Italy’s “flat tax” regime has, since 2017, served as a cornerstone of its effort to attract high-net-worth individuals (HNWIs), entrepreneurs, and global families seeking EU residency without full exposure to Italy’s progressive income tax system. However, the 2026 draft budget law introduces a significant revision: raising the flat tax from €200,000 to €300,000 annually for new applicants.

For those considering Italy as a base — whether for lifestyle, tax residency, or structuring purposes — this change raises important planning considerations. Here’s what’s proposed, what remains unchanged, and how it compares with other jurisdictions offering similar regimes.

What the Draft Law Proposes

The 2026 Budget Law, still subject to parliamentary approval, includes two key amendments to Italy’s substitute tax regime for new tax residents:

1. Main Flat Tax: The annual tax on foreign-source income would increase from €200,000 to €300,000.
2. Dependent Surcharge: The fixed fee per qualifying family member would rise from €25,000 to €50,000.
   
   

Critically, the new rates would apply only to those applying after the law enters into force. Existing beneficiaries would be grandfathered under the €200,000 regime for the remainder of their 15-year entitlement period.

Why This Matters: Clarity, But a Higher Entry Cost

Italy’s flat-tax regime is known for its predictability. Qualifying residents pay a fixed annual amount in lieu of ordinary tax on foreign-sourced income — no matter the amount. This has appealed especially to:

• Entrepreneurs and business owners with offshore holdings or global income
• Ultra-high-net-worth individuals (UHNWIs) seeking lifestyle + tax advantages
• Family offices using Italy for intergenerational planning or EU presence

However, the proposed increase from €200,000 to €300,000 represents a 50% rise in cost — potentially reducing the regime’s attractiveness for certain segments of wealth holders.

For example, someone with €750,000 in annual foreign income might see Italy’s offer as less compelling at €300,000 (an effective rate of 40%) versus €200,000 (26.6%).

How Does It Compare to Other Regimes?

While Italy remains unique in its flat substitute tax model, other jurisdictions offer competing incentives to attract HNWIs:

Key advantages of Italy’s regime:

• No need to remit funds to Italy to enjoy the flat tax
• Predictable, fixed tax liability regardless of income level
• Can combine with Italy’s lifestyle, healthcare, education, and citizenship paths

Key disadvantages (post-change):

• Higher cost than other regimes for those with modest offshore income
• Still requires due diligence and application acceptance

Who Can Apply?

Italy’s flat tax regime is open to individuals who:

• Become Italian tax residents (typically, 183+ days per year in Italy)
• Have not been tax resident in Italy for at least 9 of the last 10 years
• Apply through a formal ruling with the Italian tax authorities (Agenzia delle Entrate)

The regime is valid for up to 15 years and applies only to non-Italian-source income (which is still taxed under Italy’s normal progressive rates).

Timing Is Everything: Act Before the Change?

As the law is still under discussion, the exact effective date of the new €300,000 rate has not been confirmed. However, for individuals or families already considering relocation, applying under the existing regime before the change takes effect could lock in the €200,000 rate for the full 15-year period.

That said, a rushed application without proper structuring or documentation could backfire. Professional planning is essential — especially when coordinating global income sources, trust structures, and family members’ tax status.

Planning Implications: What You Should Do Now

If you’re considering Italy as your residency or holding base, here are the steps to take:

1. Review your international income profile
   Would the flat tax save you more than you’d pay under full taxation elsewhere?
2. Coordinate with current residence or exit tax regimes
   Ensure you’re not triggering tax issues by leaving your current jurisdiction.
3. Consult on timing and grandfathering
   If you’re close to qualifying, acting now may secure the lower rate before the law changes.
4. Compare with other regimes
   Depending on your mobility and business structure, other countries may be more tax-efficient.
5. Map out dependent costs
   If relocating as a family, remember the surcharge increase for each qualifying dependent.
   
   

For individuals and advisors, the key is to plan with precision — leveraging the remaining window of opportunity to apply under the current rules, or reassessing alternatives if the increased cost tips the balance.