Living in Sardinia, Italy as a foreign retiree: Italy’s 7% flat tax — a complete guide

There’s a moment many people experience in Sardinia when something shifts.

It’s not a rational thought. It’s a feeling — the different pace of the days, the sea that feels like more than a backdrop, the quiet realization that this place makes you feel well in a way you can’t quite explain.

And then the question comes: “What if I didn’t just come back on vacation?”

For certain categories of foreign retirees, that question now has a more concrete answer than most people expect — including on the financial side.

What is Italy’s flat tax for foreign retirees?

Since 2017, Italian law provides a preferential tax regime for people who meet all of the following conditions:

• They receive a pension paid by a foreign entity
• They have not been tax residents in Italy for at least 5 of the 10 years preceding their move
• They choose to transfer their residency to a qualifying municipality in Southern Italy or the islands like Sardinia, with a population under 30,000

If these conditions are met, it is possible to opt for a 7% substitute tax on all income produced abroad. The regime lasts a maximum of 10 years and is renewed annually with the payment of a flat annual sum.

In practical terms: pension income, investment returns, foreign rental income, capital gains — everything generated outside Italy can be taxed, in Italy, at a flat 7%.

Which towns in Sardinia, Italy qualify?

The regime applies to municipalities with fewer than 30,000 inhabitants in Southern Italy and the islands.

In Sardinia, this covers the vast majority of towns. On the east coast of Sardinia, Italy — the area where we build — qualifying towns include:

• Tortolì (~10,000 inhabitants)
• Lotzorai (~2,200 inhabitants)
• Santa Maria Navarrese (a hamlet of Baunei, ~500 inhabitants)
• Bari Sardo (~3,800 inhabitants)
• Cardedu (~1,700 inhabitants)

How it works in practice: transferring residency

To access the regime, you need to officially transfer your tax and civil residency to Italy. Owning a property here is not sufficient: Italy must become your primary domicile.

This involves several practical steps:

• registering as a resident in your chosen Italian municipality
• obtaining or updating your Italian tax code (codice fiscale)
• filing a formal declaration of residency with the local registry office (anagrafe)
• opening an Italian bank account (not legally required, but almost always necessary in practice)
• appointing a qualified accountant or tax advisor to file the flat tax option in your annual tax return

Transferring residency does not necessarily mean living in Italy year-round. It means that Italy becomes your primary country of tax residency, with the corresponding filing obligations.

What happens after 10 years

The regime has a maximum duration of 10 years. Once it expires, the taxpayer re-enters the standard Italian tax system, with progressive IRPEF taxation on worldwide income.

This is something many people overlook when evaluating the regime. Anyone choosing this path should plan from the outset for what happens at the end of the preferential period — both in terms of tax burden and in terms of a potential return to their home country or move to another jurisdiction.

What the flat tax is not

The flat tax is not a scheme designed for people looking to reduce their tax burden opportunistically.

It is a regime that makes sense for people who have already chosen — or are seriously considering — building a part of their life in Italy. For those who buy a home here not just for a summer holiday, but because they want to spend months of the year in a place that feels like theirs.

In that case, the flat tax is not the reason for the decision. It is confirmation that the decision also makes financial sense.

Disclaimer

Every tax situation is different. The requirements of this regime must be verified on a case-by-case basis with a qualified accountant or tax advisor — ideally one with experience in international taxation.

This article is for informational purposes only and does not constitute tax or legal advice. Before making any decisions, please consult a qualified professional.