Building Your It’ll Be Fun Life: Italy — La Dolce Vita vs. the 7% Solution

Mt Etna Sicily

By Leslie – It’ll Be Fun

Welcome back to Building Your It’ll Be Fun Life — the series where we take the dream of living abroad and gently (sometimes not so gently) run it through a calculator.

In our last article, we talked about France — the beauty, the romance, and the moment we realized that while the cheese is incredible, the long-term math can be unforgiving for our family. This time, we headed south. To the land of glorious chaos, unforgettable food, and one of the most tempting tax incentives in Europe: Italy.

We just returned from six weeks on the ground in Southern Italy and Sicily. This wasn’t a vacation. We weren’t just eating gelato and admiring sunsets. We were scouting. Riding trains that operated on their own interpretation of time. Navigating rental agencies that seemed to invent new rules mid-conversation. Climbing staircases that tested both our knees and our optimism. Standing inside properties that looked like dreams… until you noticed the walls.

This is the story of that trip — the truth behind Italy’s famous 7% Flat Tax Regime, and whether Italy can truly compete with the life we’ve built in Portugal… or even a comfortable life back in the U.S. Midwest.

Testing the Hard Parts First

If you’re serious about moving abroad, you have to test daily life — not just the postcard moments.

Southern Italy demands patience and flexibility. Getting around almost always means having a car, and rental agencies can feel like roulette: long lines, aggressive upsells, and contracts that shift depending on who’s holding the clipboard. Over time, we’ve learned that simplifying this part of travel matters more than saving a few euros. Full coverage, clear terms, and fewer surprises make the difference between enjoying your days and spending them arguing over a scratch you didn’t make. We use Discover Cars for our rentals - you can support us by using our affiliate link.

Italy rewards preparation. It punishes optimism.

The Town Question: Where Could We Actually Live?

Italy’s 7% Flat Tax sounds simple until you read the fine print.

To qualify, you generally must move to a Southern Italian municipality with fewer than 20,000 residents. Not a region. Not a metro area. A very specific town boundary on a government spreadsheet.

Some places feel small and don’t qualify. Others feel busy and still do. Population is defined by official statistics, not by how quiet the streets feel in winter. This is where assumptions get people into trouble — and where professional advice becomes essential.

With that in mind, we started scouting.

Beauty With a Price Tag: The Sorrento Coast

We stayed in Termini, part of the Massa Lubrense municipality. Technically eligible. Visually breathtaking. Wild cliffs, sea views, Capri floating in the distance like a painting.

But winter here is sleepy, and prices reflect the scenery. Real estate is premium — the kind of pricing that makes sense for a vacation home but feels heavy for a long-term, budget-conscious move. Stunning? Yes. Practical for our life? Probably not.

When “Historic Charm” Means Renovation Reality

Sicily pulled us in quickly. The countryside near Alcamo was beautiful — open, quiet, full of promise. But Alcamo itself doesn’t qualify for the tax regime, which pushed us toward nearby coastal towns that do.

That’s where the fantasy cracked.

We toured a waterfront property that looked incredible online. In person, it felt like a financial sinkhole. Crumbling walls. An unusable kitchen. A heavy, almost oppressive energy. We were reminded quickly that in many 7% zones, “historic” often means structurally exhausted.

Italy doesn’t hide this — but it doesn’t warn you either.

A Medieval Dream… With Stairs

Cefalù is everything you imagine when you think of Italy. Medieval streets, a beach at your feet, beauty at every turn. It qualifies on population, and it absolutely deserves its reputation.

But living there full-time would be physically demanding. Steep climbs. Limited parking. Housing stock that hasn’t evolved much in centuries. We found staircases so narrow and steep they felt like a liability.

It’s magical to visit. Daily life would be another story.

When a Place Feels Like a Stage Set

Taormina is Sicily’s jewel — polished, famous, and endlessly photographed. It qualifies. It also feels like “Disney Italy.”

Crowded. Loud. Expensive. Tourists everywhere, all the time. We hoped for quiet evenings on a balcony with wine, watching life pass by. Instead, we got noise, crowds, and prices that rival far more functional cities.

Beautiful to see. Hard to settle into.

The Surprise That Felt Like Real Life

Then we found Aci Castello, just north of Catania.

It wasn’t flashy. It didn’t feel curated. It felt… normal. A real town where Italians live and work. Sea views without spectacle. Reasonable prices. Fewer tourists. A castle rising from the water without demanding attention.

If we were going to buy in Italy for the tax benefits, this is where we would do it.

Why Everyone Talks About the 7% Tax

Italy’s 7% Flat Tax applies to foreign passive income — pensions, IRA withdrawals, dividends, interest — for up to ten years, if you qualify.

It’s powerful. And it’s often misunderstood.

Here’s the most important distinction: this is not a digital nomad deal.

If you work remotely while physically living in Italy, that income is considered Italian-sourced. It does not qualify for the 7% rate and is taxed at standard Italian rates plus social contributions. This regime is designed for retirees — not laptop workers.

The Social Security Advantage Most People Miss

For Americans, Italy quietly shines because of its tax treaty with the U.S.

Under the U.S.–Italy treaty, U.S. Social Security is taxable only in the United States. Italy doesn’t touch it.

That single clause can change everything.

In Portugal (without NHR), Social Security becomes part of your taxable income and can be hit at progressive rates. In Italy, it often isn’t taxed locally at all. On a fixed income, that difference matters — a lot.

Could Wolf Come With Us?

Italy has recently introduced a Digital Nomad Visa, finally opening a legal door for younger remote workers. There’s also the Impatriate Regime, which can reduce taxable income for several years.

But Italy balances generosity with obligation. Mandatory social security contributions are high, and for entrepreneurs, they can eat up much of the tax benefit.

Italy can work — but only if the numbers truly align.

Housing, Legacy, and the Long View

Southern Italy’s housing costs can demolish U.S. Midwest pricing. Primary residence property taxes are often minimal or even zero. And inheritance rules are far more reasonable than many expect, with generous allowances for direct heirs.

From a legacy standpoint, Italy is surprisingly practical.

The Seesaw Nobody Talks About

This is the real decision point.

Low taxes don’t matter if daily life is expensive. Low living costs don’t help if taxes quietly drain your income.

Portugal still wins for us because daily life is affordable, predictable, and calm. The “floor” cost of living is lower, and that matters when you’re planning decades — not just the next year.

Paying a higher tax bill once a year hurts. Paying high prices every single week hurts more.

Why We Aren’t Packing (Yet)

Italy tempted us deeply. The food was unforgettable. The tax math was compelling. Aci Castello came very close.

But for us, Portugal still fits better.

Life here is gentler. Housing is easier. Bureaucracy is lighter. Our days feel calm instead of combative.

Who should choose Italy?If you’re a retiree with passive income, patience, and a taste for adventure — Italy’s 7% regime can be life-changing.

For us?We’ll keep visiting. We’ll keep eating. We’ll keep dreaming.

But we’ll keep building our It’ll Be Fun Life right where we are.

It’ll be fun.

Alan, Leslie & Wolf

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We should have done this sooner.