IRPEF Substitute Tax: Foreign Pension Income

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The Italian Revenue Agency further clarifies eligibility conditions for the IRPEF’s substitute taxation regime for individuals with foreign pension income.

Following the reply to Question No. 244 published by the Italian Revenue Agency, further clarifications were given regarding the eligibility of the IRPEF’s substitute taxation regime (Article 24-ter of TUIR) provided for individuals with foreign pension income.

The Substitute Taxation Regime

In general, the IRPEF substitute taxation regime is available to individuals who move to Italy and who are holders of foreign pensions referred to article 49, paragraph 2, letter a) of the TUIR provided by foreign entities. Emoluments received as a result of cessation of work and one-off allowances paid as a result of the contributions payment are also included in this category.

Fundamental requirements of pension funds

The fundamental characteristic that such pension funds must have is that they need to have a social security purpose, aimed at guaranteeing the individual a supplementary pension in the form of annuity or capital. Therefore, it is not possible to benefit from the application of the substitute tax with regard to the underwriting of policies that have only a financial investment purpose.

Avoid double taxation

In addition, once the personal data requirement for access to the benefit has been met, pension benefits in the form of capital or annuity and provided by a foreign pension fund to a person who intends to transfer his residence in the territory of the State should be taxable in Italy according to the specific Convention to avoid double taxation between Italy and the foreign country in which the pension is stipulated.

In conclusion, it is necessary to clearly define and establish whether the incomes of such foreign investments can be classified according to the internal rule, to pensions or to capital income.

Regulatory Framework

Reply n. 244/2021

Reference (Italian only)

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