The Italian government has officially increased the flat tax on foreign income for new residents from €100, 000 to €200, 000. This change, enacted through the conversion of Article 2 of Decree Law 113/2024, represents the first modification to the special tax regime outlined in Article 24-bis of the TUIR since its introduction in 2017. In 2022 alone, this regime attracted 957 new residents to Italy, adding to the 2, 678 who had relocated in previous years, contributing a total of €89, 750, 000 in flat tax payments. New residents are defined as individuals who move their residence to Italy and opt for the substitute tax on foreign income, provided they have not been tax residents in Italy for at least nine out of the ten years preceding the start of the option's validity period. The government's decision to increase the tax, considering inflationary dynamics, is not expected to hinder the regime's success in attracting new residents. The tax increase is the sole modification to the regime, ensuring its overall stability. According to Article 2, paragraph 2, of Decree Law 113/2024, the new tax rate applies only to individuals who have transferred their residence to Italy for civil law purposes after the decree's effective date, August 10. Those already under the regime are unaffected by the increase. The safeguard clause refers to the concept of civil residence, which is the place where a person habitually resides, while domicile is where they have established the main center of their affairs and interests. During parliamentary discussions, some amendments proposed extending the safeguard period and allowing individuals who invested in economic activities or philanthropic initiatives to adhere to the existing regime, similar to an 'investor visa.' However, none of these proposals were adopted. Despite this, the regime is not expected to fall out of favor. Italy is anticipated to remain a top destination for individuals with significant income and wealth, offering a clear and tested tax regime compared to recent uncertainties surrounding the 'non-dom' status in the UK. Additionally, Italy's status as a European country and G7 member often makes it a strategic destination for investment. New residents contribute to the Italian treasury both directly, through the flat tax on foreign income and progressive taxes on Italian income, and indirectly, through consumption-related taxes. They are also frequently involved in new entrepreneurial and philanthropic initiatives. In this context, the Italian Revenue Agency's recent innovative stance (ruling no. 159/2024) is noteworthy. It allows taxpayers eligible for the Article 24-bis option to revoke it in subsequent tax periods and switch to the special regime for repatriated workers (now Article 5 of Legislative Decree 209/2023), provided other conditions are met. This facilitates further development of work activities in Italy, incentivized by partial tax exemption on new domestic income as an alternative to the advantage regime on foreign income alone.

insights

The increase in the flat tax for new residents reflects Italy's strategic approach to balancing fiscal attractiveness with economic realities such as inflation. By maintaining the regime's stability, Italy continues to position itself as a favorable destination for high-net-worth individuals seeking a reliable tax environment.

issues

1. Potential deterrence for new residents due to increased tax rates.

2. Limited scope of the regime's benefits to foreign income only.

3. Challenges in maintaining competitive advantage over other countries with similar regimes.

useful tips

1. Consider the long-term benefits of Italy's stable tax regime when planning relocation.

2. Explore the possibility of switching to the special regime for repatriated workers for additional tax benefits.

3. Stay informed about potential legislative changes that may impact tax obligations.

traps

1. Misunderstanding the distinction between civil residence and domicile can lead to compliance issues.

2. Overlooking the specific conditions required to maintain eligibility for the tax regime.

3. Failing to account for the impact of the tax increase on overall financial planning.