Upcoming Increase in Italy’s Flat Tax for New Residents

In a notable update to Italy's tax policy, the government has approved an increase in the flat tax for new residents, which will rise from €100,000 to €200,000 annually, starting from the 2025 tax period. This change, embedded in the Omnibus Decree passed in August 2024, aims to reshape the incentives available to high-net-worth individuals and families considering relocating to Italy.

Understanding the Flat Tax Regime

Italy introduced the flat tax regime in 2017 to attract affluent foreigners to establish their tax residency in the country. Under this regime, new residents could opt to pay a flat tax of €100,000 per year on their foreign income, regardless of its total amount. This made Italy an attractive destination for wealthy individuals looking to benefit from a stable tax liability, especially those with significant global income.

However, the recent increase to €200,000 suggests that the government is re-evaluating the balance between attracting foreign capital and ensuring a fair contribution from those who benefit from Italy’s economic and social infrastructure. While this new rate is still highly competitive compared to standard tax rates in many other countries, it represents a doubling of the previous cost, which could prompt potential new residents to reassess their plans.

Implications for New and Existing Residents

For those who have already taken up residence under the previous flat tax scheme, there is some good news: the government has clarified that the original €100,000 rate will continue to apply to those who established their tax residency in Italy before August 10, 2024. This grandfathering provision ensures that early adopters of the flat tax regime can continue to enjoy the benefits for the remainder of their agreed-upon period.

New residents, on the other hand, will face the higher €200,000 flat tax from the start. This may influence the decision-making process for individuals and families who are currently weighing the benefits of relocating to Italy. While the tax rate remains relatively low in comparison to global standards, the increase could lead some to explore alternative destinations or reconsider the financial advantages of moving to Italy.

Strategic Considerations for High-Net-Worth Individuals

For those still contemplating a move to Italy, this policy shift underscores the importance of strategic financial planning. High-net-worth individuals must now take into account the increased tax liability when evaluating the overall benefits of Italian residency. Factors such as lifestyle, access to European markets, and the country’s rich cultural heritage may still outweigh the financial cost for many. However, others might see the increase as a tipping point, pushing them to explore other jurisdictions with more favorable tax conditions.

It’s also worth noting that this change could affect the real estate market, luxury services, and other sectors that have benefited from the influx of wealthy foreigners. A potential decrease in demand from this demographic could have ripple effects across the economy, particularly in areas popular with expatriates, such as Tuscany, Milan, and the Italian Riviera.

What’s Next?

As the 2025 tax period approaches, further details and clarifications on the implementation of this new rate are expected. Potential new residents and those advising them should stay informed of any additional changes or amendments that may be introduced.

For those considering this regime, consulting with tax advisors and legal experts is crucial to navigate the complexities of the Italian tax system and make informed decisions about residency and investment in Italy. At Knotted, we specialize in providing tailored advice and comprehensive support for those looking to make Italy their new home. Contact us to discuss how these changes might affect your plans and how we can help you adapt to the evolving tax landscape.

For personalized advice or relocation inquiries, please contact us at info@knotted.ch or via WhatsApp at +41 76 771 30 22. Our experts are here to help you every step of the way.