Italy has doubled the flat tax that it applies to the foreign income of individuals who transfer their tax residence to the country, delivering a blow to wealthy expatriates looking to avoid potentially higher tax regimes in other European countries.
Prime Minister Giorgia Meloni’s cabinet on Aug. 7 approved a rise in the annual flat tax on the overseas income for new tax residents in Italy from 100,000 euros to 200,000 euros, or the equivalent of $218,490.
The move comes amid backlash in some circles in Italy to the “resident non-domiciled” tax regime, dubbed the “non-dom,” which the Italian government established in 2017 in a bid to attract wealthy individuals from abroad.
The non-dom regime offered foreigners who established tax residency in Italy the option to pay a fixed, annual flat tax of 100,000 euros (the equivalent of $109,220) on all of their overseas income rather than a progressive tax, which is the norm in many other European countries.
Key attractions of the non-dom regime include its simplicity and the fact that it offers certainty and potential tax savings, especially for very high-net-worth individuals with substantial foreign income. Since individuals opting for the non-dom are not required to disclose their foreign assets or income sources to Italian tax authorities, it also offers privacy and reduced reporting burdens.
The influx of high-net-worth individuals to Italy following the introduction of the flat tax has been blamed for a sharp rise in real estate prices and other living costs.
Italian Finance Minister Giancarlo Giorgetti, who referred to the non-dom as the “so-called flat tax for the billionaires” during an Aug. 7 press conference, estimated that some 1,186 taxpayers had taken advantage of the regime.
Italy’s audit court has indicated that taxes paid under the scheme between 2018 and 2022 amount to 254 million euros, the equivalent of nearly $280 million.
Doubling the billionaire tax means that Italy’s government coffers are poised for a boost, although the change is not retroactive, so the new rate will only apply to new tax residents.
Italy’s non-dom tax regime is being rejigged amid a push for a worldwide tax on the assets of the ultra-wealthy.
The European Union Tax Observatory proposed a new global tax on billionaires last year, and last month, the Brazilian G20 presidency asked its researchers to elaborate on their proposal.
The minimum is expressed as a fraction of wealth rather than income because wealth is far more difficult to manipulate, according to the proposal.
Participating countries would coordinate their efforts at a global level to collect the tax through various domestic instruments, including a tax on the broad notion of income, as well as a wealth tax.
