Italy’s prime minister Meloni announced plans on 7 August to double the country’s flat tax on worldwide income from €100,000 to €200,000 with immediate effect.

Ultra-high-net-worth individuals (UHNWIs) already resident in Italy will continue to pay the €100,000 annual levy, with the €200,000 charge only applying to new applicants.

In a briefing note, global estate agents Knight Frank said Italy's flat tax refers to a simplified tax regime introduced by the Italian government primarily aimed at attracting wealthy foreigners, retirees, and high-net-worth individuals to move to Italy, citing the two main types of flat tax regimes in Italy:

1. Flat tax for new residents

Target Audience: High-net-worth individuals who have not been tax residents in Italy for at least 9 of the previous 10 years.

Tax Rate: A fixed annual tax of €200,000 on worldwide income regardless of the actual amount of income earned - prior to 7 August 2024 this figure was €100,000.

Family members: Additional family members can also benefit from the regime for an extra €25,000 per person annually.

Duration: This regime can be applied for up to 15 years.

Benefits: No need to declare worldwide income in Italy, exemption from wealth and inheritance taxes and does not impact the taxpayer's global assets.

2. Flat tax for pensioners

Target Audience: Foreign retirees who transfer their tax residency to specific municipalities in southern Italy, particularly those with fewer than 20,000 inhabitants.

Tax Rate: A flat tax rate of 7% on all foreign income.

Duration: Applicable for up to 10 years.

Requirements:

  • Must not have been an Italian tax resident in the last 5 years.
  • Must transfer tax residency to eligible municipalities in regions like Sicily, Calabria, Sardinia, or Campania.

Benefits: Simplified tax reporting and a significantly reduced tax burden.

The flat tax regimes are part of Italy's broader strategy to attract affluent individuals and foreign investments, thereby boosting the local economy, especially in underpopulated and economically challenged regions.

Italy’s budget deficit sits at 7.4% of GDP in 2023, more than twice the limit set by the European Union.

According to the Italian Ministry of Finance, 2,730 individuals signed up for Italy's flat tax between 2017 and 2022. Italian tax lawyers from Maisto e Associati estimate a further 1,200 UHNWIs took advantage of the initiative in 2023 taking the total to close to 4,000.

There are a further 90,000 people, mainly Italians, benefitting from an expat scheme that gives a 50% to 90% reduction on taxable Italian income for those moving back to Italy, depending on the location they move to.