Swiss retiree: 7% flat tax regime in Southern Italy
Hypothetical case study developed on the basis of our experience with international investors, intended to illustrate the type of transactions the Firm is able to structure and manage for clients with a similar profile; the scenario does not refer to a specific case that has actually been handled.
A retired banking executive, tax resident in the Canton of Zurich for over thirty years, is considering transferring his tax residence to a municipality in Calabria with a population not exceeding 20,000 inhabitants, in order to access the optional regime under Article 24-ter of the Italian Income Tax Code (TUIR), which provides for the application of a substitute tax at a rate of 7% on foreign source income. An operation that may generate a significant tax burden differential compared to ordinary Swiss taxation, varying depending on the Canton of origin and the composition of income.
However, it requires rigorous planning: from verifying the eligibility requirements for the preferential regime to managing the Swiss pension pillars (AHV, occupational pension fund, third pillar), from the correct application of the Italy Switzerland Double Taxation Convention to deregistration from the cantonal taxpayers register. A tax transition which, if not properly structured, may result in double taxation, challenges regarding tax residence under Article 2 TUIR and the conventional tie breaker rules, as well as audits by the tax authorities of both States.
The client
A Swiss citizen tax resident in the Canton of Zurich, formerly an executive at a leading Swiss banking institution, who retired after more than thirty years of professional activity. His asset profile includes an AHV pension (first pillar), an annuity from the corporate pension fund (second pillar), capital accumulated in the restricted third pillar, and a portfolio of financial investments managed by a Swiss bank.
For years he has spent the summer months on the Ionian coast of Calabria. The decision to transfer his tax residence permanently to Italy arises from personal considerations (quality of life and climate), but also from a structured tax assessment: the optional regime under Article 24-ter of the Italian Income Tax Code allows the application of a 7% substitute tax on all foreign-source income, including pension income and capital income, for a maximum period of nine tax years following the exercise of the option.
The challenge
The transfer of tax residence from Switzerland to Italy by a retiree receiving pension income structured across multiple pillars involves legal and tax issues that go far beyond a mere change of registered residence.
Swiss tax and pension complexity
For benefits from the second pillar (LPP) relating to private sector employers, the Italy Switzerland Convention (Article 18) grants exclusive taxing rights to Italy as the State of residence of the recipient. However certain Cantons still apply a withholding tax at source, which is not due under the Convention: it is therefore necessary to initiate the refund procedure with the Swiss authorities and coordinate the Italian tax treatment with the regime under Article 24-ter TUIR
- Verification of the alternative applicability of the substitute taxation regime provided for by Article 76 Law 413/1991 for Swiss pensions, considering that opting for Article 24-ter TUIR entails subjecting all foreign income included in the option to the 7% substitute tax.
- The lump sum redemption of the restricted third pillar (3a) is subject in Switzerland to separate taxation, generally at a reduced rate compared to ordinary taxation. The choice of timing of liquidation (before or after the transfer of tax residence) affects the qualification of the income in Italy (investment income or pension income) and the possibility of applying the 7% substitute tax.
- The cessation of unlimited tax liability in the Canton of Zurich requires proof of an effective transfer of the centre of vital interests. Cantonal tax authorities carefully scrutinise transfers to States providing preferential tax regimes, in order to exclude reverse artificial expatriation or merely formal transfers.
- In the year of fiscal emigration it is necessary to manage residual reporting obligations in Switzerland: split year tax return, potential realisation taxation on specific asset components and settlement of cantonal and federal tax positions.
Complexity of the Italian preferential regime
The 7% substitute tax regime is reserved for individuals who transfer their tax residence to municipalities in Southern Italy with a population below 20,000 inhabitants and who have not been tax resident in Italy in the five tax years preceding the transfer
- Need to verify that the selected municipality in Calabria meets all statutory requirements and that the client has not had prior tax connections with Italy that could preclude access.
- Correct qualification of the various sources of foreign income for the purposes of the regime: AHV pensions, second pillar pensions, investment income from the Swiss portfolio, any real estate income from properties retained in Switzerland. The conventional qualification of pensions (articles relating to private and public pensions of the Italy Switzerland Convention of 1976) is decisive in determining the State with primary taxing rights.
