Italy has recently made a significant adjustment to its tax policy for wealthy newcomers, doubling the annual flat tax on overseas income from €100,000 to €200,000. This change, implemented on August 9, 2024, aims to strike a balance between attracting high-net-worth individuals and maintaining political fairness.
The flat tax regime, introduced in 2017, has been a key factor in drawing wealthy individuals to Italy. Notable beneficiaries include Cristiano Ronaldo and numerous finance professionals who relocated from London following Brexit. While the scheme was designed to stimulate the economy by attracting big spenders, it has also faced criticism for exacerbating housing demand and social disparities in Milan, Italy's financial hub.
Despite the tax increase, Italy is projected to remain the top European destination for globally mobile millionaires in 2024, surpassing Switzerland, Greece, and Portugal. This continued appeal is largely attributed to Italy's favorable inheritance tax structure and extensive network of bilateral agreements to prevent double taxation.
Marco Cerrato, a partner at Maisto e Associati, explains:
"Italy's government, whilst in favour of the (flat tax) regime, also needs to avoid that the arrival of many new high net worth individuals triggers a political discussion about its fairness. The 200,000 euro flat tax may reasonably contain the regime to an acceptable overall number of non doms."
The impact of this tax adjustment varies depending on individual wealth levels. For those with a net worth of at least €7 million, Italy remains an attractive option due to its inheritance tax provisions. The Italian inheritance tax rate ranges from 4% to 8%, applied above various thresholds, significantly lower than the 40% rate in the UK for assets above £325,000.
Furthermore, Italy's flat tax regime exempts foreign assets from inheritance tax, a feature that continues to draw ultra-wealthy individuals. This aspect becomes particularly appealing in light of potential changes in other countries, such as the UK's plan to end its centuries-old "non-dom" tax regime in April 2025 and Switzerland's proposal for a 50% inheritance tax on assets exceeding 50 million Swiss francs.
The flat tax regime in Italy lasts for 15 years and can be extended to family members for an additional €25,000 per person. By the end of 2022, the scheme had attracted 1,136 relocations, with current estimates suggesting the total is close to 3,000.
While the tax increase may cause some individuals to reconsider their relocation plans, particularly those in the European fund management industry with fluctuating foreign income, Italy's overall tax landscape remains highly competitive. The combination of moderate inheritance taxes, exemptions for foreign assets, and numerous bilateral agreements to avoid double taxation continues to position Italy as an attractive destination for the world's wealthy.