The Italian government has doubled the fixed tax rate targeting wealthy foreigners and others. It is expected to impact the affluent who relocated to Italy to avoid high taxes in other parts of Europe. However, the Italian government assessed that the increased fixed tax would still remain at an "interesting level" for high-net-worth individuals.
On the 7th (local time), the Giorgia Meloni cabinet held a cabinet meeting and approved a tax law amendment raising the fixed tax on annual foreign income of new residents in Italy to 200,000 euros (approximately 300 million KRW). This is double the previous annual amount of 100,000 euros.
The fixed tax, introduced in 2017 to attract wealthy foreigners, requires new residents to pay a fixed amount of tax annually regardless of their foreign income. It applies for 15 years to foreigners newly residing in Italy or Italians returning after living abroad for more than 9 years. Informally, it is called the "billionaire tax" or the "footballer scheme."
This policy gained popularity among the wealthy, notably when Portuguese football star Cristiano Ronaldo transferred to Juventus in Italy. However, it sparked controversy among locals in major cities like Milan due to soaring real estate prices and living costs. In Milan, where many wealthy individuals have gathered, real estate prices have reportedly risen by as much as 43% over the past five years.
Internationally, Italy has faced criticism for becoming a tax haven for the wealthy. According to major foreign media, it is estimated that at least 2,730 billionaires moved their residence to Italy to benefit from this scheme. Tim Stobold, a partner at the accounting firm Moore Kingston Smith, said, "The number of people wanting to go to Italy will definitely decrease now."
At a press conference immediately after the cabinet meeting, Giancarlo Giorgetti, Minister of Economy and Finance, described the system as a "fixed tax for billionaires." He confirmed that since its introduction in 2017, there have been 1,186 beneficiaries. However, he evaluated that "(despite the increase in fixed tax) it still remains an interesting level for high-net-worth individuals." He also added that this measure applies only to those newly relocating their residence and does not apply to those who have already moved to Italy.
For Italy, the tax increase is interpreted as a response to the insufficient confirmation of economic revitalization and investment contributions from the wealthy, which were initially expected through the introduction of the fixed tax. By increasing the annual tax revenue through this hike, it is also expected to reduce the fiscal deficit. Last year, Italy's fiscal deficit was 7.4% of its Gross Domestic Product (GDP), the highest among the 27 European Union (EU) member states. This figure far exceeds the EU target of keeping it within 3% of GDP.
It remains unclear how much additional tax revenue will be generated by this measure. Previously, the Italian Court of Auditors estimated that tax revenue collected under this scheme from 2018 to 2022 would amount to 254 million euros.
Italy also clearly expressed that it does not want to compete with other countries over tax reductions. Minister Giorgetti said, "If such competition begins, countries with very limited fiscal capacity like Italy will inevitably lose." Regarding reports about considering a windfall tax on banks, he dismissed plans to impose additional taxes.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
