Italy Joins Europe’s Tax Tug-of-War — Raising the Flat Tax While Others Compete for the Wealthy

What’s changing

The Italian government has announced plans to increase the annual “flat tax” levied on foreign nationals who transfer their tax residence to Italy, from €200,000 to €300,000.

• The change is part of the draft 2026 budget law covering the period 2026-2028.

• The original flat-tax regime was introduced in 2017 under then-Prime Minister Matteo Renzi’s centre-left government, designed to attract wealthy foreigners to Italy.

• Under the current plan, the tax would apply to foreign-sourced income earned by individuals who become tax residents in Italy.

Why Italy introduced it

Italy introduced the flat-tax regime with several motivations:

• Attraction of high net worth individuals (HNWIs): By offering a simplified, predictable tax regime (flat amount rather than progressive rates) Italy aimed to pull in wealth, human capital and investment.

• Competition with other jurisdictions: Many European countries provide preferential tax regimes for new residents or high earners. Italy’s scheme allowed it to compete in this space.

• Revenue for the state: Although the amount per individual is fixed, the aggregate adds up: nearly 1,500 people used the regime in 2023, generating about €315 million between 2020-2023.

What the scheme involves

Under the existing regime (prior to the raise):

• A foreign individual transferring tax residence to Italy can opt to pay a flat annual tax (e.g., €200,000) on their foreign-sourced income, rather than being taxed under the usual progressive income tax rates.

• Italian-sourced income and assets may still be subject to the ordinary Italian tax regime; the flat tax option covers foreign income for the newly resident.

• Other incentives: The scheme was viewed as favorable in part because Italian inheritance tax rules, especially for non-residents or recent residents, remained relatively benign.

What the proposed change means

By increasing the flat tax to €300,000, Italy signals several things:

• A stepping up of the cost of accessing the scheme: it becomes more expensive for wealthy foreigners to relocate under the preferential terms.

• A possible filtering effect: only very high-net-worth individuals may find the economics still attractive, potentially reducing the number of applicants but increasing the revenue per applicant.

• A shift in policy tone: It suggests Italy is moving from purely offering deep tax incentives towards balancing incentive with higher revenue capture, especially given budget pressures for the 2026-28 plan.

Broader context: Europe’s battle for high net worth resident tax regimes

Italy’s change does not exist in a vacuum; several other countries offer preferential regimes to attract wealthy residents, and Italy itself has been part of that competition. For example:

• Greece offers a flat tax of €100,000 on overseas income for qualifying foreign residents who invest at least €500,000.

• Portugal offers favourable tax regimes for non-habitual residents: flat rates of approx. 20% on certain Portuguese-sourced income and tax exemptions on certain foreign income for highly-qualified professionals.

• Spain introduced a “solidarity tax on large fortunes” targeting net wealth above €3 million with progressive rates up to 3.5 %.

Italy’s flat tax regime has sometimes been criticised by other European countries as “fiscal dumping”. In September (2025), then-French Prime Minister François Bayrou accused Italy of engaging in such practices; Italian Premier Giorgia Meloni dismissed the claims as “utterly baseless”.

Implications & risks

For ultra-rich individuals / potential migrants:

• The cost of relocating under this scheme increases; the attraction may decline unless the overall tax burden remains lower than alternative jurisdictions.

• The rise might prompt some to accelerate their application under the older €200,000 regime (depending on transitional rules).

• They will need to assess whether other jurisdictions now provide better value for mobility, investment and residency.

For Italy and its economy:

• The policy attempts to balance attracting capital/migration flows with fiscal needs. Amplifying revenue per migrant may reflect budget tightening.

• It may reduce the “volume” of relocating wealthy individuals, which could affect associated flows: investment into property, businesses, consumption in high-value services, etc.

• On the flip side, those who still relocate under higher cost may have deeper pockets, possibly bringing more investment per capita.

• There’s a housing market risk: The report notes that Milan has become a top destination for these relocations, which has contributed to housing market stress and cost-of-living pressures on locals.

For tax fairness and domestic politics:

• Raising the amount may help ameliorate criticisms that ultra-rich migrants are receiving overly generous deals compared with ordinary residents.

• However, the fixed-flat tax remains a relatively exclusive deal, meaning some will still view it as preferential treatment for the wealthy.

• Local residents facing housing cost increases (in Milan and other hotspot cities) may push for more balanced policy between welcoming wealthy migrants and protecting domestic affordability.

Key questions ahead

• Will the raise to €300,000 be sufficient to discourage relocation flows, or will many still find it worthwhile?

• What will be the effective cost-benefit for a wealthy individual choosing Italy at that rate versus other jurisdictions?

• Will Italy further tighten conditions (e.g., minimum investment, property purchase, length of stay) to ensure real economic benefit from those who relocate?

• What will be the impact on cities like Milan, in terms of housing affordability, local resident displacement and taxation fairness?

• How will other European states respond? Will we see counter-moves (higher thresholds, incentives) or alignment of tax regimes to reduce competition?

Conclusion

Italy’s decision to raise the annual flat tax for wealthy incoming residents to €300,000 marks a notable shift. While still offering a simplified regime designed to attract high-net-worth individuals, the higher fee signals a recalibration: fewer but deeper-pocketed migrants may be targeted, in line with budget-pressured fiscal policy.

For potential migrants and tax planners, this calls for a fresh assessment of value and timing: the economics of relocating to Italy under the scheme just became less generous. For Italy, the challenge remains balancing the magnetism of such tax schemes with their broader economic, housing and social impacts.

As the draft 2026 budget law progresses, the details will matter: transitional rules, exact eligibility, enforcement mechanisms and broader policy context will determine how impactful the raise will be in practice.