Italy’s flat tax regime for new residents is designed to attract individuals relocating their tax residence to Italy by offering a fixed annual tax on foreign‑source income. It can simplify cross‑border finances, but it also requires careful assessment of eligibility, scope, and long‑term implications—particularly for those considering property investment or rental activity.

Becoming eligible generally requires not having been tax resident in Italy for at least nine of the ten tax years preceding the move. After becoming Italian tax resident, individuals can elect a substitute tax of EUR 100,000 per year on their foreign‑source income, regardless of the amount generated. Italian‑source income remains taxed under ordinary rules. The option can be extended to eligible family members at EUR 25,000 per person per year, provided they also become Italian tax residents. The regime can last up to 15 years and may be revoked at any time; failure to pay the flat tax for a given year typically causes the benefit to cease for that year and the future.

Two elements shape how the regime works in practice. First, taxpayers can exclude one or more foreign jurisdictions from the regime (“cherry‑picking”). Income from excluded countries is taxed under ordinary rules with potential access to foreign tax credits, whereas income covered by the flat tax does not allow a foreign tax credit. Second, certain items are outside the regime by design. Italian‑source income is always taxed ordinarily, and specific anti‑avoidance provisions apply—for example, certain capital gains on substantial shareholdings realized in the first five years are generally not covered and are taxed under ordinary rules. For assets and income included in the regime, ancillary benefits may apply, such as relief from wealth taxes on foreign real estate and financial assets and simplified foreign asset reporting, subject to current law.

Property investment under the flat tax

For individuals moving to Italy who plan property investment, the key question is where the property is located. Income and gains from Italian real estate are Italian‑source and fall outside the flat tax, meaning ordinary Italian taxation applies. By contrast, foreign‑source real estate income—such as overseas rental receipts—can be covered by the flat tax if the relevant country is not excluded. This can be advantageous when foreign rental income fluctuates or when administrative simplicity is a priority.

The regime also influences holding structures. If you own foreign real estate directly and include that jurisdiction in the flat tax, ongoing foreign‑source income could be simplified into the annual lump sum. If you use a foreign company or trust, the analysis becomes more complex due to potential controlled‑foreign‑company, look‑through, or trust attribution rules. Professional advice is often needed to align the investment structure with the election’s scope and to avoid unintended Italian‑source reclassification.

Real estate market effects in Italy

The flat tax has coincided with increased interest in prime locations, including major cities and coastal or heritage areas, from internationally mobile individuals. While many factors drive the real estate market—such as financing costs, local amenities, and planning rules—the regime can play an indirect role by making Italy a more predictable fiscal base for globally diversified investors. Buyers considering a home in Italy should remember that any Italian rental yield, capital gains on Italian property, and local taxes remain governed by domestic rules, independent of the flat tax on foreign income.

For long‑term planning, it is important to compare the 15‑year horizon of the regime with expected holding periods. If you foresee acquiring additional Italian properties, model outcomes under ordinary rules for rental and capital gains taxation. In parallel, consider whether keeping certain foreign properties within the flat tax’s scope supports portfolio objectives, especially in high‑yield or high‑volatility markets abroad.

Rental opportunities and taxation

Rental opportunities in Italy are treated as Italian‑source income. That means ordinary rules apply to residential and short‑term tourist rentals. Depending on the lease type and eligibility, an optional substitute tax for residential leases may be available under domestic law, but it is separate from the new‑resident flat tax and has its own requirements and rates. Expenses, registration, and local compliance (including tourist tax where applicable) must be evaluated project by project.

Foreign rental income presents a different picture. If the relevant country is included within your flat tax election, those overseas rentals are effectively folded into the annual EUR 100,000 payment. If you exclude a country, you revert to ordinary taxation and may be able to benefit from foreign tax credits and treaty provisions, subject to the general rules. The exclusion option can be helpful where you face high foreign withholding or where local regimes provide favorable treatment that is more efficient than the flat tax in a given year.

Commercial real estate and business income

Commercial real estate in Italy—such as offices, retail units, or warehouses—produces Italian‑source income and remains outside the flat tax. Rental income, capital gains, and any related business activities are taxed under ordinary rules for Italian residents. If activity rises to the level of a business (for example, extensive services or multiple properties managed as an enterprise), classification can shift from passive rental income to business income, with different accounting and tax implications.

Foreign commercial real estate can be brought within or outside the flat tax through the per‑country inclusion/exclusion mechanism. Investors with substantial non‑Italian portfolios often run parallel models: one assuming inclusion in the flat tax (simplicity, no foreign tax credits), and another assuming exclusion (access to credits and treaty relief, more administration). The optimal choice may change over time as rents, interest rates, and local incentives fluctuate.

Holiday rentals and compliance

Holiday rentals in Italy come with distinct registration, safety, and local tax considerations that are separate from the new‑resident flat tax. Short‑stay bookings often trigger specific notification duties to local authorities, tourist tax collection, and platform‑related withholding or reporting. These obligations apply regardless of whether you have opted into the flat tax, because the underlying income is Italian‑source.

For holiday homes abroad, the analysis returns to scope. If the foreign jurisdiction is covered by the flat tax, the associated income is generally captured by the annual substitute payment and simplified reporting may apply for those assets. If excluded, expect ordinary Italian rules on worldwide income, including the possibility of claiming foreign tax credits, plus standard foreign asset reporting where applicable.

Conclusion

The flat tax for new residents can bring clarity and efficiency to cross‑border finances, but it is neither universal nor automatic. Its value depends on the composition of your income and assets, where they are located, and how you plan to use property—whether for living, investing, or generating rental income. Evaluating eligibility, the country‑by‑country inclusion choice, and the implications for Italian‑source activities helps align the election with long‑term goals while managing compliance with domestic rules.