The Italy Flat Tax Regime: Still Attractive in 2024?
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Contents
- Qualifying for the Flat Tax Program
- Benefits of the Flat Tax Program
- How the Flat Tax Works
- 2024 Changes to the Flat Tax Regime
- Why the Flat Tax Change Now?
- When will the minimum increase?
- Is Italy's new minimum still attractive to higher net worth families?
- Will high net worth individuals and clients stop coming?
- The Two Lessons to Take from the change in Italy's Flat Tax
- Here's the Easiest Way to Get Started
Italy has always been quite a draw for our clients. Beautiful landscapes, friendly people, excellent food, and a nice pace of life. The only major turnoff was the high taxes — at least until a new tax regime we’re calling the “Italy flat tax” came about.
In brief, the flat tax allows wealthy taxpayers to avoid paying tax on their worldwide income by agreeing to pay a yearly flat rate of €100,000 (about USD $110,000), since increased to €200,000, for up to 15 years.
Still, this is very attractive given that Italian federal income taxes are 43% on worldwide income of €50,001 and above.
If you’re making a healthy six-figures a year, it could prove to be a great option.
Qualifying for the Flat Tax Program
- The primary applicant agrees to pay €200,000 per year in taxes.
- Additional family members (spouse and dependent children who live with the applicant) can join for an extra €25,000 per year.
- The primary applicant cannot have been tax resident in Italy for the last nine of 10 years.
Benefits of the Flat Tax Program
- The flat tax replaces any tax on income generated out of country from any source –including earned income, dividends, capital gains, and interest.
- It can be applied for up to 15 years after establishing tax residency.
- Applicants don’t have to declare their foreign assets (they do have to declare their Italian assets if they have any).
- The arrangement dramatically simplifies tax compliance with the Italian authorities.
How the Flat Tax Works
Because US clients are taxed on citizenship, the picture is more complicated. But there are still some good options. Please reach out to us for a free evaluation of your case if interested in learning more.
The flat tax came at a crucial time because British voters had just approved leaving the EU. After Brexit, many Europeans in Britain contemplated staying or leaving. The €100,000 annual tax cap allowed new foreign residents or returning Italians (who had lived abroad for at least nine years) to pay a fixed tax on foreign income and assets for up to 15 years. It seemed like a win-win at the time.
It was made even more attractive by the fact that, under the program, qualifiers didn’t even have to disclose their international investments.
2024 Changes to the Flat Tax Regime
Then in August 2024, Prime Minister Giorgia Meloni’s cabinet approved a doubling of the flat tax on foreign income for new residents, increasing it from €100,000 to €200,000.
This marks a shift in how Italy is attracting wealthy expats and raises important questions about what this means for the country’s economy and its future.
Why the Flat Tax Change Now?
On the surface, the tax scheme has been quite successful, attracting over 2,730 multimillionaires. So why change it?
One of the main reasons is Italy’s financial situation. In 2023, Italy had a budget deficit of 7.4% of its GDP, more than double the EU’s recommended 3% limit. It’s reviewing all of its fiscal policies, including tax incentives for wealthy foreigners.
But more than that, it’s caused problems with the local population, especially in places like Milan.
The influx of wealthy expats has been linked to a 43% increase in real estate prices over the past five years and a 20% rise in rental costs in just the last two years. Long-time residents are finding it harder to afford living in their own city.
Local business owners are split. Some benefit from the increased spending the wealthy bring; others worry these rising costs will hurt local affordability.
The decision to double the flat tax may be seen as an effort to address these concerns — trying to balance the appeal for wealthy expats with the needs of local residents.
When will the minimum increase?
The minimum flat tax doubled from €100,000 to €200,000 as of August 7, 2024.
But it’s important to keep in mind that this change only applies to new residents moving to Italy after August 10, 2024. Those who are already living under the original scheme can keep their current tax arrangements.
(There is some question about whether people currently in process will be able to qualify for the old minimum. From our contacts on the ground, we’re hearing that there is some potential for those applicants to be grandfathered. But it’s just as likely they won’t be. We’ll have to wait and see.)
Italy Investment Visa Options for Americans
The Italy investment visa program may not have the most popular “Golden Visa” option there. But maybe it’s right for you? Here’s the full story: Italy Investment Visa.
Is Italy's new minimum still attractive to higher net worth families?
Even with the higher minimums, the flat tax program could still be attractive to individuals and families with incomes of at least €1 million per year. But there are other European countries that offer either low tax or flat tax options.
Greece is the closest — if you invest at least €500,000 in certain investments, you can qualify for a €100,000 flat tax regime.
Certain cantons (roughly the same as provinces or states) in Switzerland also offer a negotiated flat tax regime called a Pauschalbesteuerung.
Monaco, Montenegro, Bulgaria, and Hungary also offer attractive tax rates.
A handful of EU countries also have a tax system in place called “non-domiciled residence.” In those countries, new residents pay tax only on their local income. Ireland and Malta have this system in effect. So does Cyprus, but with a 17-year time limit. Not to mention the UK, with a four-year time limit.
Ultimately, the best choice depends on your unique situation. Tax planning is complex, especially when you’re a US citizen.
How To Stop Paying Taxes Legally (8 Ways from Easiest to Hardest)
Will high net worth individuals and clients stop coming?
Maybe, but probably not in great numbers. That’s because tax planning is usually only one part of a relocation program. Although the Italian flat tax option has become less attractive, it’s not a disqualifier entirely.
Case in point: We have one client who’s currently going through the program and is likely to qualify under the new rules (their application is pending).
They’re understandably miffed. But they love living in Italy, and even at €200,000, it’s still a good fit for them.
A Bet on the Well Heeled
Three Hills Capital Partners, a London-based private equity firm, recently announced plans to open a private members’ club in Milan in the fall of 2024. It’s part of a larger trend of luxury services catering to the influx of affluent expats.
The Two Lessons to Take from the change in Italy's Flat Tax
At the end of the day, this tax change serves as a reminder of just how volatile tax policies can be and why it’s crucial for wealthy individuals and expats to diversify.
In the broadest view, it’s yet another confirmation that attractive programs — whether tax, residency, citizenship, or investments — simply don’t last forever.
However, it’s common in those cases that those that get in early are grandfathered into the new program.
The advice is thus clear — get started while you still can.
Here's the Easiest Way to Get Started
Just book in a call with one of our Associates for a free, no obligation consultation. Our team will get a sense of what you’re trying to accomplish and let you know if we can help you. You can book in a call here.
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We have 40+ years experience helping Americans move, live and invest internationally…
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We have 40+ years experience helping Americans move, live and invest internationally…
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