Do Preferential Tax Regimes Work? A Case Study of Italy

Federico Salmoiraghi
Milan

In this case study, Federico Salmoiraghi dissects Italy’s tax incentives, revealing their surprising economic impact.

In recent years, Italy has introduced several preferential tax regimes aimed at individuals who transfer their tax residence to the country.

These schemes, ranging from the so-called Impatriate Workers Regime or the Lavoratori Impatriati (a tax incentive for individuals moving to Italy for work) to the 7% flat tax for foreign pensioners and the EUR 200,000 lump-sum regime, aim to attract talent, capital, and spending from abroad, making Italy more competitive in the global fiscal arena.

But do they actually work? And more importantly, do they benefit society as a whole or just a privileged few? The data from the past few years offer a clear answer.

A Steady Growth in Numbers

From 2019 to 2023, the number of beneficiaries of Italy’s main tax incentive schemes has grown substantially. Inbound workers under the Lavoratori Impatriati regime grew by 264%, from 11,285 to 41,000.

Returning researchers and professors also more than doubled. The number of foreign pensioners enrolled in the 7% flat tax regime increased more than fourteenfold.

Finally, the €200,000 flat tax regime for new residents, reserved for high-net-worth individuals (HNWI), grew from 363 to 1,242 subjects.

These numbers clearly show a growing appeal of Italy’s fiscal incentives on an international scale, proving their effectiveness in attracting diverse categories of residents.

High Declared Incomes, Well Above the National Average

Not only is the number of beneficiaries increasing, but they also declare incomes well above the general population. According to the Ministry of Economy and Finance (2023):

• Impatriates declared an average income of €112,443 (compared to a national average of around €25,000).
• Researchers/professors: €55,366.
• Foreign pensioners under the 7% regime: Around €60,000 of foreign income.
• 46% of new residents under the €100k flat tax regime (now updated to €200k for new requests) also declared Italian-source income for an average per capita of €152,364.

Given that their foreign income is tax-exempt (or taxed at the lump-sum rate), it’s striking that their Italian income alone is more than six times higher than the national average.

A Net Benefit for the State

Let’s take the case of the flat tax regime for new residents: Even if limited to €100,000 per year on foreign income (now €200,000 for new applicants), in 2023 alone this regime generated over €100 million in flat tax revenue. In addition:

• 46% of these taxpayers also declared Italian-source income
• That income is taxed under ordinary progressive rates, generating additional tax revenue.
• Many of them also invest in real estate, private education, and local services.

In short, the State earns significantly more from each individual attracted through these regimes than it would from a typical taxpayer, without even accounting for the broader economic impact through consumption, real estate investment, INPS contributions, and job creation.

Beyond taxes, these new residents live, spend, and contribute in Italy, generating real economic value.

Lavoratori Impatriati Regime

This regime applies to employed or self-employed individuals transferring their tax residence to Italy. It offers a 50% tax exemption (or 60% for those with underage children) on Italian-sourced income for five years.

In 2023, more than 41,000 individuals benefited from this regime, declaring an average income of €112,443.

Researchers & Professors

Known as the Docenti e Ricercatori regime, this program is designed for academics who have worked abroad for at least two years. It grants a 90% tax exemption on teaching or research income for up to 13 years.

The number of beneficiaries more than doubled between 2019 and 2023, with average declared income reaching €55,366.

New Residents (flat tax on foreign income)

High-net-worth individuals relocating to Italy can choose to pay €100,000 a year (now increased to €200,000 for new applicants) on all foreign income, regardless of amount. Family members pay an additional €25,000 a year. Italian income is taxed at the normal rate.

By 2023, the regime attracted 1,242 individuals, who declared an average of €152,364 in Italian-source income.

Foreign Pensioners (7% regime)

For retirees relocating to small towns (<20,000 inhabitants) in Southern Italy, the government applies a 7% flat tax on all foreign income for nine years. The government taxes Italian-generated income at the normal rate.

Between 2019 and 2023, the number of participants in this regime increased more than fourteenfold, with average foreign income declared at approximately €60,000.

The Real Winner

Preferential tax regimes are often portrayed as perks for the wealthy. But the data suggests something else: These schemes are strategic levers that allow countries like Italy to attract human capital, financial assets, and economic vitality.

When the state properly designs and implements them, they don’t drain public resources; they strengthen the economy.

They transform Italy from a high-tax, low-mobility destination into an internationally competitive location for professionals, academics, entrepreneurs, and retirees.

In the end, the question isn’t whether Italy can afford to implement these regimes. The data show: It can’t afford not to.