Changes to the Italian Flat Tax Regime

Update: The Law Decree Omnibus entered into force on 10 August. The increase in the annual flat tax for individuals transferring their residence to Italy from EUR 100,000 to EUR 200,000 applies to individuals who transfer their residence to Italy for civil law purposes (under Article 43 of the civil code) starting from 10 August 2024. Residence is the place where an individual has his/her habitual abode. Since identifying the precise date of its transfer can be a complex exercise, especially for non-EU citizens, in the absence of formal directions by the Italian tax authorities, each situation must be carefully addressed on its individual facts.

Individuals who transferred their residence to Italy before 10 August 2024, are not affected by the new legislation, no matter whether they are already tax resident in Italy for 2024 or whether or not they have opted for the Flat Tax Regime.

The change does not impact the other rules governing the Flat Tax Regime (e.g., exemption from the reporting obligations related to the holding of assets abroad, the exemption from the wealth tax on financial assets or immovable properties held outside of Italy, and the exemption from gift and inheritance taxes on transfer of assets held outside of Italy).

The Law Decree Omnibus must in any case be converted into law within 60 days by the Italian parliament, during which further amendments to the existing text could be made.

On 7 August, the Italian Council of Ministers approved the Draft Law Decree concerning “Urgent tax measures, extensions of regulatory deadlines, and economic interventions” (“Draft Law Decree Omnibus”). Importantly, this provides for the increase in the annual flat tax for individuals transferring their tax residence to Italy (“Flat Tax Regime”) from EUR 100,000 to EUR 200,000.

The Draft Law Decree Omnibus is still in provisional form and not officially approved; therefore, the proposed changes are not final. Moreover, once approved it must in any case be converted into law within 60 days by the Italian parliament, during which further amendments to the existing text could be made.

Currently, the Draft Law Decree Omnibus does not appear to include any transitional provisions for individuals who have already opted for the Flat Tax Regime. However, it appears from the 7 August Press Release of the Council of Ministers No. 91 (“Press Release”) that the Government’s intention is to increase the amount of the flat tax to EUR 200,000 only for individuals who “transfer their tax residence to Italy, for the purposes of Article 43 of the civil code, after the date of entry into force of the decree”.

As a result, the increase in the Flat Tax Regime (if confirmed) should not affect the position of those who are already tax resident of Italy for 2024, no matter whether they already opted for the regime or not.

It is worth noting that the Press Release in mentioning tax residence also refers to the notion of domicile and residence for civil law purposes. Therefore, it is not clear which regime should apply to individuals that, intending to move to Italy, have already transferred their domicile (e.g. by purchasing or renting a residential property) but have not yet acquired the status of resident for tax purposes. It is to be hoped that the final version of the Draft Law Decree Omnibus might clarify the position by including a grandfathering clause for those who, on the effective date of the Draft Law Decree Omnibus, have already transferred their domicile to Italy, but have not yet qualified as tax resident in Italy.

Finally, it is important to note that the proposed change does not, however, affect the other rules governing the Flat Tax Regime (e.g. exemption from the reporting obligations related to the holding of assets abroad, the exemption from the wealth tax on financial assets or immovable properties held outside of Italy, and the exemption from gift and inheritance taxes on transfer of assets held outside of Italy). For more details, see our earlier Insights article.