Southern Italy Has Never Been More Appealing as a Retirement Destination. Here’s Why.

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Sat, 06/03/2023 - 14:00
An elderly couple on the waterfront of Cefalu, Sicily / Photo: Alex Segre via Shutterstock
An elderly couple on the waterfront of Cefalu, Sicily / Photo: Alex Segre via Shutterstock

A 7% flat tax regime and drastically lower cost of living than the US and many European countries are just some of the reasons many Americans are looking towards southern Italy as a place to retire to in the next few years. Add warm weather, unspoiled beaches and delicious gastronomy to the mix, and a retirement plan for Italy is all the more appealing.

If you are soon to retire or have recently retired, an Italian adventure could be just the solution for you. Alex Ingrim, US Private Wealth Manager and Senior Investment Analyst at Chase Buchanan USA, explains the practicalities.

Traditionally styled homes in Monopoli, Puglia / Photo: Miti74 via Shutterstock
Traditionally styled homes in Monopoli, Puglia / Photo: Miti74 via Shutterstock

Even without tax advantages, the temptations to move to Italy once retirement age approaches are myriad. Romantics need only daydream about their very own Under the Tuscan Sun home renovation project. Italophiles who spend a few precious weeks in Italy a year would have all the delights of Italian culture at their fingertips as an insider, one who lives here and becomes fully immersed in a community. And of course, though a stereotype, Italian culture decrees that older members of society are respected and honored. 

Bring in the increasing financial incentives, and your very own dolce vita retirement plan is looking even peachier. Italy now has great tax incentives for retirees looking to move to southern Italy, which for these purposes includes the the regions of Sicily, Calabria, Sardinia, Campania, Basilicata, Abruzzo, Molise, and Puglia. The 7% flat tax regime is a significant tax income tax cut from what would normally be due on pensions like US Social Security, as well as for IRA distributions. More information on the particulars of the regime below. This tax incentive puts southern Italy on par with more popular retirement destinations like Portugal or Greece, and makes the tax burden significantly lower than somewhere like Spain.

How does the 7% flat tax scheme actually work?

Colourful houses of Bosa, Sardinia / Photo: Ivoha via Shutterstock
Colorful houses of Bosa, Sardinia / Photo: Ivoha via Shutterstock

This is a tax regime aimed at persons in receipt of a foreign pension. In order to be eligible, applicants must be in receipt of a foreign pension, not have been tax resident in Italy during the last five fiscal years, and be resident in a small commune of less than 20,000 inhabitants in the southern regions of Italy. This includes Sicily, Calabria, Sardinia, Campania, Basilicata, Abruzzo, Molise and Puglia. Applicants can still have income sources from outside a pension.

The 7% flat tax does not only cover pension income like Social Security, but it also covers any 401k or IRA distributions, as well as any other foreign sources of income. This includes dividends, interest, capital gains, and rental income from property. There are also no reporting requirements on foreign assets or any wealth tax liabilities.

The tax scheme lasts for up to 10 years, as long as you continue to reside in a qualifying comune (municipality). It’s worth noting that for Americans, due to the dual tax liability, the 7% tax rate may not extinguish all your US tax liabilities. Any US taxpayer may still have a liability beyond the 7% rate, but this is a significant tax break versus Italian income tax rates of up to 43%. For non-US taxpayers, this is a significant opportunity to lower your tax liability and restructure your financial affairs at very low tax rates.

The cost of living 

Magical beach days in Tropea, Calabria / Photo: pashamba via Shutterstock
Magical beach days in Tropea, Calabria / Photo: pashamba via Shutterstock

The cost of living in southern Italy, but also throughout the entire country, can be significantly lower than in other European countries and in the US. While not traditionally thought of as a "cheap" jurisdiction, many parts of southern Italy in particular have seriously competitive costs of living, especially when compared to other popular retirement destinations. 

When comparing big cities, Rome is significantly cheaper than New York, for example. According to research by Chase Buchanan, rental prices in Rome are 65% to 70% lower than in New York, while the cost of fresh food is similarly cheaper. These comparisons are noteworthy even when looking at rental prices in Rome compared to smaller American cities like Denver, with Roman apartments still 30% to 50% cheaper to rent.

If you’re looking at smaller cities, particularly those in southern Italy that are growing in popularity as retirement destinations, the costs compare favorably even to destinations with a reputation as "cheap." For example, charming Brindisi in Puglia has rental prices 30% cheaper than Faro, in the popular Portuguese region of the Algarve. And while housing inflation has grown significantly in Portugal, prices have stagnated nationally in Italy over the last two decades, making it far more affordable to rent or purchase property. 

All in all, Italy may be worth considering as more than just a holiday destination. And for those who have long dreamed of making it their home but thought it to be financially impossible, these new retirement incentives could just be the golden ticket. Coupled with the lower cost of living, this allows retirees, especially from more expensive jurisdictions like the US or UK, to retire earlier, travel more, and worry less about their financial positioning in retirement.

About Chase Buchanan

Chase Buchanan USA provides financial planning services to Americans looking to move to Europe, including Italy and the 7% flat tax regime. As experienced American expats in Italy, we can help guide you through the complexities of Italian tax law while understanding your dual tax liability to both the US and Italy. Our services include holistic financial planning, retirement planning, and investment management aimed at mitigating your tax liabilities in both the US and Italy. 

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