Pensions, along with all income from work, are subject to taxation. The INPS is the institution responsible for collecting taxes in Italy. As a withholding agent, it applies the withholding taxes envisaged by way of IRPEF (l’imposta sul reddito delle persone fisiche, a tax on physical persons) on pensions paid, as well as deductions due.
People who have worked in non-EU Member States with whom Italy has a bilateral agreement (the Agreement) on social security, like the United States, may request pension rights.
The bilateral agreements are based on three principles:
- equal treatment, which each State is obliged to grant nationals from other contracting States, i.e, the same treatment and benefits as those accorded its own citizens;
- preserving the acquired rights and possibility of obtaining benefits in the country of residence, even if paid for by another State;
- totalization of insurance and contribution periods for work done in each of the two agreed States, in compliance with and within the limits of individual national legislations, in order to allow completion of the requirements for the right to pension benefits.
Foreign contributions are counted when the Agreement takes into account what is called “international totalization,” meaning that all of your past employment history and current pensions are taken into account and, essentially, converted, to be given to you as if it were a contribution paid in Italy—like you had worked in Italy for your entire career.
Italy’s Bilateral Agreements
People who have worked in the following non-EU countries fall under Italy’s bilateral agreement: Argentina, Australia, Brazil, Canada and Quebec, Israel, Channel Islands and the Isle of Man, Mexico, Countries of former Yugoslavia (Republic of Bosnia and Herzegovina, Republic of Kosovo, Republic of Macedonia, Republic of Montenegro, Republic of Serbia and Vojvodina), Principality of Monaco, Republic of Cape Verde, Republic of Korea, Republic of San Marino, the Holy See, Tunisia, Turkey, United States of America, Uruguay and Venezuela.
These bilateral agreements, unlike EU regulations, must be ratified by an ordinary law in order to be valid in a State’s national law. They are only valid for the signatory States and the term “bilateral” means that an Italian retiring to any of the previously mentioned countries is also entitled to receive a pension there, after international totalization.
Pensioners residing in Italy can claim deductions for family expenses, under Article 12 of the Presidential Decree No. 917 of 22 December, 1986, and dependent family members. A family member is dependent when his/her income does not exceed €4,000 gross per year, net of deductible expenses, but only for children up to the age of 24 years old. Tax deductions for family expenses are claimed online through the INPS website using the appropriate forms with their dedicated service.
If you want to learn more about this topic, please consider reading our articles about pensions and contributions paid abrooad, social security contributions and occasional self employment, and US pensions taxation in italy.