The 70% tax rule in Italy, often part of the "Impatriates Regime" (lavoratori impatriati), allows qualifying professionals who move their tax residence to Italy to pay tax on only 30% of their income for five years. This incentive aims to attract skilled workers, researchers, and entrepreneurs, with the exemption increasing to 90% for relocating to Southern Italy.
Italian tax relief for expat workers
Under this law, during the first five years of employment in Italy, only 30% of your income is taxable, leaving 70% of your gross income as yours to keep.
Retiring to Italy from the U.S. involves downsides like navigating complex bureaucracy, a significant language barrier, and cultural adjustment to a slower pace, alongside potential difficulties with inconsistent infrastructure (like old buildings or driving rules) and complex dual tax filing, though costs can be lower and lifestyle excellent. Key challenges include the lengthy visa process, understanding Italian tax laws, and potential isolation without Italian fluency, especially outside major cities, with top doctors often in the North.
Income tax for non-residents, including foreigners who do not reside in Italy, is based on their Italian-source income. The tax rates vary depending on the type of income earned, with employment income generally taxed at a flat rate of 30% and rental income from real estate taxed at a flat rate of 26%.
US expats in Italy need to be aware of two different national tax systems. First, virtually all US citizens are required to file an annual US Federal tax return, regardless of whether they live in the United States or Italy. Second, by living in Italy, American expats also can be subject to Italy taxation.
If you spend more than 183 days per year in Italy, you become a tax resident and must pay taxes on worldwide income, including Social Security and pensions. Ordinary income is taxed 23% to 43%, depending on the amount. Some retirees may qualify for a 7% flat tax if they move to a small southern town.
U.S. Social Security benefits are taxable in Italy as part of your worldwide income. While the U.S. retains the right to tax these benefits under the tax treaty, Italy also taxes them—often at your marginal income tax rate.
Italy's 7% tax rule is a special flat tax regime for foreign retirees who move their tax residency to small towns in Southern Italy, allowing them to pay a flat 7% on all their foreign-sourced income (pensions, rentals, dividends, etc.) for up to ten years, instead of standard progressive rates, as an incentive to revitalize southern regions. To qualify, you must not have been an Italian tax resident for the past five years and meet relocation criteria, with benefits including exemption from wealth taxes on foreign assets and simplified reporting.
If you are a U.S. citizen, you may receive your Social Security payments outside the U.S. as long as you are eligible for them.
Poverty was the main reason for emigration, specifically the lack of land as mezzadria sharecropping flourished in Italy, especially in the South, and property became subdivided over generations. Especially in Southern Italy, conditions were harsh.
25 important things to know before coming to Italy
Your liability on pension income as an expat in Italy depends on your residency status for tax purposes. If you're considered an Italian tax resident, you will be subject to income tax on your worldwide income, which includes foreign pensions such as international SIPPs.
The 100,000 euro tax rule in Italy allows new residents to pay a flat €100,000 per year on all foreign-sourced income, regardless of the amount earned. For example, whether you earn €500,000 or €50 million outside Italy, the liability remains €100,000 annually.
Of the countries under study, The Netherlands, Austria, Luxembourg and Denmark offer their citizens the best protection against social risks. The citizens of Greece, Spain and Romania are found to be less protected.
Cost of living at a glance
Recent studies show that a single person in large cities needs an average of €1.400 to €2.700 per month for living expenses, while a family of four needs around €3.000 to €4.500.
Expats who plan to move to Italy will enjoy a number of benefits, but should be aware that there are a few disadvantages, as well.
Costs of the Italian Healthcare System
In-patient care and primary care are free, as is visiting a doctor. However, the public health system uses a "co-pay" system (cost-sharing between the SSN and the patient) for specialist visits, diagnostic procedures, and prescription medication.
The average monthly salary in Italy is €3000, approximately USD 3127. However, salaries vary by education, experience, location, position, and industry.
Let's learn about some affordable Italian cities to decide which one is a good fit for you.
No, a U.S. citizen cannot just move to Italy; you must obtain the correct long-stay visa before you go, as you can only stay for 90 days visa-free for tourism, and longer stays (over 3 months) require a specific visa like a work, elective residence (for passive income), digital nomad, or student visa, followed by applying for a permesso di soggiorno (permit to stay) upon arrival. The process involves applying at an Italian consulate in the U.S., gathering extensive documentation (proof of income, housing, etc.), and can take several weeks or months.