A new rule on pensions will come into effect starting in 2026. Following the ratification by the Chinese Government of the Agreement between Italy and China against double taxation on income, starting from January 1, 2026, pension income and similar payments made under a public welfare scheme of a Contracting State will be subject to taxation in the State that provides the payment, not the recipient's State of residence. This is a significant change from the current law, which will remain valid for all income earned during the 2025 fiscal year.

Until the new treaty goes into effect, the provisions of Article 18 of the 1986 Convention, combined with Article 19, paragraph 2, will continue to apply.

Article 18 - Pensions

1. Subject to the provisions of paragraph 2 of Article 19, pensions and other similar remuneration paid to a resident of a Contracting State in consideration of past employment shall be taxable only in that State.

2. Notwithstanding the provisions of paragraph 1, pensions paid and other similar payments made under a public welfare scheme of a Contracting State, a political subdivision or a local authority thereof shall be taxable only in that State.

Article 19 – Government Service

1. a) Salaries, wages and other similar remuneration, other than a pension, paid by the Government of a Contracting State or a political subdivision or a local authority thereof to an individual in respect of services rendered to the Government of that State or subdivision or authority, shall be taxable only in that State.

b) However, such salaries, wages and other similar remuneration shall be taxable only in the other Contracting State if the services are rendered in that State and the individual is a resident of that State who:

(i) is a national of that State; or

(ii) did not become a resident of that State solely for the purpose of rendering the services.

2. a) Pensions and other similar remuneration paid by, or out of funds created by, a Contracting State or a political subdivision or a local authority thereof to an individual in respect of services rendered to the Government of that State or subdivision or authority shall be taxable only in that State.

b) However, such pensions and other similar remuneration shall be taxable only in the other Contracting State if the individual is a resident of, and a national of, that State.

3. The provisions of Articles 15, 16, 17, and 18 shall apply to salaries, wages, pensions, and other similar remuneration in respect of services rendered in connection with a business carried on by the Government of a Contracting State or a political subdivision or a local authority thereof.

Therefore, pensions and other similar payments made to a resident of a Contracting State in relation to previous employment are taxable only in that Contracting State. This means that, in general, pensions were taxed only in the beneficiary's country of residence for income received up to December 31, 2025.

Starting from January 1, 2026, in the absence of any further clarifications and/or amendments, the new double taxation treaty will exclude the possibility of exempting from taxation a pension received in China, as it will be subject to regular taxation in Italy at the time of disbursement.

At PHC Advisory, we can offer you full support on matters regarding doing business in China, or any other issues your business may face. If you would like to know more about policies relevant to your business in Italy or Asia, please contact us at info@phcadvisory.com.  

PHC Advisory is a company of  DP Group: an international professional services conglomerate of companies with approximately 100 experienced professionals worldwide. We offer comprehensive services in tax, accounting, and financial consulting, including financial supervision, financial audit, internal audit, internal control over financial reporting, and support for audited financial statements and annual audits, ensuring clients' financial transparency and compliance. 

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The content of this article is provided for informational purposes only, financial advice must be tailored to the specific circumstances on a case-by-case basis, and the contents of this article do not legally bind PHC Advisory with the reader in any way. 

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