Italy's Proposed Exit Tax for Wealthy Residents

Italy's draft 2027 Budget Bill proposes extending exit taxation to certain private individuals who transfer their tax residence outside Italy.

An exit tax generally seeks to preserve a country's right to tax gains that have accrued while an individual was resident there, even where those gains have not yet been realised through the disposal of assets.

Under the proposed Article 17, qualifying individuals could be treated as having realised taxable gains on certain assets and financial rights when Italy loses its taxing rights as a consequence of their departure.

This represents a departure from Italy's existing general treatment of private individuals, under which merely ceasing Italian tax residence does not ordinarily trigger a deemed disposal of an individual's investment portfolio.

Italy already operates exit-tax provisions affecting businesses under Article 166 of the Italian Consolidated Income Tax Act (Testo Unico delle Imposte sui Redditi, or TUIR). The proposed measure would extend exit-tax principles to a broader category of private taxpayers.

Importantly, the new provision has not yet been enacted and its final scope will depend on the legislative process.

The proposed exit tax is not intended to apply automatically to everyone leaving Italy.

Article 17 establishes several cumulative conditions.

First, the individual must have been an Italian tax resident for at least six of the ten tax periods preceding the transfer abroad.

Second, the individual must hold relevant assets and rights with an aggregate value of at least €800,000.

Third, the transfer of residence must result in Italy losing its right to tax the income or gains associated with the relevant assets.

The proposed rules therefore concern tax residence rather than nationality. Italian citizens and foreign nationals could potentially be affected if the relevant conditions are satisfied.

The €800,000 threshold is particularly important. It relates to the aggregate value of the assets and rights within the provision's scope, not the amount of unrealised capital gains and not necessarily the individual's entire worldwide net worth.

For internationally mobile entrepreneurs, founders and investors, the classification of company shares, investment portfolios and other financial interests will therefore require careful consideration.

The proposed tax would generally be calculated by reference to the difference between the relevant assets' market value and their recognised tax acquisition cost.

For example, consider an individual who holds qualifying investments with a market value of €2 million and a recognised acquisition cost of €1.2 million.

The unrealised gain would amount to €800,000.

Assuming the investments are subject to Italy's ordinary 26% capital gains tax rate, the illustrative exit-tax liability would be €208,000.

The tax would arise despite the individual retaining ownership of the investments and receiving no sale proceeds.

This creates a potential liquidity issue, particularly for individuals whose wealth is concentrated in privately held companies or relatively illiquid financial investments.

The applicable tax treatment may differ according to the classification of the assets concerned. The proposal should not be interpreted as imposing a universal 26% rate on all assets or on an individual's total wealth.

The draft legislation contemplates application where the loss of Italian tax residence takes effect from 1 January 2027.

The proposed valuation date is generally the final day of the tax period preceding the period in which the individual ceases to be Italian tax resident.

This distinction is significant because the date of physical departure does not necessarily determine the tax year in which Italian residence ends.

Italian tax residence is determined by reference to domestic statutory criteria and, where applicable, the relevant double taxation treaty.

Consequently, an individual who physically relocates during 2026 may nevertheless remain Italian tax resident for that year.

Depending on the circumstances, a subsequent loss of Italian tax residence in 2027 could potentially bring the individual within the proposed legislation.

The commencement provisions therefore warrant particular attention for individuals already considering departure from Italy.

The draft legislation provides for the possibility of deferring payment where an individual transfers tax residence to another European Union Member State or to another qualifying jurisdiction satisfying the relevant tax cooperation requirements.

However, the proposed deferral is subject to conditions.

These include payment of 50% of the relevant tax liability and the provision of an appropriate guarantee.

The deferral periods contemplated by the draft are generally up to five tax periods for qualifying transfers within the European Union and up to ten tax periods for other qualifying destinations.

The proposed rules also contemplate circumstances in which the deferred liability may cease if the relevant assets remain undisposed of during the applicable period.

The availability of deferral should not be confused with an immediate exemption from the tax. The advance-payment requirement could itself create a substantial financial obligation.

The final payment, guarantee, deferral and refund provisions will be important in determining the practical impact of the legislation.

Italy's special tax regime for qualifying new residents, established under Article 24-bis TUIR, has played an important role in attracting internationally mobile HNW individuals and families.

The regime permits qualifying individuals to pay an annual substitute tax on foreign-source income rather than applying the ordinary Italian income-tax rules to that income.

The annual amount, originally €100,000, increased to €200,000 for subsequent entrants and, under the 2026 Budget Law, to €300,000 for qualifying new entrants from 1 January 2026.

The regime may generally apply for up to 15 tax periods, subject to its statutory conditions.

The proposed exit tax introduces a separate consideration.

An individual contemplating Italian residence may now need to examine not only the tax treatment applicable during residence but also the potential consequences of leaving Italy several years later.

A particularly important unresolved question concerns the interaction between the proposed exit-tax provisions and Article 24-bis.

The draft's residence-duration test could potentially encompass individuals who have benefited from the special flat-tax regime for several years. However, the precise treatment of their foreign investments, including the interaction with the substitute-tax framework, requires further legislative and technical clarification.

It would therefore be premature to conclude that all beneficiaries of the flat-tax regime would necessarily incur an exit-tax liability.

For wealthy individuals and internationally mobile families, choosing a country of residence involves more than comparing annual tax liabilities.

