Flat Tax for High Net Worth Individuals 

Why moving to Italy is the ideal tax choice


Italy is welcoming HNWIs (High Net Worth Individuals) with open arms so, if you are planning to move abroad you may consider enjoying la dolce vita as three things are on offer: a special flat tax for your foreign income, an inheritance and gift tax exemption.

The flat tax is central to the package. In summary, regardless of the level of your foreign income, you can opt to pay an annual flat tax of € 200.000,00 and a lower amount of € 25,000 for each family member, defined very broadly as your spouse, children, brothers and sisters, parents (also in-law) and sons and daughters inlaw.

1. Eligibility requirements


The first condition for accessing the special tax regime for new residents requires the transfer of the individual’s tax residence from a foreign country to Italy, along with the individual’s effective relocation to the Italian territory. The second condition provides that the individual must not have been fiscally resident in Italy for at least nine of the ten tax periods preceding the first year in which the option is effective.


Pursuant to the applicable legislation, during the period of validity of the option, the regime may be extended to one or more family members of the principal taxpayer, provided that they also meet the aforementioned requirement concerning prior tax residence abroad. The extension of the regime’s applicability to eligible family members may also occur at different times, meaning that each family member may exercise the option in a tax year other than that of the principal taxpayer—such as in cases where their relocation to Italy takes place at a later date.


With regard to the classification of foreign income subject to the substitute tax, income is considered to be produced abroad based on criteria that are reciprocal to those established under Italian law for identifying income produced within the territory of the State. In other words, income is deemed foreign when it can be linked to a source located outside Italy, regardless of the source-country’s own criteria for determining the territorial connection of the income.


2. Why is the flat tax so advantageous?


As advanced above, if you opt for the flat tax, you will be taxed in Italy only on your Italian income and capital gains from equity interests sold within five years of opting for the flat tax. This because the provision is aimed at preventing an individual holding a qualifying participation in a foreign entity—potentially capable of generating a significant capital gain—from transferring their tax residence to Italy solely for the purpose of benefiting from the favorable tax regime, and subsequently relocating to another country after having paid the substitute tax. 


However, those capital gains could be included in the flat tax regime after you have filed a tax ruling application demonstrating that there has been no abuse of law because of the sale and that you are committed to remaining in Italy for at least five years after the sale of the equity interest. 


So, in general terms:


a) You will be able to remit foreign income to Italy without paying any additional tax on:

  • Foreign-sourced income (e.g., dividends, interest, capital gains, rental income)
  • Foreign business income (subject to certain limitations)
  • Foreign pension income
  • Capital gains from the sale of qualifying foreign shareholdings 
  • Foreign real estate and financial assets (exemption from IVIE and IVAFE wealth taxes)
  • Foreign assets for inheritance and gift tax purposes

b) You will be exempted from tax monitoring obligations and wealth tax payment

Most importantly:
  • the CFC (Controlled Foreign Corporations) rules do not apply to payers of the flat tax. This is because CFC rules apply when income is produced in countries with a preferential tax regime, while the new flat-tax regime does not make any distinction on this.
  • under ordinary rules and under certain circumstances, a foreign company may be deemed to be resident in Italy. However, if you are the sole director of a foreign company and you change your residence and become a new flat taxpayer of Italy, the company will not be deemed as Italian. It will only occur if there is a board of directors, the majority of whom are resident in Italy without opting for the flat-tax regime.
  • capital income paid by foreign states or by non-resident parties is considered to be foreign income and, as such, included in flat tax. This is also the case when the foreign financial assets that are generating the income are covered by i) a custody or management agreement with an Italian intermediary, even though they are deposited on a foreign account, or ii) a life insurance policy taken out with a foreign insurance company operating in Italy even though the collection of the proceeds is entrusted to an Italian intermediary. 

Only income from assets located in Italy and gains from the sale of shares in companies resident in Italy are considered to be generated in Italy and excluded from the flat tax.

2.1 Inheritance and gift tax exemption


Any assets bequeathed or gifted by an Italian tax resident are normally subject to Italian inheritance and gift tax.

However, there are generous benefits for new flat tax residents and you would be taxed only on assets and rights held in Italy; you can pass on foreign assets free of tax.

3. Application and Duration 


The regime is elective and must be explicitly chosen when filing the first tax return after establishing Italian residency. 


The flat tax regime can be applied for a maximum duration of 15 years and can be revoked at any time, and it is deemed to be tacitly renewed on a yearly basis, unless a circumstance arises that leads to the termination of its effects, a revocation of the option, or a forfeiture of the regime. 


In this regard, failure to pay, or partial payment of, the substitute tax by the deadline results in the loss of entitlement to the favorable tax regime.


Moreover, taxpayers are granted the option to exclude income produced in one or more foreign States or territories from the application of the substitute flat-rate tax, but the exclusion cannot be revoked.


The excluded income will be subject to the ordinary Italian rules on tax payments and foreign tax credits.


4. An example


To put Italy’s flat tax into perspective, for a family of four with investment income exceeding €1 million annually, relocating from the UK to Italy under the flat tax regime could generate potential tax savings of approximately € 300.000 - € 350.000 per year. This family would pay the €200,000 flat tax plus €25,000 for each family member (total € 275,000), regardless of their foreign income amount, compared to approximately € 600,000 in UK taxes on the same income. 


Over the 15-year duration of the regime, this represents potential tax savings of over €4.5 million, not including additional benefits from inheritance tax exemptions on foreign assets.