Tax Opportunities for New Residents

You’re thinking seriously about buying a property in Sicily, but have you decided whether your new property will be your permanent residence, or a second home? Many prospective buyers put this decision off, but in reality it’s one of the biggest questions you will need to consider. Say you plan to spend more than 183 days per year in Italy (and who wouldn’t want to do that!?) – you’ll have no choice but to become a tax resident here. The prospect of entering into the country’s sometimes draconian tax regime can be off-putting for interested buyers, but don’t despair! Our current government is working hard to attract individuals willing to establish residency, and Italian tax rates are very favourable for new arrivals. On this page we’re going to explain some ways to reduce your tax liability dramatically – you could easily save tens of thousands of Euros a year throughout your first decade of residency. Keep reading to find out more…

We know that tax law isn’t the most thrilling subject in the world, so every so often we’re going to try to lift your spirits with some reminders of why a new home in Sicily is worth all the hard work!

To Reside or Not to Reside?

That is the question. If you’re planning to build a new life on our island then the need to register with your new municipality (we can take care of this as part of our hugely popular Welcome to Italy package) and become an Italian taxpayer is obvious. But if you’re seeing your new villa or apartment as a second home, the choice is yours to make based on the time you spend here. As mentioned above, if you spend more than half the year in this country – or have your principal centre of business, social or economic interests (for instance, dependent family members) here, you will be considered to have residency, and Italian tax will apply.

What does this mean? One important distinction is that while non-residents are only liable for Italian tax on income earned on these shores, residents must pay tax on their entire worldwide income to the Italian government. However, many countries have what are known as Double Tax Treaties (DTTs), protecting you from the possibility of having to pay tax twice on the same income. For full details, take a look at this page on the website of the Agenzia dell’Entrate (Italian IRS).

The Italian tax year runs from January to December and you will be required to register from the first year in which you spend more than six months in the country. The standard system collects funds on a scale from 23% (on income under €15,000 p.a.) to 43% (on income above €75,000), and there are also regional and municipal taxes which will require contributions of another 1-2.2%.

A complex system of allowances and credits are available for dependent family members, medical and educational expenses and so on. We always recommend that our clients seek independent advice from a tax professional, and would be more than happy to put you in touch with one who speaks your language.

Still hanging in there? Congratulations. Here’s what’s waiting for you at the other end…

Pension income is taxable in Italy, but since 2019 the law has included a loophole for new arrivals, and it particularly applies to Sicily. Our region is one of just eight (along with Abruzzo, Molise, Puglia, Campania, Basilicata, Calabria and Sardinia, if you’re wondering) where international arrivals with a private or public pension, moving their residence to a municipality with fewer than 20,000 residents, qualify for a full decade of tax relief.

The provision allows these new expats to pay a flat rate of just 7% on all international income. That means your pension, any property income, capital gains, even dividend payments. You do need to have been living outside Italy for the previous five years, and demonstrate that your pension and other income provides more than a baseline income, but the incredible news is that there is no upper cap on income taxed at this rate. That’s right – you can enjoy a completely flat tax rate on all income brought into the country! You don’t need to be an accountant to work out the savings.

The 7% flat tax lasts for a fixed period of 10 years.

If you haven’t reached the magic point of retirement just yet, you can still benefit greatly from the country’s desire to attract a cosmopolitan array of arrivals. In recent years you may have read about legislation which allowed new residents to pay tax on just 50% of any self-employed income. Italy’s 2021 budget went even further, pushing this figure up to 70% – and the best is yet to come…

If you transfer your residency and Italian tax status to one of the eight Southern regions (and yes, that very much does include Sicily!), your tax-free allowance will be an incredible 90%. Worth repeating. Ninety per cent!

To be clear, this doesn’t means that you pay 10% tax – it means that only 10% of your income is subject to tax. With the first €15,000 earned only being taxed at a 23% rate, that could mean your total tax bill is an astonishing 2.3% of your income. No wonder people say that Italy’s South is ready for a smart-working boom!

This arrangement is open to EU citizens, and citizens of countries who have a double tax agreement in place with Italy. This includes both the UK and USA. Applicants need to demonstrate that they have been working continuously, either in employment or self employment, for the two years preceding their move to Italy, or to have been studying in that period and earned either an undergraduate or postgraduate degree from an accredited higher education institution.

The 90% tax-free allowance lasts for five years from the point at which you establish residency in Italy.

Property sales in Italy are, naturally, subject to purchase taxes (often known as ‘Stamp Duty’). If you buy property in Sicily as a second home then this will be equivalent to 9% of the cadastral value – which can be a hefty bill, especially for some of the more luxurious properties in our meticulously-selected portfolio.

Be aware that the cadastral value is established in the local Land Registry, and is not the same as the purchase price. While we are regularly delighted to help our clients negotiate the best possible deal for their new home, we can’t do anything about the taxable value for these purposes.

However, if you elect to make your new investment a permanent residence, this drops down to an infinitely less intimidating 2%. On a property valued at €200,000, that’s a saving of €14,000 right off the bat. Then take into account the advantages of the above tax regimes and you’ll understand why so many of our clients are giving serious consideration to establishing permanent residency in Italy.

As you can see, the financial advantages of relocating on a full-time basis to our sunny island are nearly as dramatic as the geographic and lifestyle benefits Sicily has to offer. We would definitely urge anyone looking at buying property with us to consider doing so as a resident.

Not sure whether you qualify to move to Italy? Our comprehensive guide will take you through the main criteria and give far more information about the process, or speak to one of our friendly, multilingual team today.