Foreign pensioner regime applies regardless of tax residency abroad under applicable Convention

by Fabrizio Pacchiarotti, Chiara Vetulli

In its reply to Tax ruling request no. 21 of 2024, the Italian Revenue Agency has provided clarifications on the flat tax provided pursuant to Article 24-ter of the Italian income tax code (ITC) for individuals with pension income from foreign sources.

The issue
The applicant is a British citizen resident in the United Kingdom who intends to benefit from the optional regime under Article 24 ter of the ITC, according to which a flat tax of 7% is applied to pension income paid by foreign entities and received by individuals who transferred their tax residence to Italy.

In the present case, the applicant joined two supplementary pension schemes (the "Merchant Navy Officers Pension Fund" and the "Financial Assistant Scheme") offered by his employers in the United Kingdom, both of which are subject to public control and are aimed at guaranteeing a supplementary pension when the worker reaches a certain age.

The applicant has reached the age required to become entitled to these sums and intends to transfer his tax residence to Italy. However, with regard to the transfer, he points out that, for family and professional reasons, he will initially be exclusively resident in the United Kingdom, in accordance with Article 4(2) of the Convention with the United Kingdom.

The question to the Italian Revenue Agency concerns, firstly, the correct qualification of the income from such pension funds, secondly, whether the transfer of tax residence within the meaning of Article 2(2) of the ITC is sufficient for the purposes of the application of Article 24 ter, regardless of whether the person is resident in the United Kingdom within the meaning of the applicable Convention.

Italian Revenue Agency's opinion
The Italian Revenue Agency points out that, in order to apply the provisions of Article 24 ter of ITC, it is necessary to verify the effective transfer of the tax residence in Italy to one of the municipalities referred to in the provisions, since it is not necessary to examine the situation in which the taxpayer is resident in one or more States other than Italy.

With regard to the correct qualification of the income from the supplementary pensions, the Agency states that the incomes paid by a foreign occupational pension fund or paid by a foreign insurance company, in the form of a lump sum or an annuity, to an individual who intends to transfer his tax residence to Italy, once he has reached the age requirement for access to the benefit, must be taxable in Italy under the relevant double taxation convention.

The amount in question can be considered as "pension income": this is due to the fact that the aforementioned pension funds are linked to previous employment and the right to receive the related income depends on the reaching of a certain retirement age.

Therefore, since:

  • the applicant was not resident in Italy for the five tax periods preceding the transfer;
  • he will transfer his residence to Italy pursuant to Article 2(2) ITC;
  • and that the income received can be considered as pension income,

the Agency considers that Article 24 ter is applicable, as long as the transfer takes place in one of the municipalities provided for by the legislation.