Italy is preparing a new tax regime for citizens who have lived abroad for a long time and wish to return to their homeland after retirement.
The essence of the initiative is the introduction of a preferential 4% tax rate on worldwide income for returning Italian expat retirees. The new regime is intended to become a separate tool of Rome’s tax policy and the first one specifically targeted at recipients of Italian pensions.
Italy currently has several preferential regimes in place for new residents, including a scheme for wealthy foreigners and a 7% regime for foreign retirees who move to certain small municipalities in the south of the country. However, these mechanisms did not fully address the situation of Italians who have worked and lived abroad for decades and then wish to return to Italy to retire.
Under the current scheme for foreign retirees, the 7% rate applies to foreign income if the individual transfers their tax residency to Italy and moves to an eligible municipality. In 2026, Italy expanded this scheme: the population limit for participating municipalities was raised from 20,000 to 30,000 residents, opening up access to the benefit for new towns in the south of the country.
The new 4% scheme could become a more targeted measure for Italian citizens abroad. Authorities hope it will help bring back some retirees who have income and savings outside Italy but maintain personal, family, or cultural ties to their homeland. For the government, it is also a way to support small towns and regions facing an aging population and population outflow.
For the real estate market, such an initiative could boost demand for housing in small towns and southern regions of Italy. Returning retirees tend to look not toward Milan or Rome, but toward more affordable locations with a low cost of living, a good climate, medical infrastructure, and the opportunity for a peaceful life. This could support the secondary housing market, long-term rentals, and services for senior residents.
In recent years, Italy has actively used tax incentives as a tool to attract capital and new residents. At the same time, authorities are reviewing tax breaks for ultra-high-net-worth foreigners: there have been discussions about raising the flat tax on foreign income for new wealthy residents from EUR 200,000 to EUR 300,000 per year.
