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Transfer of tax residency in Italy and optional regime for foreign pension income

The Italian Revenue Agency provides clarifications on the possibility, for a UK citizen, to benefit from the 7% regime for foreign pension holders.

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In its Reply n. 21/2024, the Revenue Agency examined the possibility for a British citizen to benefit from the favourable regime for foreign pension holders (art. 24-ter of TUIR).

The applicant’s case

The applicant intends to establish his tax residency in Italy, pursuant to art. 2, par. 2 of TUIR.

However, he underlines that he will keep his tax residency in the UK, in accordance with art. 4, par. 2 of the Convention between Italy and UK, because of significant work and family ties existing in the foreign country.

The British citizen claims that, during his working career, he has subscribed to two different supplementary pension schemes, provided by his employers in the UK. In particular, these schemes are the Merchant Navy Officers Pension Fund and the Financial Assistant Scheme.

The applicant intends to opt for the 7% substitute tax regime, starting from his first year of tax residency in Italy, pursuant to art. 2, par. 2 of TUIR.

The questions raised

Based on these facts, the applicant raised questions regarding:

  1. The Agency’s confirmation that the benefits deriving from such funds fall under the regime provided by art. 24-ter of TUIR.
  2. For the purpose of Italian tax residency, the fact that the applicant will retain his tax residency in the UK, pursuant to art. 4, par. 2 of the Convention, does not preclude the application of the regime.
  3. The possibility to make pension benefits subject to taxation in Italy, by applying art. 24ter of TUIR. However, for some tax periods, from 2024 onwards, the applicant will be “exclusively resident in the UK”, pursuant to the Convention. Thus, distributions from the Merchant Navy Fund and the FAS will be taxed exclusively in the foreign State, according to art. 18 of the Convention.

Based on art. 24-ter, the regime in question is applicable to natural persons who hold pension income (art. 49, par. 2, a) distributed by foreign subjects, where such persons transfer their tax residency to Italy.

Such transfer must occur from a country with which Italy has signed an administrative cooperation agreement on taxation. Residency must be transferred to a municipality with a population not exceeding 20.000 inhabitants of Sicily, Calabria, Sardinia, Campania, Basilicata, Abruzzo, Molise and Apulia, or in one of the municipalities affected by the seismic events of 2016 and 2009.

These persons may subject all their income produced abroad to a 7% flat-rate tax for an overall period of 10 years.

The Agency’s reply

Question n. 1

In responding to the first question, the Revenue Agency confirmed that the link with a previous work activity, as well as the right to receive income when reaching a certain retirement age, equates the schemes in question with pension funds, also for the purpose of income tax in Italy.

Thus, the Agency confirms that the sums deriving from the subscription to such schemes fall under the types of income described in art. 49, par. 2, letter a) of TUIR.

Question n. 2

Regarding the second question, the Agency confirms that the applicability of the benefit implies the effective transfer of the natural person to Italy, based on Circular n. 21/2020. In particular, the Agency claims that:

“it is not necessary to investigate on the configurability of a situation in which the subject is resident not only in Italy, but also in one of more other States, and thus on the applicability of the so-called tie breaker rules.”

Therefore, the financial administration considered the benefit provided for by art. 24-ter of TUIR to be applicable, starting from the tax year of the transfer of the tax residency, pursuant to art. 2 par. 2 of TUIR.

Question n. 3

The Agency did not provide a clear answer to the third question raised by the applicant, thus leaving space for different interpretations.

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Regulatory Framework

Article 49, paragraph 2, letter a) of TUIR

Reference (Italian only)

Article 2, paragraph 2 of TUIR

Reference (Italian only)

Article 24-ter of TUIR

Reference (Italian only)

Article 4, paragraph 2 - Convention Italy - United Kingdom

Reference (Italian only)

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