Italy has been offering favorable tax regulations to high earners, wealthy individuals and pensioners from abroad for years. The “brain drain” remains a problem.
Rich Swiss people may soon consider not only going to Italy to shop, but staying there instead. The country offers attractive tax regulations for the wealthy.
Julius Napolitano / Bloomberg
Will Italy become a tax haven for wealthy Swiss who want to protect themselves and their income from the Young Socialists’ inheritance tax initiative? It could be possible. For football superstar Cristiano Ronaldo, Italy was certainly a tax haven. The Portuguese’s move from Real Madrid to Juventus Turin in 2018 was hardly for sporting reasons.
Ronaldo benefited above all from a tax regulation that was extremely advantageous for him and has been in place since 2017: Anyone who had lived outside Italy for nine of the last ten years and then moved to Italy previously only paid a flat rate of 100,000 euros per year on all income earned abroad. This regulation applies for up to 15 years after moving to the country. Family members even paid a flat rate of just 25,000 euros per year.
According to the Minister of Economy and Finance Giancarlo Giorgetti, 1,186 people have made use of the “Legge Paperone”, or “Lex Dagobert” in English. It is difficult to determine how much they have invested in Italy, says Giorgetti.
However, Giorgetti has now surprisingly raised the flat-rate tax to 200,000 euros. But this is still attractive and could be of interest to wealthy Swiss people.
Rich Italians are coming back
What is unusual for the extremely bureaucratic Italy is that newcomers only have to fill out a three-page form with boxes to tick in order to benefit from the tax relief. There is no obligation to declare assets outside Italy. It is sufficient to register your residence in Italy and to stay there for more than half the year.
In general, Italy has become a popular place to live for high-earning foreigners in recent years. Banks such as Unicredit, Mediobanca, Goldman Sachs, JP Morgan Chase and Citigroup have increased their staff in Milan after Brexit, hiring many bankers from London. And investors such as Certares, Eisler Capital UK and Andera Partners have also opened offices.
According to the Financial Times, almost 89,000 people have moved to Italy from abroad since a series of different tax breaks for the rich came into force. The majority of them are Italians who have worked abroad for several years and have now returned home.
The generous provisions could even be extended under certain conditions, such as when purchasing a residential property. This has led to enormous price increases on the real estate market. Prices in Milan rose by 43 percent between 2018 and 2023, significantly more than in the rest of Italy.
In discussions with various companies, it is clear that the regulations have helped to attract qualified specialists to Italy. This corresponds to the government’s original idea. The government intends to use this measure to bring back well-educated Italians who have moved abroad and to stop the “brain drain”.
Left for tax relief
Interestingly, it was various left-wing governments that expanded existing rules from the 2010s that applied to researchers, for example. This happened in 2019 under the government of the left-wing populist Five Star Movement and the right-wing nationalist Lega. Even after the latest restrictions, the tax breaks are still very generous.
And there are other interesting regulations. Until the end of 2023, foreigners or Italians who return from abroad after a certain period of time only pay taxes on 30 percent of their income for five years. Instead of an income of one million euros, for example, newcomers only had to pay taxes on 300,000 euros. Those who went to southern Italy even only paid taxes on 10 percent of their income.
That has now changed. Anyone who moves to Italy from abroad and wants to take advantage of the tax benefits must have lived outside the country for at least three years instead of just two. Newcomers must also remain resident in Italy for at least four years instead of two before they can benefit from the advantageous tax rates. In addition, taxes must now be paid on 50 percent of income instead of 30 percent. If you have minor children, the rate is 40 percent.
The government is also courting pensioners. Anyone who moves their residence from abroad to a municipality with fewer than 20,000 inhabitants in a southern Italian region such as Sicily, Sardinia, Basilicata, Molise, Apulia, Calabria or Abruzzo has paid a flat rate of just 7 percent on all income earned abroad since 2019. The only requirement is that the person must receive a foreign pension and must not have lived in Italy in the previous five years.
According to the Italian Ministry of Finance, by the end of 2022, more than 37,300 taxpayers had taken advantage of the various benefits and moved their tax residence to Italy.
Number of returnees increases
The Osservatorio sui Conti Pubblici Italiani (OCPI), led by the renowned economist Carlo Cottarelli, concludes that the expansion of the measures in 2019 in particular led to increased repatriation and immigration of top earners. Critics, however, believe that many of those affected would probably have returned even without these tax breaks.
A closer look, however, reveals a more differentiated picture. Although the number of those returning to Italy rose from 4,100 to 13,700 per year between 2011 and 2020, the number of emigrants has grown much more sharply – from 7,700 to 31,300. Among them are many young academics.
Hopes of attracting researchers and teachers to Italy have proved to be a failure. According to the report, between 2002 and 2016, around 11,000 of them left Italy, more than any other country. And despite the tax incentives, the number of researchers and teachers coming to Italy actually decreased between 2017 and 2020. The insecure job situation in Italy, the lack of transparency in the university system and low confidence in career prospects often prevent people from returning home, according to Liaci and Ricciardi.
The balance sheet for Italy is therefore mixed. But for some rich Swiss, the move could well be worthwhile – like for Cristiano Ronaldo.
