not taxed by Italy, so there's no double taxation.

Country opt-out: Art. 24-ter comma 8 lets you exclude specific countries from the 7% regime, reverting that income to ordinary IRPEF with standard FTC. Unlikely to be useful for SA income since SA generally doesn't tax non-residents.

What you still owe SARS

The general framework

Italy has tax treaties with over 100 countries. The pension provisions typically follow the OECD Model: private pensions are taxable only in the country of residence (Italy), while government pensions are often taxable only in the paying state. But details vary — some treaties have specific provisions for social security, lump sums, or particular pension types.

Regardless of treaty, Italy taxes foreign pension income at progressive IRPEF rates as income under Art. 49(2)(a) TUIR. Under the 7% regime, all foreign income — pensions, investments, rental income, capital gains — is taxed at a flat 7% for up to 10 years if you move to a qualifying southern town.

We're adding detailed pension guides for more source countries. If yours isn't covered yet and you'd like specific guidance, get in touch and we'll connect you with a cross-border tax adviser who works with your nationality in Italy.