The Italian government’s decision to double the flat tax on foreign income for new residents is a significant shift in its approach to attracting wealthy expats. The flat tax, originally set at €100,000 per year, had been a major draw for high-net-worth individuals seeking favourable tax regimes in Europe. However, this increase to €200,000 reflects growing concerns within Italy about the socioeconomic impact of this influx of wealthy foreigners, particularly in cities like Milan where real estate prices and living costs have surged.

Prime Minister Giorgia Meloni’s administration seems to be responding to domestic pressures, as the initial tax incentive had become controversial among Italians who were facing higher living costs partly due to the presence of these affluent new residents. By increasing the tax, the government aims to balance the need for foreign investment and residency with the concerns of its citizens.

The rise in the flat tax could deter some potential expats, especially those on the margin of considering Italy over other tax-friendly destinations like Dubai, Switzerland, or Greece. Nevertheless, for those with substantial wealth, Italy’s tax regime may still be attractive despite the higher levy. The decision underscores the risks inherent in moving to a country based on tax incentives, as such policies can change with the political climate.

In the broader context, this move may signal a shift in Italy’s strategy to attract foreign capital, focusing more on sustainable and equitable growth rather than competing in a “race to the bottom” with other nations offering tax breaks. For current residents who moved under the previous regime, the decision not to retroactively apply the new tax is likely a relief, but it may raise concerns about the stability and predictability of Italy’s tax policies in the future.