The case

Italy’s decision to double the “flat tax” on income earned abroad by wealthy individuals who move their tax residence to the country is a significant move in the ongoing debate about tax havens and preferential tax regimes for the rich.

The commentary

The original flat tax, introduced in 2017, was aimed at attracting ultra-wealthy individuals to Italy in hopes of stimulating the economy. However, the policy has faced criticism both domestically and from the European Union.

The EU, particularly through its Tax Observatory, has been vocal in criticizing such tax regimes, labeling them as harmful due to the large exemptions they offer to the wealthy. The Observatory has singled out Italy and Greece for offering particularly generous tax breaks to high-net-worth individuals, which it argues undermine fair taxation principles and are detrimental to state finances.

Italy’s audit court estimated that the scheme generated 254 million euros in tax revenue between 2018 and 2022, but this sum is relatively modest considering the wealth of the individuals involved. The recent decision to double the tax to 200,000 euros per year may reflect an acknowledgment of these criticisms, as well as a desire to extract more revenue from the wealthy residents it attracts, even as the scheme remains attractive compared to regular tax rates. This move might also be seen as a balancing act—trying to maintain Italy’s appeal to wealthy expatriates while addressing concerns about fairness and the impact on public finances.