Italy Raises Flat Tax Rate for Wealthy Foreigners Following Negative Public Reaction

Italy has increased the flat tax on foreign income for individuals relocating their tax residence to the country, impacting wealthy expatriates seeking to avoid higher tax rates in other European nations.

Prime Minister Giorgia Meloni’s cabinet approved the rise in the annual flat tax for new tax residents in Italy from 100,000 euros to 200,000 euros ($218,490).

This adjustment comes in response to criticism of the “non-dom” tax regime introduced in 2017 to attract wealthy foreigners to Italy.

The non-dom system allowed foreign residents in Italy to pay a fixed annual tax of 100,000 euros ($109,220) on their overseas income, offering simplicity, certainty, and potential tax savings, especially for high-net-worth individuals.

However, the influx of wealthy individuals under this regime has led to a rise in real estate prices and living expenses in Italy.

Italian Finance Minister Giancarlo Giorgetti criticized the non-dom tax as a “flat tax for billionaires” and noted that around 1,186 taxpayers had utilized the regime.

Taxes paid under the non-dom system from 2018 to 2022 totaled 254 million euros ($280 million), according to Italy’s audit court.

The increased tax is expected to boost Italy’s revenue, but it will only apply to new tax residents as it is not retroactive.

Italy’s non-dom tax regime is under review amidst global discussions on taxing the assets of ultra-wealthy individuals.

The proposed global tax on billionaires aims to require individuals with over $1 billion in net worth to pay a minimum annual tax of 2% of their wealth.

This minimum tax aims to target wealth rather than income, making it harder to manipulate.

Countries would collaborate to collect this tax through domestic income and wealth tax mechanisms.