Flat Tax Italy (accompanying family members )

Italy, through its flat tax regime for new residents, continues to attract high-net-worth individuals and families seeking a simplified and predictable tax framework. Introduced by Article 24-bis of the Consolidated Income Tax Law (TUIR), the flat tax allows new residents to pay an annual lump-sum tax on income earned abroad, irrespective of the actual amount of such income.

In 2024, the annual flat-rate contribution for the principal taxpayer was increased from Euro 100,000 to Euro 200,000 for new participants. However, those already benefiting from the previous regime will continue to enjoy the original Euro 100,000 annual limit, with the initial conditions remaining unchanged.

The additional flat-rate tax of Euro 25’000 per year for accompanying family members has, however, remained unchanged. This raises the question: if one or more accompanying family members have no income, must they still pay this tax?

A common area of confusion concerns whether family members without income can be excluded from the flat tax regime, thereby avoiding the Euro 25’000 annual flat-rate tax for each dependent. This article aims to clarify this point by providing legal references and explaining the practical steps to address the matter.

The Principle of Optionality

As mentioned above, the flat tax regime is governed by Article 24-bis of the TUIR (Presidential Decree No. 917 of December 22, 1986). This provision stipulates the following:

1. The regime is applied on an optional basis to the principal taxpayer, who may also include their dependents (spouse, children, and other relatives as defined in Article 433 of the Civil Code), provided that an additional flat-rate tax of Euro 25’000 is paid for each dependent.
2. Extending the regime to dependents is an optional choice and must be explicitly requested either in the application for a tax ruling (interpello) or in the income tax return.

Dependents may thus be excluded from the flat tax regime if the taxpayer does not wish to pay the additional flat-rate tax. In such cases, excluded dependents will be subject to Italy’s ordinary tax rules.

When and how to exclude dependents from the Regime

If a dependent has no income (e.g., a stay-at-home spouse or minor children), they can be excluded from the flat tax regime by following these steps:

1. Preliminary Tax Ruling (Interpello): If applying for the regime through a tax ruling with the Italian Tax Authority, it is necessary to expressly state which dependents will be excluded from the flat tax regime.
2. Exclusion in the Tax Return: If opting for the flat tax regime without a tax ruling, it will suffice to list only the dependents to be included in the regime when completing the annual income tax return (Model Redditi PF). Dependents not explicitly listed will automatically be excluded.
3. Taxation for excluded dependents: Dependents excluded from the flat tax regime, if without income, will have no tax obligations. However, if they earn income, it will be subject to Italy’s ordinary tax rules, covering both domestic and foreign income.
4. Residency and future inclusion in the Regime: As the application of the flat tax regime is tied to transferring tax residency to Italy, it is important to note that dependents excluded from the regime who transfer their residency alongside the principal taxpayer will not be eligible for inclusion in the regime at a later date if they start earning income. This exclusion is definitive and binding.

In light of the above, Article 24-bis of the TUIR offers new residents significant flexibility in structuring the flat tax regime to suit their needs. Excluding dependents without income can help reduce overall costs without compromising the quality of life or the right to residency in Italy.

For dependents included in the regime, the residency process is simplified. Conversely, for excluded dependents, the principal taxpayer must, where necessary (e.g., for non-EU citizens outside the Schengen area), apply for a family reunification permit (nulla osta).