Italy doubles tax on wealthy foreigners amid locals complaining about high prices

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Italy has doubled its flat tax rate on foreign income for new residents, a blow to wealthy foreigners looking to escape the prospect of higher taxes elsewhere in Europe.

Prime Minister Giorgia Meloni’s cabinet on Wednesday approved an increase in the annual flat tax rate on overseas income for new tax residents in the country. Italy up to 200,000 €.

The current tax incentive of 100,000 euros, while popular with the wealthy, is controversial among Italians, especially in the business capital Milan, where a recent influx of the super-rich has been blamed for soaring property prices and rising living costs.

The government hopes the move will also help boost tax revenues and narrow the budget deficit, allaying concerns in Brussels about Italy’s state finances.

The decision comes as Rome struggles to tackle a budget deficit that reached 7.4% of gross domestic product last year — well above the EU member states’ target of 3% of GDP.

The EU forecasts Italy’s budget deficit in 2024 will be 4.4% of GDP, still well above target, prompting Brussels to initiate excessive procedures in July requiring Rome to submit a medium-term fiscal adjustment plan by the end of September.

Finance Minister Giancarlo Giorgetti, who on Wednesday called the tax a “so-called flat tax for billionaires,” did not say how much revenue the new rate was expected to raise.

However, Giorgetti said the increased tax rate would still be “attractive” to high-net-worth individuals. He later clarified to the Financial Times that the higher tax rate would only apply to those who are resident in Italy from now on, not those who have moved there.

Rome also wants to avoid a race to the bottom with other countries in an effort to attract individuals and companies through tax breaks. “If this competition starts, countries like Italy – which have very limited fiscal space – will inevitably lose out,” the finance minister said on Wednesday.

Over the past few years, Italy – often considered a high-tax jurisdiction – has emerged as a popular new location residential destination for the world’s fast-moving super-rich, thanks to generous tax incentives introduced in 2016 in an effort to reverse the country’s long-standing brain drain.

The scheme, launched after the Brexit vote saw many Europeans living in the UK return home, allows foreign tax residents new to Italy or Italians returning after at least nine years abroad to pay a flat tax of just €100,000 on any foreign income or assets for 15 years.

So far, the program, known locally as the “footballer program,” has attracted at least 2,730 millionaires, such as private equity executives, tycoons and entrepreneurs, to settle in Italy, mostly in Milan.

The tax exemptions have been opposed by many Italiansespecially in Milan, where the influx of wealthy people is blamed for a 43 percent rise in property prices over the past five years and a nearly 20 percent rise in rents in the two years to March.

However, many investors still expect big spending money to continue pouring in as the new UK Labour government prepares to scrap the UK’s controversial “non-settlement” regime, which allows wealthy foreigners to pay no tax on their overseas income.

Three Hills Capital Partners, a London-based private equity firm, speak Last month, the company was set to launch a private members club in Milan in the fall, the latest in a series of high-end locations to open in the city over the years.

Frustrated expats have warned that the sudden change in flat tax rates and lack of long-term financial stability bodes ill for those considering moving there.

One French investor who is in the process of moving from London to Milan to take advantage of the scheme said that while he was not reconsidering his plans at the moment, “it makes everything more expensive” and the move was worrying.

“It sends a signal that this is not a stable regime, which I think is very bad,” he added. Agreeing with the ever-increasing flat tax rate, he said: “You have to ask yourself, €100,000, then €200,000, then €400,000?”