The 7% Flat Tax for Retirees in Sicily: Eligible Towns and Requirements in 2026

By Arch. Fabio Costanzo, Studio 4e · Updated: March 2026

Italy's 7% flat tax for foreign pension holders is one of the most powerful tax incentives in Europe: a flat 7% on all foreign-source income for 10 years, in exchange for transferring your residence to a small Italian town. In Sicily, most rural municipalities qualify. Here is how it works and what can go wrong.

What the 7% flat tax is — and is not

Italy's 7% flat tax regime (Art. 24-ter TUIR, introduced by the 2019 Budget Law) allows foreign pension holders who transfer their tax residence to an eligible Italian municipality to pay a flat 7% on all foreign-source income — instead of the progressive Italian rates that can reach 43%. The regime lasts 10 years. There is no income cap, making it very attractive for high-pension holders.

What it is not: it does not exempt you from Italian tax on Italian-source income (Italian rents, Italian capital gains), which are taxed normally. It does not apply to employment income. It is not available if you were an Italian tax resident in any of the previous five tax years.

Which municipalities qualify in Sicily

The regime applies to municipalities under 20,000 inhabitants in southern Italian regions, including Sicily. In Sicily this covers the vast majority of towns outside the main city centres. Examples of eligible destinations popular with foreign buyers:

• Piazza Armerina, Noto, Modica, Scicli: verify current population against the 20,000 threshold — some are borderline. Use the ISTAT census data.
• Mazzarino, Nicosia, Troina, Regalbuto: well under 20,000 — clearly eligible
• Most rural municipalities in the provinces of Enna, Caltanissetta, and inland Agrigento
• Coastal villages (Marzamemi, Portopalo, Donnalucata) — verify individually

The population threshold is checked against the most recent ISTAT census data. Verify with a commercialista before committing to a specific location, as the status can change between census cycles.

The requirements to qualify

1. Foreign pension income: you must receive a pension (old-age, disability or survivors) from a foreign source. Employment income, rental income or business income does not qualify for the flat 7% — only pension income from abroad.
2. Not previously resident in Italy: you must not have been tax resident in Italy in any of the previous 5 tax years before first applying the regime.
3. Transfer of tax residence to an eligible municipality: you must register residenza anagrafica in an eligible comune. This requires physical presence — the comune conducts unannounced residence checks.
4. Minimum annual stay: Italy requires tax residents to spend more than 183 days per year in Italy. If you split time between countries, document your Italy days carefully.

How to activate the regime: the practical steps

1. Identify an eligible municipality and find accommodation (ownership is not required — rental is sufficient)
2. Register your residenza anagrafica at the local Comune: bring valid identity document, codice fiscale, proof of accommodation
3. File the Italian income tax return (Modello Redditi PF) for the year of first residence, indicating the option for Art. 24-ter TUIR
4. Pay the flat 7% on total foreign-source income declared

The regime renews automatically each year unless you revoke it or move to an ineligible municipality. After 10 years it expires and you revert to standard Italian progressive rates.

What happens to your property purchase and renovation costs

The 7% regime affects income tax only. Property purchase taxes (IMU, registration tax), property tax (IMU/TASI), and VAT on renovation works are unchanged. However, renovation of a main residence may qualify for the standard 50% renovation bonus (IRPEF deduction on works up to €96,000, spread over 10 years) — applicable regardless of the 7% regime and potentially useful if you have Italian rental income to offset.

Risks and things that can go wrong

• Double taxation treaties: the 7% Italian tax does not override foreign tax obligations. UK, US, Germany and France all have tax treaties with Italy — the interaction with the 7% regime requires specialist advice from a cross-border tax professional
• Residence checks: Italian comuni conduct unannounced residence checks (vigili urbani). If you are not actually living there, your registration can be cancelled retroactively, voiding the regime and triggering back taxes with penalties
• Bureaucratic delays: registering residence in small Sicilian comuni can take 3–6 months due to administrative backlogs. The 7% regime only applies from the tax year in which residence is formally registered