Italy is preparing to tighten one of its most prominent tax incentives for the wealthy, signaling a shift from aggressive attraction to cautious recalibration. Under the draft 2026 budget, Rome intends to raise the annual flat tax for affluent foreign residents and returning Italians from €200,000 to €300,000 — a 50 percent increase on the amount paid in lieu of standard income tax on foreign earnings.
The adjustment reflects Italy’s attempt to balance fiscal pressure at home with its reputation as a haven for mobile wealth.
A Lucrative Regime Under Review
Introduced in 2017, the flat-tax regime was designed to draw high-net-worth individuals, entrepreneurs, and family offices to Italy. It offered a single annual levy on global income for up to 15 years, replacing progressive income taxes and excluding inheritance taxes on overseas assets. The policy fueled an influx of wealthy residents, particularly in Milan, where luxury property prices surged.
However, nearly a decade later, Italy faces a markedly different economic reality. With public debt among the highest in the eurozone, slow growth, and rising fiscal obligations, the government is under pressure to raise revenue while keeping its deficit within EU limits.
Fiscal and Political Balancing Act
Prime Minister Giorgia Meloni’s administration insists the measure is not meant to dismantle the regime but to “modernise” it. Even with the increase, Italy remains one of Europe’s most generous jurisdictions for wealthy newcomers, especially after the UK scrapped its non-domiciled tax status.
Yet the move acknowledges a shifting political mood. Critics argue that the programme — once hailed as a tool to reverse Italy’s brain drain — has fueled inequality and inflated property prices. Opposition voices have labelled it “a tax holiday for billionaires,” highlighting growing discontent among ordinary Italians struggling with stagnant wages and high living costs.
Limited Financial Impact, Symbolic Weight
For most participants, the higher levy will be manageable. Even at €300,000, it represents only a fraction of what they would owe under Italy’s regular tax rates, which exceed 40 percent on higher incomes. Tax advisers note that many clients value the simplicity and predictability of the flat-tax system — as well as Italy’s cultural and lifestyle appeal — more than its sheer generosity.
The fiscal benefits will be modest but politically significant. The treasury expects several hundred million euros in additional annual revenue, which will help fund tax relief for low- and middle-income workers. The government can thus frame the reform as both socially fair and fiscally prudent.
Risks and Wider Implications
Still, the change carries risks. The regime’s success has depended on predictability, and a 50 percent hike could unsettle potential applicants wary of future policy shifts. Competing jurisdictions such as Portugal and Greece are vying for the same pool of globally mobile talent.
Economists warn that the broader impact on Italy’s public finances will be limited. With debt hovering above 140 percent of GDP, the real challenge lies in fostering growth and widening the domestic tax base. Meanwhile, the rise does little to address structural weaknesses such as low productivity and bureaucratic inefficiency.
Measured Response from Business
Business and financial circles have largely accepted the move as a reasonable compromise. “It was inevitable,” said one Milan-based tax adviser. “The government needed to show that the wealthy are paying more, without dismantling the structure.”
Observers suggest the reform may signal a gradual tightening of Italy’s preferential tax schemes. Other incentives, including the “impatriates” programme for returning professionals, have already been scaled back. Rome may be inching toward a more European norm — selective, targeted, and politically defensible.
Confidence on Trial
The European Commission is expected to watch developments closely amid wider EU scrutiny of intra-bloc tax competition. For now, Italy’s scheme remains intact, though costlier. Existing enrollees may retain the €200,000 rate, while new applicants face the revised €300,000 threshold.
Ultimately, Italy’s decision underscores its ongoing struggle to balance fiscal necessity and global competitiveness. The higher levy may not deter the world’s wealthy, but it tests their confidence in Italy’s policy stability. Whether the move succeeds will depend less on the headline figure than on Italy’s ability to sustain growth and restore faith in its economic governance.
