Italy's flat tax on High-Net-Worth Individuals doubles

Last Wednesday, August 7, the Italian Council of Ministers approved the “omnibus decree law” that, among other things, substantially modifies the regime under Article 24-bis of the TUIR (Italian Income Tax Code), increasing the substitute tax on foreign income earned by so-called "new residents" from the current €100,000 to €200,000 per year. As for the effective date, the tax increase will apply to individuals who transfer their tax residence to Italy (under Article 43 of the Civil Code) after the decree comes into force.

Thus, within a few months after the British Chancellor Jeremy Hunt announced on March 6, 2024, in the Spring Budget, the proposal to abolish the UK’s non-domiciled resident regime after more than 200 years, Italy is also announcing a crackdown on taxes for the wealthy.

It is not excluded that this legislative change might cause some taxpayers to reconsider the benefits of returning to Italy and seek more favorable tax solutions, such as Switzerland, which offers a lump-sum taxation regime based on expenditure. For example, a taxpayer residing in Ticino under the expenditure-based taxation regime, with substantial foreign assets, could pay a tax ranging from approximately CHF 135,000 to CHF 145,000, depending on the municipality of residence. This tax covers the entire household, without additional tax burdens for dependents such as spouses and children (unlike in Italy, where the new resident regime entails the payment of not only the €200,000 flat tax but also €25,000 for each family member). A taxpayer subject to expenditure-based taxation is not required to file a standard tax return, but must only declare any taxable income from Swiss sources for the purpose of verifying the determining expenditure.

This regime also allows the recovery of tax credits for withholding taxes levied abroad on dividends, interest, and other income, in accordance with applicable double taxation treaties. The global regime only ends if the taxpayer applies for Swiss citizenship or begins to engage in gainful employment in Switzerland, unlike other jurisdictions where the favorable regime is limited to 5 or 10 years (as is the case in Italy, for example).

Furthermore, as of 2024, Switzerland has been removed from Italy's blacklist for individuals, so Italian citizens leaving the United Kingdom to move to Switzerland will no longer be subject to the presumption of Italian tax residence under Article 2 of the TUIR.

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