- The regime under Article 24-ter TUIR provides exemption from foreign asset monitoring obligations (RW form) and from the application of IVAFE and IVIE with respect to foreign assets whose income is subject to the 7% substitute tax. It is nevertheless necessary to verify any assets or income excluded from the option.
Migration and administrative complexity
Although Switzerland is party to the Agreement on the Free Movement of Persons with the European Union, the transfer still requires registration in the chosen Italian municipality and acquisition of tax residence pursuant to Article 2 TUIR.
Healthcare transition: LAMal (mandatory Swiss health insurance) terminates following formal deregistration of Swiss residence, subject to notification to the health insurance fund. Access to the Italian National Health Service through form S1 must be assessed case by case depending on the type of pension received and the coordination agreements on social security between Switzerland and the European Union.
- Registration with the Italian National Health Service takes place under the ordinary regime, with possible assessment of supplementary insurance coverage during the transition period.
- Remote management of preparatory phases, with the client still resident in Switzerland during the structuring phase of the transaction.
The ItalyVisaInvestments.com solution
In a case such as this, the Law Firm would adopt an integrated pathway that prioritizes the tax and pension aspects – central elements of the operation – while coordinating them with the administrative and real estate components of the relocation.
- Tax analysis and transfer planning
- Detailed verification of eligibility requirements for the 7% substitute tax regime: absence of Italian tax residence in the previous five years, suitability of the municipality of destination, type of foreign income covered by the regime.
- Comprehensive comparative tax simulation: comparison between the overall tax burden in Switzerland (cantonal, federal and municipal taxes on AHV, second pillar and investment income) and the projected burden in Italy under the 7% regime, including healthcare contributions and local surcharges.
- Planning of the optimal timing for liquidation of the restricted third pillar, with analysis of the tax impact in both scenarios (withdrawal before or after transfer of residence) and assessment of the potential applicability of the 7% regime to capital received after the transfer of tax residence.
- Preparation of documentation required to exercise the option in the income tax return relating to the first tax year of Italian residence, as well as assessment of the opportunity to file an advance ruling request in the presence of complex interpretative issues
- Coordination with Swiss authorities and advisers
- Coordination with the client’s Swiss tax adviser for management of the split year tax return in the year of departure and closure of cantonal tax positions.
- Preparation of documentation evidencing the genuineness of the transfer, in support of deregistration from the Canton of Zurich taxpayers register: purchase or lease agreement for the Italian property, municipal registration, activation of utilities, Italian residence certificate.
- Analysis and application of the Convention for the Avoidance of Double Taxation between Italy and Switzerland of 9 March 1976, ratified by Law 23 December 1978, No 943, with particular reference to the articles concerning private and public pensions and investment income.
- Structuring of the management of the Swiss investment portfolio taking into account the exemption from foreign asset monitoring obligations (RW form) and from the application of IVAFE and IVIE provided by Article 24-ter TUIR for foreign assets whose income is subject to the substitute tax, as well as the rules on automatic exchange of information (CRS).
- Real estate purchase and settlement
- Assistance in the search and selection of the property in the identified municipality in Calabria, with verification of habitability requirements necessary for municipal registration.
- Real estate due diligence: land registry and mortgage searches, verification of urban planning compliance, confirmation of absence of liens or encumbrances.
- Assistance in negotiations and notarial deed, with preparation of tax documentation required for purchase by an individual not yet resident.
- Obtaining a tax code and opening an Italian bank account.
- Administrative compliance and healthcare transition
- Municipal registration in the destination municipality and registration with the Italian Revenue Agency as a tax resident.
- Formal notification to the Swiss authorities of the transfer of residence and deregistration from mandatory LAMal health insurance.
- Voluntary registration with the Italian National Health Service, activation of coverage and selection of a general practitioner.
- Management of utilities and assistance with ongoing administrative procedures.
The result
The process would unfold over approximately four months, from the initial consultation to the effective transfer of tax residence and the confirmation of the preferential tax regime.
