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Italy has doubled a flat tax on the foreign income of new residents, in a blow to rich expats seeking to flee the prospect of higher levies elsewhere in Europe.
Prime Minister Giorgia Meloni’s cabinet on Wednesday approved a rise in the annual flat tax on overseas income for new tax residents in Italy to €200,000.
The current €100,000 tax incentive, while popular with wealthy individuals, has been controversial among Italians, especially in the business capital Milan, where the recent influx of the super-rich has been blamed for a sharp increase in real estate prices and other rises in living costs.
The government hopes the move will also help increase tax revenues and bridge a yawning budget deficit, mollifying concerns in Brussels over Italy’s state finances.
The decision comes as Rome is struggling to tackle a budget deficit, which reached 7.4 per cent of gross domestic product last year — well above the 3 per cent of GDP targets for EU member states.
The EU has forecast Italy’s budget deficit for 2024 will be 4.4 per cent of GDP, still well above the target, which in July prompted Brussels to start excessive procedures that require Rome to submit a medium-term fiscal adjustment plan by late September.
Finance minister Giancarlo Giorgetti, who on Wednesday referred to the levy as the “so-called flat tax for the billionaires”, did not immediately say how much extra revenue the new rate is expected to raise.
However, Giorgetti said the increased levy was still at a level that would remain “interesting” to high-net worth individuals. He later clarified to the Financial Times that the higher levy would only apply to people taking up tax residency in Italy from now on, and not those that had already moved there.
Rome also wanted to avoid a race to the bottom with other nations in trying to lure individuals and companies through tax breaks. “If this competition starts, countries like Italy — which has very limited fiscal space — are inevitably destined to lose,” the finance minister said on Wednesday.
In the past few years, Italy — typically considered a high-tax jurisdiction — has emerged as a popular new residential destination for the world’s nimble-footed super-rich, thanks to the generous tax incentives started in 2016 in an effort to reverse the country’s long-term brain drain.
The scheme, launched after the Brexit vote prompted many British-based Europeans to return home, allowed new foreign tax residents to Italy, or Italians returning from at least nine years living abroad, to pay a flat tax of just €100,000 on any foreign income or assets for 15 years.
So far, the scheme, known locally as “the footballers’ scheme”, has been credited with attracting at least 2,730 multimillionaires, such as private equity executives, oligarchs and entrepreneurs, to take up residence in Italy, mainly in Milan.
The tax breaks were resented by many Italians, especially in Milan, where the influx of the wealthy has been blamed for a 43 per cent increase in real estate prices over the past five years, and near 20 per cent rise in rentals in the two years to March.
Still, many investors had expected the inflow of big spenders would continue as Britain’s new Labour government prepares to abolish the UK’s controversial “non-dom” regime, which had allowed wealthy foreigners to avoid paying any tax on their overseas income.
Three Hills Capital Partners, a London-based private equity firm, said last month it was preparing to launch a private members’ club in Milan in the autumn, the latest in a series of upmarket venues to open in the city in the past several years.
Dismayed foreigners warned that the sudden flat tax change, and the lack of long-term fiscal stability it implied, was ominous for people considering a move 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 is not rethinking his plans at the moment, “it makes it more expensive” and the direction of travel is worrying.
He added: “It sends a signal that it’s not a stable regime, which I think is terrible.” Nodding to the increasing rate of flat tax, he said: “You have to wonder, €100k, then €200k, then €400k?”
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