Italy expands 7% flat tax on foreign income to towns up to 30,000 residents

Italy's flat‑rate tax regime applies a 7% levy to all foreign‑source income—dividends, capital gains, rental income, royalties and more—for up to ten years. The scheme, originally limited to municipalities with fewer than 20,000 inhabitants, was quietly amended by budget law 34/2026 to raise the ceiling to 30,000 residents, opening eligibility to larger, better‑connected towns across the eight southern regions, including places such as Ostuni and Cefalù.

The regime is aimed at attracting foreign retirees and high‑earning individuals who move to Italy, provided they have not been tax residents in the previous five years and come from countries that share a tax information‑exchange agreement with Italy. It excludes only non‑cooperative tax havens.

The Italian Court of Auditors has flagged constitutional concerns, noting a lack of comprehensive impact studies and the risk of unequal treatment between flat‑tax beneficiaries and ordinary taxpayers. In its 2024 report the Court recorded 1,923 beneficiaries of the regime—most of them professional athletes and high‑income expatriates—contributing roughly €153 million to the state treasury that year, and about €469 million in total since its inception. The audit questions whether the tax break yields net fiscal benefits or creates inequities under the Constitution.