Exactly. US citizens still owe US tax on 401k withdrawals no matter where they live. But you claim a Foreign Tax Credit for the Italian tax you paid. So if you're on the 7% regime, you pay 7% to Italy, then credit that against your US bill.
Italy isn’t really a menu of opt-in tax regimes — it’s an adversarial, fact-driven system that applies after residency is triggered, often retrospectively. Once that happens, intent matters far less than how your life actually looks on paper and in practice.
That distinction matters because a few of the clean lines people rely on are fuzzier than they appear. For example, the HNWI flat tax is €200k as enacted (with higher figures discussed politically but not yet implemented), and the 43% figure is a marginal rate above €50k, not a cliff — effective rates vary materially by region, deductions, and household structure.
None of this makes the regimes useless. It just means the failure mode isn’t “choosing the wrong option,” it’s overconfidence in simplified planning narratives before Italy decides to scrutinize the facts.
Italy isn’t dangerous because it’s high-tax. It’s dangerous because it becomes legible only after the state decides to look at you.
Does Italy have a tax treaty with the U.S. to avoid double taxation for U.S. citizens?
I believe they do.
This usually means that property taxed in the U.S. is not taxed elsewhere. And that you can get reductions in one country for what you pay in the other. But it’s complicated for things such as dividends that are taxed in such different ways.
Very helpful. Thank you! Can you do a similar analysis for Portugal, please?
Hey Alissa, Portugal is a little more complicated due to the ending of NHR, but I will put this on my To Do list ;)
One is still taxed in the US on 401K withdrawals correct? It is just offset by the 7% tax?
Exactly. US citizens still owe US tax on 401k withdrawals no matter where they live. But you claim a Foreign Tax Credit for the Italian tax you paid. So if you're on the 7% regime, you pay 7% to Italy, then credit that against your US bill.
Worth adding a layer of caution here.
Italy isn’t really a menu of opt-in tax regimes — it’s an adversarial, fact-driven system that applies after residency is triggered, often retrospectively. Once that happens, intent matters far less than how your life actually looks on paper and in practice.
That distinction matters because a few of the clean lines people rely on are fuzzier than they appear. For example, the HNWI flat tax is €200k as enacted (with higher figures discussed politically but not yet implemented), and the 43% figure is a marginal rate above €50k, not a cliff — effective rates vary materially by region, deductions, and household structure.
None of this makes the regimes useless. It just means the failure mode isn’t “choosing the wrong option,” it’s overconfidence in simplified planning narratives before Italy decides to scrutinize the facts.
Italy isn’t dangerous because it’s high-tax. It’s dangerous because it becomes legible only after the state decides to look at you.
I agree on the part of states "scrutinizing facts". And this doesn't just apply to Italy either.
Pretty much any country with a "good deal" will eventually check if you're living the life you claimed and try to make a case for the opposite.
As for the €300k part: This is now live as of January 1 - the 2026 Budget Law passed December 30.
Does Italy have a tax treaty with the U.S. to avoid double taxation for U.S. citizens?
I believe they do.
This usually means that property taxed in the U.S. is not taxed elsewhere. And that you can get reductions in one country for what you pay in the other. But it’s complicated for things such as dividends that are taxed in such different ways.
Great question, Claire.
Yes, there is a US-Italy tax treaty in place to help prevent double taxation.
For Americans specifically, protection usually comes from tools like the Foreign Tax Credit, which offsets US tax by what you already paid to Italy.
And yes again, certain income types like dividends get complicated because each country treats them differently.
Retire
Added you!