The 7% flat tax: Italy's best deal for foreign retirees, explained.

Move your tax residence to a small town in Italy's South with a foreign pension, and Italy will tax all your foreign income — pension, dividends, capital gains, rents — at a flat 7% for up to 10 years. It also switches off Italy's wealth taxes on your US or Canadian assets. Since April 2026 the map of qualifying towns got bigger. Here's exactly how it works.

What the regime actually is

Article 24-ter of Italy's income tax code (TUIR) lets holders of foreign pensions who move to a qualifying municipality elect a substitute tax of 7% on every category of foreign-source income — the pension itself, plus dividends, interest, capital gains, and rental income from outside Italy. It replaces the normal IRPEF ladder (23% / 33% / 43% in 2026) and the regional and municipal surtaxes on that income.

Two other effects matter to Americans and Canadians with assets back home: while the regime applies, IVIE (Italy's 1.06% annual tax on foreign real estate) and IVAFE (0.2% on foreign financial assets) are not due, and you're exempt from the foreign-asset monitoring return (quadro RW). For someone with a US brokerage account and a house in Florida, that alone is worth real money and real paperwork.

Who qualifies: the three conditions

1. A foreign pension. You must receive pension income from a non-Italian payer — US Social Security, a private or occupational pension, CPP/OAS, or similar. The pension is the gateway; once through it, the 7% covers all your foreign income, not just the pension.
2. Residence in a qualifying town. You must transfer your tax residence to a municipality with fewer than 30,000 inhabitants in one of the eight southern regions: Abruzzo, Molise, Campania, Puglia, Basilicata, Calabria, Sicily, or Sardinia. The population ceiling was raised from 20,000 by Law 34/2026, effective April 2026 — 74 towns were added, including Ostuni and Pompei. Guides written before 2026 understate the map.
3. Five clean years. You must not have been Italian tax resident in the 5 tax years before the move — true for almost every American and Canadian reader.

Your country of previous residence must also have an administrative-cooperation arrangement with Italy — the US and Canada both do.

What it saves: a worked example

A single retiree with €50,000/year in foreign income (pension plus dividends), before deductions and credits:

Illustrative gross comparison only — the standard-regime figure ignores deductions, credits, and treaty allocations that vary by person. Add the IVIE/IVAFE waiver on top for anyone keeping US or Canadian property and brokerage accounts.

The mechanics

• You elect it in your first Italian tax return after moving — it is not automatic. The tax is paid in a lump sum by the return deadline each year.
• It runs for the year you become resident plus nine more — up to 10 years total. It is not renewable beyond that.
• You can waive it in a later year if it stops making sense; the effects cease from then on.
• It lapses if you move your residence to a municipality that doesn't qualify. Check your exact comune's population and region before signing a lease or deed — and note that the town qualifying at entry is what matters; get professional confirmation on your specific comune.
• It pairs naturally with the elective residence visa: the ERV's passive-income profile is exactly the income the 7% regime covers.

Should you organise your move around it?

Only if the town fits the life. The qualifying map is genuinely attractive — Puglia's white towns, Sicilian coast, Abruzzo hill country — and at €2,000/month average household spending, Puglia is Italy's cheapest region (ISTAT). But these are small southern towns: thinner English, hotter summers, a car (and eventually an Italian driving licence) near-mandatory, and healthcare quality that lags the North on official LEA scores. A tax rate is a bad reason to live somewhere you don't like — for ten years, it's a terrible one. Rent first, run a winter there, then elect.