Italy income tax 2025 for foreigners: flat tax & residency benefits explained

If you're a foreigner living in Italy—or planning to make the move—it's essential to understand how personal income tax (IRPEF) works. Italy offers several tax regimes that can make relocating not only culturally enriching but financially advantageous too, especially if you're bringing foreign income or pensions with you.

In this article, we break down how individual taxation in Italy works in 2025, the benefits of becoming a tax resident, and the available flat tax options for newcomers and retirees.

Tax basics in Italy: who pays and what

In Italy, individuals are subject to three levels of income tax:

• National income tax (IRPEF)
• Regional income tax (varies by region)
• Municipal income tax (varies by municipality)

These are applied on a progressive basis, depending on your total taxable income.

How much income tax do you pay in Italy? For the 2025 tax year, national income tax rates are as follows:

To this, you’ll need to add regional tax (1.23%–3.33%) and municipal tax (0%–0.9%). For more on how much you need to pay, check out one of the many Italy income tax calculators available online. 

Resident vs. non-resident: what’s the difference?

• Tax residents in Italy pay tax on worldwide income, including earnings, property income, dividends, and pensions from abroad.
• Non-residents only pay tax on income produced in Italy (e.g., local work contracts or property rental income).

To be considered a tax resident, you must meet certain criteria, including spending more than 183 days per year in Italy or having your main economic interests based there.

Flat tax for new residents: a game-changer

One of Italy’s most attractive features for wealthy expats is the neo-domiciled tax regime. It allows individuals who transfer their tax residency to Italy to pay a flat tax of €200,000 per year on all foreign-sourced income (this was €100,000 for those who joined the scheme before 2025).

Key features include:

• Applies to all non-Italian income (excluding some capital gains in the first five years)
• No obligation to declare foreign assets in the Italian tax return
• Option to extend the benefit to family members for €25,000 each
• Lasts up to 15 years
• Requires non-residency in Italy for 9 of the previous 10 years

You’ll need to elect this regime in your Italian tax return, and it’s strongly recommended to request an official advance ruling to ensure eligibility.

7% flat tax for foreign pensioners in southern Italy

If you’re retiring to Italy and drawing a foreign pension, a different but equally attractive regime may apply. Italy offers a 7% flat tax for foreign pensioners who relocate to small towns (under 20,000 residents) in southern Italy—including Sicily, Calabria, Sardinia, Puglia, and others.

Eligibility criteria:

• Not a tax resident in Italy for the past 5 years
• Transfer tax residency to an eligible town
• Receive a foreign pension
• Move from a country that has a tax cooperation agreement with Italy

The regime applies for 10 years and includes most types of income, not just pensions. However, income from unit-linked policies and some insurance-related pensions are excluded.

Other special tax treatments

1. Productivity Bonuses: Employees may benefit from a 5% flat tax on productivity bonuses (normally 10%), up to €3,000/year, valid through 2027—provided their gross annual salary is under €80,000.

2. Financial Sector Executives: Variable compensation in the financial sector is subject to an additional 10% tax, depending on salary structure.

Tax planning tips for foreigners moving to Italy

Whether you're planning to move to Italy permanently or just exploring residency options, tax planning is essential. Here are some expert tips:

• Choose your location wisely – regional and municipal taxes vary.
• Apply for favourable regimes early – especially for flat tax schemes.
• Keep records of your foreign income and assets, even if exempt from reporting under certain regimes.
• Seek professional advice – especially if your situation involves high earnings, property abroad, or complex investments.

Getting used to Italy's tax system

Italy’s tax system may appear complex at first, but for foreign nationals, it offers unique incentives that can significantly reduce your tax liability. Whether you're a retiree dreaming of the Sicilian coast or a global executive relocating to Milan, understanding the options available can help you make the most of your move.

For tailored advice or property options that meet your tax residency needs, get in touch with our expert team—we’re here to help you make Italy home.