29 August 2020
August 2020

The Italian Tax Authority – Circular Letter July 27, 2020, n. 21 - clarified the optional 7% substitute tax regime for individuals with foreign-source retirement incomes who move their tax residence to small municipalities in Southern Italy (art. 24-ter of the Italian Tax Code).

Subjective scope
Persons with pensions (and equivalent income) paid by foreign subjects can opt for the abovementioned tax regime. 

Objective scope
The concept of pension includes:
     - contributions due because of the retirement, even if the retired was not an employee;
     - severance grants
Italian incomes are excluded from the favorable regime.

Requirement of tax residence
Taxpayers can opt for this regime on the condition that they have been resident for tax purposes abroad for at least 5 years before exercising the option.
The nationality does not influence the possibility to benefit from the favourable regime, that can be opted by both Italian and non-Italian citizens.

Exercise of the option
The option must be exercised filing the annual income tax return.
The 7% substitute tax exhausts the tax obligation due in Italy only with respect to the foreign income. The option has effect from the fiscal year when the taxpayer become resident for tax purposes in Italy and for the nine following fiscal years.

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