Doubling the Flat Tax: Why It’s Still Attractive for Wealthy Individuals

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The Omnibus Decree and the New Tax Regulations for Wealthy Residents

The Omnibus Decree, which was published in the Official Gazette in August, has introduced a significant change regarding the flat tax for wealthy individuals relocating their residence to Italy.
This decree, which needs to be converted into law by October 8, is currently undergoing amendments as they have received governmental approval.

Despite affecting thousands of taxpayers, it is worth noting that the Italian flat tax remains highly attractive compared to the various taxation systems implemented in Europe.
Thus, even with the increase, it continues to be a flat tax that is likely to draw foreign capital.

The Origins of the Flat Tax System

Initially introduced by the Renzi government in 2016, the flat tax is designed for individuals moving their tax residence from abroad to Italy.
This optional regime, known as the Neo-Residents regime, aims to attract foreign investments and capital.

The flat tax regime imposes a fixed substitute tax of €100,000.
Furthermore, an additional flat tax of €25,000 can be applied for each dependent family member.
While this preferential tax regime has sparked controversy, the government is now looking to double the initial substitute tax from €100,000 to €200,000.

Eligibility and Conditions for the Neo-Residents Regime

Adherence to the flat tax is mandated during the income tax declaration corresponding to the year in which residency was transferred to Italy or the following year.
The tax status is automatically renewed each year unless specific conditions lead to its termination, such as non-payment of dues.

It’s essential for taxpayers to independently handle their tax payments using the “F24 Payments with Identifying Elements” form, specifying the tax code “NRPP.”

Controversies Surrounding the Flat Tax Increase

The proposal to double the flat tax for new residents has generated substantial debate.
Currently, around 818 principal taxpayers and 318 family members benefit from this regime, collectively contributing €89.8 million to the Italian economy.
However, the precise incomes of these individuals remain unknown, raising questions about their actual tax contributions compared to standard taxation rates.

Despite the intended goal of attracting investment through this policy, there has been a lack of comprehensive monitoring, leaving data on income and potential investments in Italy untracked.

Effective Date of the New Flat Tax Regulations

The increased flat tax will take effect for individuals relocating their residency to Italy after the Omnibus Decree becomes law.
While the increase may seem less attractive, it is crucial to consider that it still represents a competitive flat tax rate compared to other EU member states.

This means that, despite the rise in taxes on foreign income, Italy may continue to be a favored destination for wealthy individuals looking to relocate their tax residence due to its highly advantageous tax framework.

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