Welcome to Italy, Big Spenders (at a Cost): the New Residents’ Flat Tax Jumps to EUR 300,000
The 2026 Budget Law once again intervenes in the new residents’ regime provided for under Article 24-bis of the Italian Income Tax Code (TUIR), marking a further shift in Italy’s tax policy aimed at attracting high-net-worth individuals. Following the first tightening introduced by Decree Law No. 113/2024 (“Omnibus Decree”), which had already doubled the substitute tax from EUR 100,000 to EUR 200,000, the legislator now outlines an additional increase: the annual tax is raised to EUR 300,000 for the main taxpayer and to EUR 50,000 for each family member for whom the option is extended.
This new framework will apply to individuals who transfer their civil-law residence to Italy as from 1 January 2026, thereby confirming the decisive role of registration in the municipal population register as the criterion for determining the applicable amount of the substitute tax. This choice is not without consequences, as it may result in different treatments for taxpayers who acquire Italian tax residence in the same year but complete their registration at different times.
As is well known, the new residents’ regime allows individuals who transfer their tax residence to Italy—provided they have not been resident in the country for at least nine of the previous ten tax periods—to subject all foreign-source income to a flat substitute tax. The option may also be extended to family members identified under Article 433 of the Italian Civil Code, who must meet the same subjective requirements. Such extension may be exercised at any time during the validity of the regime, which remains set at fifteen non-renewable years.
According to the wording of the law, access to the regime would require the filing of a ruling request (interpello probatorio) prior to exercising the option. However, as clarified by a 2017 ruling of the Italian Revenue Agency, such a ruling is to be considered optional. Nevertheless, it remains a useful instrument where doubts exist as to the fulfilment of the access requirements.
The option is exercised directly through the annual tax return, which may refer either to the year in which tax residence is transferred or to the following year.
As regards the objective scope, the legislation refers to the criteria set out in Article 165 of the TUIR, pursuant to which income is considered to be produced abroad—and therefore subject to the substitute tax—if it is determined on the basis of criteria reciprocal to those used to identify income produced in Italy.
Accordingly, the regime covers real estate income relating to properties located abroad, investment income paid by non-resident entities, employment income derived from activities performed abroad, self-employment income carried out abroad through a fixed base, business income produced abroad through a permanent establishment, and capital gains on shareholdings in non-resident companies. This perimeter also includes income held through interposed entities and income derived from participations in companies resident in low-tax jurisdictions, for which—by way of derogation from the ordinary rules—no specific reporting obligations are required in the tax return. The option also deactivates the controlled foreign company (CFC) rules, thereby preventing the transparent taxation of income of foreign subsidiaries.
Certain exclusions nevertheless remain in place: capital gains arising from qualifying shareholdings continue to be subject to ordinary taxation for the first five tax periods during which the option is effective. For this reason, during this five-year period the obligation to report such participations in the RW section of the tax return remains, notwithstanding the general exemption from foreign asset monitoring requirements.
The substitute tax—now amounting to EUR 300,000 for the main taxpayer and EUR 50,000 for each family member—is payable in a single instalment by the deadline for the payment of the personal income tax (IRPEF), i.e. 30 June.
Once the option has been exercised, the substitute tax applies automatically from year to year, unless revoked, forfeited, or in the event of loss of Italian tax residence. It is also possible to revoke the extension to family members without relinquishing the main option.
From an effects perspective, the option grants an exemption from the obligation to complete the RW section of the tax return (relating to foreign assets) and from the related IVIE (tax on foreign real estate) and IVAFE (tax on foreign financial assets) obligations, both for the main taxpayer and for the participating family members.
At the same time, the regime cannot be combined with other incentives for workers relocating to Italy, such as the inbound workers’ regime or the regime for researchers; taxpayers must therefore choose which regime to apply.
The 2026 Budget Law thus significantly amends the regime, making it more expensive while leaving its underlying structure unchanged. The new tax thresholds—particularly high in absolute terms—may affect the attractiveness of the system, especially for individuals with foreign income streams of limited size relative to the flat tax. At the same time, the decision to apply the new measures based on civil-law residence as from 2026 may give rise to situations that are not perfectly symmetrical between the main taxpayer and family members, particularly where the latter transfer their residence in subsequent years and are therefore required to pay a higher tax while adhering to the same regime.
