Italy's exit tax plan rattles wealthy residents lured by tax breaks

Italy's government is stirring controversy with a plan to impose a so-called exit tax on wealthy residents who move abroad, charging 26 percent on unrealized capital gains. The proposal marks a sharp reversal for a country that spent years using tax incentives to attract the global rich — and experts warn it could now push them away instead.

According to the Financial Times, experts warned Saturday (local time) that if Prime Minister Giorgia Meloni moves ahead with the exit tax starting next year, the flow of wealthy foreigners who have relocated to major cities such as Milan over the past decade could dry up.

Meloni's three-party coalition government included the exit tax measure in its 2027 budget proposal submitted to parliament last weekend. Under the plan, individuals with assets exceeding 800,000 euros ($898,000) who relocate abroad would owe a 26 percent levy on unrealized capital gains at the time of departure.

Unrealized gains refer to increases in the value of assets such as shares or bonds that have not yet been sold and converted to cash. The proposal means a tax liability could arise at the moment a person changes their country of residence, even if they have not sold any assets.

The government described the measure as targeting the "ultra-wealthy." It would apply to those who were tax residents of Italy for at least six of the 10 years before emigrating. The proposal also includes a provision to refund the tax if the person refrains from selling their financial assets for a set period after leaving Italy.

Italy has leaned heavily on tax incentives over the past decade to address a chronic brain drain. The most prominent tool has been a flat-tax regime under which wealthy newcomers pay a fixed annual sum — rather than calculating taxes on each foreign asset and income stream — for up to 15 years. When the regime was introduced in 2017, the annual flat payment was set at 100,000 euros.

Returning Italian nationals and other newly arrived professionals have also benefited from a separate income-tax relief scheme that taxes only a portion of their salary for five years after relocation.

In recent years, however, growing public discontent over the surge of ultra-wealthy foreigners into Milan prompted the Meloni government to raise the flat-tax amount twice. The annual flat payment for more recently arrived wealthy residents now stands at 300,000 euros.

Wealth management lawyers said that if the bill passes, Italy will become a far less attractive destination for the ultra-wealthy and high-earning professionals. Those who had been planning to relocate may reconsider, and those already living there may be reluctant to stay long-term.

Charlie Sosna, head of private client and tax at British law firm Mishcon de Reya, said the proposal represented "a very significant change" that would "cause considerable anxiety for many clients who have already moved to Italy or established a base there."

Sosna said clients had already been hesitant about relocating to Italy because of what they perceived as an unstable and unpredictable tax environment. "Following the recent successive changes to the flat-tax regime, the prospect of an exit tax will cause clients to think very carefully about whether to move to Italy," he said.

Tim Stovold, head of tax at British accounting and tax firm Moore Kingston Smith, said the exit tax could paradoxically accelerate early departures, with more people choosing to leave before completing the six-year residency threshold that triggers the levy. "This measure will significantly reduce Italy's attractiveness as a long-term destination for those considering making it their permanent home," he said.

Critics also pointed to significant ambiguities in the draft legislation. Maurizio Fresca, a senior tax lawyer at law firm Chiomenti, said it remained unclear how the exit tax would interact with the existing flat-tax regime and other tax relief measures. He added that the bill provides no specific guidance on whether the tax would apply only to assets held in Italy or to overseas assets as well.

Marco Cerrato, a partner at law firm Maisto e Associati, said a reading of the current draft suggested that foreign assets held by those already on the flat-tax regime appeared to be excluded from the exit tax. Even so, he said, "people who had been considering moving to Italy to take advantage of the tax benefits may feel somewhat deterred by this measure."

The move comes as governments and local authorities around the world are reassessing how they tax the wealthy. In the US state of California, a vote is scheduled on whether to approve a one-time 5 percent wealth tax on billionaires.