Get your free copy of Editor’s Digest
FT editor Roula Khalaf picks her favourite stories in this weekly newsletter.
Italy has doubled its flat tax rate on foreign income for new residents, a blow to wealthy expats seeking to escape possible tax hikes elsewhere in Europe.
Prime Minister Giorgia Meloni’s cabinet on Wednesday approved an increase in the annual flat tax on overseas income for new Italian tax residents to 200,000 euros.
The current 100,000-euro tax break is popular among the wealthy but controversial among Italians, particularly in the business capital Milan, where a recent influx of the ultra-rich has been blamed for soaring property prices and other rising living costs.
The government hopes the measures will also help raise tax revenues and plug a widening budget deficit, easing concerns in Brussels about Italy’s public finances.
The decision comes as Rome struggles to eliminate a budget deficit that reached 7.4 percent of gross domestic product (GDP) last year, well above the 3 percent GDP target for EU member states.
The EU forecasts Italy’s 2024 budget deficit to be 4.4% of GDP, still well above its target, which prompted the EU to launch an overhauled procedure in July requiring Italy to submit a medium-term fiscal adjustment plan by the end of September.
Finance Minister Giancarlo Giorgetti on Wednesday called the rate a “flat tax for so-called millionaires” but did not immediately say how much extra revenue the new rates were expected to raise.
But Giorgetti said the tax hikes were still at an “interesting” level for the wealthy. He later clarified to the Financial Times that the hikes would only apply to those who would gain tax residency in Italy in the future, not those who have already moved to the country.
The Italian government also wants to avoid a worst-case scenario of competing with other countries to lure individuals and businesses with tax cuts. “If this competition begins, a country like Italy, with very limited fiscal space, is inevitably doomed to lose,” the finance minister said Wednesday.
Generally considered a high-tax country over the past few years, Italy has emerged as a popular new destination for the world’s agile ultra-rich thanks to generous tax breaks launched in 2016 as part of efforts to stem the country’s long-running brain drain.
The scheme, launched after Britain’s vote to leave the EU led many Europeans in the UK to return home, allows new foreigners in Italy, or Italians returning after living abroad for at least nine years, to pay only a flat 100,000 euros in tax on their overseas income and assets for 15 years.
So far, the scheme, known locally as the “Footballers Plan”, is said to have attracted at least 2,730 billionaires, including private equity executives, oligarchs and entrepreneurs, to settle in Italy, mainly in Milan.
The tax cuts have been resented by many Italians, particularly in Milan, where an influx of wealthy people has caused property prices to rise 43 percent in the past five years and rents to rise nearly 20 percent in the two years to March.
Still, many investors expected the influx of big spenders to continue as Britain’s new Labour government prepares to abolish Britain’s controversial “non-resident” system that has allowed wealthy foreigners to avoid tax on their overseas income.
London-based private equity firm Three Hills Capital Partners said last month it was preparing to open a private members-only club in Milan in the fall, the latest in a string of luxury venues to open in the city over the past few years.
Dismayed expats warned that the sudden change in flat tax rates and the lack of long-term financial stability it implies was ominous for those considering moving.
One French investor who is relocating from London to Milan to take advantage of the scheme said he is not currently reconsidering his plans but is worried about future developments as “costs will become even higher”.
“It’s a signal that this is not a stable regime, and it’s terrible,” he added. Nodding to the rise in the flat tax rate, he said, “I wonder if it’s going to go up to 100,000 euros, 200,000 euros, 400,000 euros?”