Long-term residence planning may involve business interests, investment portfolios, family circumstances, succession arrangements and the possibility of future relocation.

Exit taxation introduces an additional consideration because it can create a financial consequence when an individual decides to change residence.

A jurisdiction offering favourable taxation upon arrival may become less attractive to some prospective residents if their eventual departure could trigger taxation of unrealised gains.

This is particularly relevant for entrepreneurs anticipating a future business sale, investors holding appreciating securities and families wishing to preserve flexibility over where successive generations may live.

Italy's proposed measure may therefore encourage prospective residents to undertake a more comprehensive assessment of the long-term consequences of acquiring Italian tax residence.

It may also prompt some HNW individuals who were considering Italy to examine alternative European jurisdictions, including Malta, Cyprus and Portugal, whose residence and personal tax frameworks differ materially.

These jurisdictions should not be regarded as interchangeable or automatically more favourable. Their respective tax residence rules, treatment of foreign-source income, capital gains, succession matters and applicable residence permissions require individual assessment.

Nevertheless, the possible introduction of an Italian exit tax reinforces the importance of evaluating a jurisdiction's treatment of both incoming and departing residents.

Exit taxation is not unique to Italy.

Several European jurisdictions have introduced measures intended to preserve taxing rights over gains accrued before an individual relocates.

France, for example, operates an exit-tax regime under Article 167 bis of the French General Tax Code (Code général des impôts).

The application of exit taxes within the European Union must also be considered in the context of European law, including freedom of establishment and proportionality.

In Hughes de Lasteyrie du Saillant v Ministère de l'Économie, des Finances et de l'Industrie (Case C-9/02, judgment of 11 March 2004), the Court of Justice of the European Union examined restrictions arising from France's former exit-tax arrangements.

The Court found that the legislation constituted a restriction on freedom of establishment, including because of the conditions attached to deferral of payment.

That judgment provides relevant legal context for evaluating exit-tax measures affecting individuals who relocate between EU Member States.

It does not, however, establish that Italy's proposed rules are necessarily incompatible with EU law. Such an assessment would require examination of the final legislative provisions, their objectives, proportionality and the conditions governing payment deferral.

What Should Prospective Residents Consider?

For HNW individuals contemplating Italian residence, the proposed reform highlights the importance of assessing the entire anticipated residence period rather than focusing exclusively on the tax benefits available upon arrival.

Relevant considerations include the expected duration of residence, the nature and value of financial assets, unrealised gains, potential future disposals and the likelihood of a subsequent international relocation.

Individuals already resident in Italy may need to review their residence history, investment positions and anticipated departure timetable in light of the proposed six-out-of-ten-year test.

Where a family maintains connections with several jurisdictions, the interaction between domestic residence rules and double taxation treaties may be especially important.

The proposed legislation also raises questions concerning valuation, the treatment of losses, potential double taxation and the availability of relief in the destination jurisdiction.

These matters should be assessed under the final enacted legislation and any implementing measures, rather than on assumptions drawn from the initial draft.

Frequently Asked Questions

[question] Does Italy Currently Have an Individual Exit Tax? [/question]

[answer] Italy does not currently impose a general exit tax on private individuals merely because they cease Italian tax residence. Article 17 of the draft 2027 Budget Bill proposes introducing such a charge for qualifying individuals and assets. [/answer]

[question] Will Italy's Exit Tax Apply in 2027? [/question]

[answer] The draft legislation proposes application to qualifying losses of Italian tax residence effective from 1 January 2027. The measure remains subject to parliamentary approval and possible amendment. [/answer]

[question] Is the €800,000 Threshold a Tax-Free Allowance? [/question]

[answer] No. The proposed €800,000 threshold relates to the aggregate value of relevant assets and rights. It is not an allowance deducted from the amount of taxable unrealised gains. [/answer]

[question] Does the Proposal Affect Foreign Nationals? [/question]

[answer] Potentially, yes. The proposed rules are based on Italian tax residence, the qualifying residence period and the relevant assets, rather than Italian nationality. [/answer]

[question] Would Italy's Flat-Tax Residents Be Affected? [/question]

[answer] Potentially, although the precise interaction between the proposed exit tax and the special regime under Article 24-bis TUIR remains an important issue requiring clarification. [/answer]

[question] Would Moving to Malta Avoid the Tax? [/question]

[answer] Not necessarily. If an individual has already become subject to an Italian exit-tax liability, transferring residence to Malta would not automatically eliminate that liability. Malta's domestic tax treatment and any available Italian deferral provisions would need to be examined separately. [/answer]

[question] Could the Exit Tax Affect Future Relocation Decisions? [/question]

[answer] Yes. The potential taxation of unrealised gains upon departure could become an additional factor for HNW individuals comparing European residence destinations, particularly where long-term mobility and investment flexibility are priorities.[/answer]

Strategic Implications for International Families

Italy's proposed exit tax illustrates a broader development in European personal taxation: preferential residence arrangements are increasingly being considered alongside measures intended to preserve national taxing rights when individuals relocate.

For internationally mobile families, the resulting planning question extends beyond the annual cost of residence.

It concerns the overall legal and tax consequences of establishing, maintaining and eventually terminating residence in a particular jurisdiction.

Whether Italy's proposed measure is enacted in its present form remains uncertain. Its introduction into the legislative process nevertheless reinforces the importance of long-term tax predictability, cross-border coordination and preserving flexibility when making international residence decisions.