- Exercise of the option for the regime under Article 24-ter TUIR in the income tax return, without objections from the Italian Revenue Agency, with an estimated overall tax saving exceeding 40% compared to ordinary Swiss taxation on the same income sources.
- Liquidation of the restricted third pillar executed with fiscally optimal timing, minimising the overall tax burden between the two jurisdictions.
- Deregistration from the Canton of Zurich taxpayers register obtained without challenges, thanks to the documentation prepared to demonstrate the genuineness of the transfer.
- No effective double taxation on pension income: correct application of the Convention for the Avoidance of Double Taxation between Italy and Switzerland of 9 March 1976, with activation of refund procedures for any Swiss withholding taxes not due under the conventional allocation of taxing rights.
- Healthcare coverage ensured without interruption: coordinated termination of LAMal with activation of National Health Service coverage, verification of entitlement to form S1 and, where necessary, activation of supplementary coverage during the transition period.
- Application of the exemption from foreign asset monitoring obligations (RW form) and from IVAFE and IVIE for foreign assets whose income is subject to the 7% substitute tax, with verification of any assets excluded from the option.
The client relocates to the Calabrian municipality finding a situation already fully in place: property ownership, registered and tax residence, the preferential tax regime activated, healthcare coverage, and Swiss pension positions properly coordinated with the new jurisdiction. The tax savings achieved in the first year more than offset the investment required to structure the operation.
What clients tell us in similar transactions
“Living in Switzerland gave me security and stability throughout my professional life, but the tax burden on pensions is considerable, and after retirement priorities change. The Italian 7% regime was a concrete opportunity, but I feared that bureaucracy between two countries would make everything impracticable, or worse, that an error in the procedure could generate problems with the tax authorities of both countries. Having a single point of contact who coordinated the Italian and Swiss aspects, from taxation to pensions, from property to healthcare, allowed me to take this step with the peace of mind of knowing that every aspect had been assessed and managed by professionals.”
ItalyVisaInvestments.com Team
Transactions of this complexity are managed in a coordinated manner by the departments of the Law Firm, ensuring unified oversight over all aspects of the engagement:
- International tax advisory, for Italy Switzerland cross border planning, access to the 7% regime, comparative tax simulation and coordination with the client’s Swiss advisers.
- Corporate and Real Estate Department, for real estate due diligence, assistance in purchase and coordination with the notary.
- Immigration and Relocation Department, for municipal formalities, healthcare transition and communications with Swiss authorities.
- Relocation operational team, for logistical management of the transfer, utilities and ongoing administrative procedures.
Project management would be entrusted to a single point of contact, responsible for coordinating all the professionals involved and for keeping the client continuously updated on timelines, costs, and progress.
Do you have a similar situation?
If you are a retiree resident abroad and are considering relocating to Italy to access the 7% preferential tax regime, it is essential to rely on a team capable of:
- verifying rigorously the eligibility requirements for the substitute tax regime and assisting with the exercise of the option in the income tax return.
- conducting a comparative tax simulation between the jurisdiction of origin and Italy, considering all pension and investment income sources.
- coordinating the transition with the tax authorities of the country of origin, preventing challenges to the genuineness of the transfer.
- correctly applying Double Taxation Conventions to avoid double taxation on foreign pensions.
- verifying the applicability of the exemption from foreign asset monitoring obligations provided by Article 24-ter TUIR and managing any assets excluded from the scope of the substitute tax
- handling every aspect of the relocation, property, residence, healthcare and administrative procedures, under unified coordination.
Our Law Firm assists international retirees relocating to Italy with optimised tax planning, ensuring full compliance with the laws of both jurisdictions and a single point of reference for every phase of the transaction.
You may also be interested in
Request a preliminary assessment
Fill in the form so that we can assess your case. We will contact you within 48 working hours to let you know if and how we can assist you.
Via dei Gracchi, 151
00192 Roma – Italy
info@italyvisainvestments.com
Tel: + 39 – 06 889 21971
By appointment only
Day: Monday – Friday
Hours: 9:00 a.m. – 1:00 p.m. / 4:00 p.m. – 8:00 p.m.
