Despite a broader overhaul of the Italian tax system, the Forfait Tax Regime for New Resident individuals remains a cornerstone of stability, even with recent updates to applicable rates. This regime offers a flat tax of €200,000 on foreign income for the principal applicant, while the flat tax for relatives remains at €25,000.
Celebrating its seventh anniversary, the regime’s appeal to High-Net-Worth Individuals (HNWIs) has grown due to changes in similar programs elsewhere. While the number of participants has steadily increased, reaching 4,000 by mid-2024, it’s important to note that this doesn’t represent a mass “tax migration” harmful to other countries. Instead, it reflects HNWIs’ interest in exploring optimal wealth management solutions.
Unexpectedly, in August the Council of Ministers increased the Forfait Tax for New Resident individuals from €100,000 to €200,000 through the Law Decree 113/2024, effective from the 10th August. This amendment aims from one side to update the rates after the last 7 years of high inflation rates and to the other side to avoid political debates on fairness and capitalize on international discussions regarding HNWIs and Italy’s growing international appeal. Notably, the core structure of the regime remains unchanged, and the increase applies only to new applicants, with a grandfathering clause protecting existing participants.
The grandfathering rule safeguards individuals who had already obtained a positive ruling or moved to Italy before the Decree’s effective date, allowing them to benefit from the old rate of €100,000.
While the Law Decree is immediately effective, it must be converted into law by the Parliament within 60 days. This process could influence the outcome and potentially expand the grandfathering rule to include individuals who made concrete plans to relocate to Italy but were caught unprepared by the Decree.
Typical example of those situations are for example, New Residents that already signed a preliminary agreement to buy a real estate in Italy with the aim to transfer their residence there but did not have the time to register in the registry of the Italian resident population or simply those New Residence in the process of registering in Italy or that have a regular long-term VISA are taking care of the formalities required for the application of a residence permit and they Law Decree enter into force caught them unprepared. All those cases should be reasonably addressed and now may create an uncertain outcome.
Despite this uncertainty, the regime’s core benefits remain intact. These include exemption from (i) foreign asset reporting, (ii) gift and inheritance taxes, (iii) extraterritorial taxes on foreign real estate and financial assets, and (iv) capital gains on the disposal of substantial shareholdings after five years of residency.
With its competitive tax regime and grandfathering clause, Italy certainly continues to be an attractive option for HNWIs and UHNWIs seeking to optimize their wealth management strategies and most importantly, the grandfathering clause legally certify that if a legislation (as it is natural) may evolve and change during time the acquired rights remain untouched and preserved by the legislator.
