Italy's Flat Tax for the Wealthy: A Shifting Landscape

Introduction: Why Italy’s Flat Tax Matters Now

 For years, Italy has been drawing in wealthy individuals from around the world, offering them the chance to enjoy its rich culture, stunning landscapes, and enviable lifestyle, all while benefiting from a simplified, lower tax on their foreign income. The country’s “flat tax” regime for high-net-worth individuals (HNWIs) has been one of Europe’s most attractive incentives, positioning Italy as a top destination for global investors, entrepreneurs, and executives seeking both financial efficiency and quality of life since 2017.

However, this golden offer may soon become a little less generous. Under new 2026–2028 budget proposals, the Italian government is preparing to increase the flat tax contribution from wealthy residents, Rome aims to redirect revenue toward tax cuts for middle- and lower-income Italians, addressing both fiscal needs and social equity.

The move reflects a broader shift in priorities like Italy continues to attract affluent newcomers, the government is also looking to ensure that the benefits are shared more widely at home.

 Italy’s flat tax for wealthy new residents is a unique incentive that lets you pay a single, fixed annual amount on all your income sourced outside of Italy rather than facing the country’s standard, high progressive tax rates, which can exceed 40%.

This “tax” replaces the regular Italian income tax (IRPEF) on your foreign earnings. Currently, the main applicant pays €200,000 per year, though the proposed 2026 budget law plans to raise it to €300,000.

The flat tax doesn’t just cap your yearly tax liability; it also offers exemption from Italian wealth tax on foreign assets.

However, any income earned within Italy, will still be subject to the country’s standard progressive tax rates.

Who Can Apply for Italy’s Flat Tax?

This regime is tailored for High-Net-Worth Individuals (HNWIs) planning to move their tax residency to Italy. It applies to:

New Foreign Residents: Individuals of any nationality who establish tax residency in Italy

Returning Italians: Italian citizens who have lived abroad and are now returning home

You must not have been an Italian tax resident for at least 9 of the last 10 years.

You can also include immediate family members, currently at €25,000 per person per year (proposed to increase to €50,000).

When Does the Regime Apply and How Long Does It Last?

The flat tax is designed to apply annually on your foreign income for up to 15 consecutive years.

Start Date: The tax applies from the year you officially transfer your tax residency to Italy.

Duration: The benefit lasts for upto 15 years, as long as you maintain Italian tax residency and continue paying the flat rate.

What’s Driving the Proposal to Increase Italy’s Flat Tax?

The proposed 50% rise in Italy’s flat tax rate isn’t a move to end the regime, it’s a practical adjustment aimed at keeping the system balanced and sustainable. The government wants to maintain Italy’s appeal to international investors while responding to growing domestic and political pressures.

The main goal is to raise a few hundred million euros in extra annual revenue, which will help fund income tax cuts for low- and middle-income workers. By asking wealthier newcomers to contribute a bit more, the government hopes to show it’s being both fiscally responsible and socially fair  ensuring the benefits of Italy’s growth are shared more evenly.

In recent years, the flat tax has drawn increasing criticism in the home. Many Italians especially in cities like Milan feel that the arrival of very wealthy foreigners has pushed up property prices and widened the gap between rich and poor. Therefore, raising the flat tax is a clear signal that the government expects the wealthiest to play a bigger part in supporting the country.

How the Proposed Flat Tax Changes Could Impact Different Groups

The new flat tax rate, proposed to increase from $€200,000$ to $€300,000$ per year, will primarily impact individuals who apply to the regime after the new legislation takes effect. These new applicants, whether foreign high-net-worth individuals or returning Italians, will be required to pay the higher annual fee for the duration up to 15-years.

The government has included a "grandfathering" provision, meaning individuals currently benefiting from the flat tax regime are completely exempt from the increase; they will continue to pay the rate they locked in (either $€100,000$ or $€200,000$) the remainder of their eligibility period, ensuring predictability for existing residents.

Finally, a separate group that will be impacted, albeit positively, are middle- and lower-income Italian workers, as the substantial revenue increase generated by the higher flat tax is intended to fund tax cuts and relief measures for them.

 Strategic Steps to Consider Before the New Rate Applies

 Act Before the New Rate Applies:

 Establishing Italian tax residency before the new flat tax rate takes effect allows you to lock in the current, more favourable rate of   €200,000 for the full 15-year period.

Power of predictability:

 For individuals with extremely high and fluctuating foreign income like global entrepreneurs or investors, a capped, predictable annual tax of €300,000 remains a compelling alternative to a progressive tax system that could otherwise claim millions.

Exemptions are the Real Incentive:

 The full exemption from Italian wealth tax on foreign assets and the exemption from Italian wealth tax on assets held abroad are arguably the regime's most valuable features. The wealth tax exemption offers unparalleled estate planning security that the tax increase does not affect.

Cost-Benefit Perspective:

 Your decision should be framed by a comprehensive cost-benefit analysis. The question is not simply "Is €300,000 too high?" but rather, "Do the wealth tax exemptions, combined with the 15 years of tax predictability, justify the flat rate, even when compared to the full cost of moving?"

Compare Global Alternatives:

 Evaluate Italy’s full lifestyle and financial package the new flat tax rate, cost of living, culture, and the powerful wealth tax exemptions against other favourable regimes in Europe or the Middle East. While Italy’s combination of lifestyle and fiscal benefits may still stand out, this comparison is now more important than ever.

The Bigger Picture: Italy in the Global Tax Landscape

 In conclusion, while Italy’s proposed increase to a €300,000 flat tax may slightly narrow its edge in an increasingly competitive global tax landscape, the regime continues to offer a highly attractive advantage for many high-net-worth individuals. However, each case is unique factors such as income scale, lifestyle goals, and alternative jurisdictions must be carefully assessed.

How Water & Shark Can Help You Navigate These Changes

At Water & Shark, we specialize in helping high-net-worth individuals navigate these complexities, offering tailored tax structuring, family succession and relocation strategies to ensure you make the most of global opportunities while safeguarding your wealth.

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