Italy Restores Limits on Tax Regimes
Italy has moved to close a tax loophole by restoring restrictions on combining preferential regimes, reshaping incentives for wealthy individuals and inbound workers.
Fiscal decree removes dual-regime benefit
On March 27, the Italian government approved a fiscal decree that reinstates the prohibition on using two key tax regimes simultaneously for new residents. These include the high-net-worth individual regime and the inbound workers regime.
The high-net-worth regime applies a flat tax on foreign income, while the inbound workers regime offers relief on Italian-source earnings.
Legal gap allowed temporary tax optimization
The overlap became possible after a legislative misalignment in 2024, when references in the original law were not updated following reforms. This effectively removed the explicit ban on combining the regimes.
In December 2025, the Italian Revenue Agency confirmed that both regimes could be used together under the existing framework.
The new decree restores the original restriction and eliminates that interpretation.
Transitional window until 2026
The reform includes a transitional period. Individuals who became Italian tax residents between 2024 and 2026 can still benefit from both regimes concurrently.
From 2027 onward, new arrivals must choose one regime only, depending on whether they prioritize foreign income shielding or domestic income incentives.
Higher costs for tax incentives
The shift comes after Italy doubled the flat tax for wealthy foreign residents to €200,000 annually starting from 2024.
Under this system, foreign income is excluded from standard taxation in exchange for a fixed annual payment, making Italy competitive with other European destinations for mobile wealth.
Implications for capital flows
The removal of regime stacking reduces flexibility but increases clarity for investors. The change may affect relocation decisions, especially among high-net-worth individuals evaluating tax efficiency across jurisdictions.
As experts at International Investment report, Italy is shifting from aggressive tax competition toward a more structured and predictable system, where legal clarity and long-term stability increasingly outweigh maximum tax optimization.
FAQ
What is changing in Italy’s tax system?
A ban on combining two preferential tax regimes for new residents.
When does it apply?
From fiscal year 2027 for new tax residents.
Who is affected?
High-net-worth individuals and inbound workers relocating to Italy.
Are existing residents impacted?
No, those who relocated between 2024 and 2026 can still combine regimes.