Italy Doubles Flat Tax for Wealthy Foreigners to €200,000

The Italian government has doubled the annual flat tax for high-net-worth individuals (HNWIs) who transfer their tax residency to Italy from €100,000 to €200,000. The government presented the draft Omnibus decree, which includes the measure, to the Council of Ministers who approved it on Wednesday, August 7.

Madalena Monteiro of Liberty Legal believes even at a flat tax rate of €200,000, the regime remains attractive to HNWIs.

She notes that this tax regime goes beyond local income tax as “individuals who opt for it will not pay personal income taxes on any non-Italian source income (excluding capital gains realized upon the disposal of certain shareholdings during the first five fiscal years of the eligibility of the Flat Tax Regime) as well as financial assets and property held abroad.”

The current situation in Europe is causing a strong demand from HNWIs for more favorable tax regimes, with Italy among the frontrunners. Monteiro attributes this to “the demise of the UK non-dom regime, as well as the political results of the French elections.”

David Lesperance of Lesperance & Associates notes, “by doubling its lump sum annual tax payment, Italy has recognized that their previous rate cast too wide a net.” He believes this price increase will still be desirable to HNW and ultra-high-net-worth (UHNW) individuals, with the only potential loss being the mass affluent market.

Lesperance adds that “this tax burden prices Italy between Switzerland and Greece in the eyes of the mobile wealthy, which is its more natural market position.”

IMI Pro Members can read all about European special tax regimes in our 11 Special Regimes for Low-Tax Living in High-Tax Europe report available in our Pro Members’ Lounge.

Since the Renzi government introduced the flat tax in 2017, the number of wealthy individuals transferring their tax residence to Italy has steadily increased, reaching nearly 1,000 in 2021.

This influx has significantly impacted the Milanese real estate market, with a notable increase in UHNWIs purchasing penthouses in Milan as their primary residences, according to Knight Frank’s Wealth Report 2024.

The Court of Auditors reported that payments related to the preferential tax regime for new residents in Italy reached approximately €254 million between 2018 and 2022.

However, the Court noted that the government had not conducted specific surveys to evaluate the measure’s effectiveness in promoting investments in Italy, as required by the 2017 budget law.

The doubling of the flat tax may curb the rush of foreign millionaires to Italy, potentially also impacting the luxury real estate market in cities like Milan.