Italy considers tying €200,000 flat tax regime to investment requirements

Milan: Marco Mesina analyzes Italy’s proposal to tie the “CR7 Law” with investment requirements that would affect new entrants.

Italy’s flat tax regime for high-net-worth individuals, which people often call the “CR7 law” after football star Cristiano Ronaldo, who famously benefitted from it when he joined Juventus, has become one of the most attractive relocation incentives in Europe.

The government introduced this regime in 2017, and it allows individuals who transfer their tax residence to Italy (having not resided there for at least nine of the previous ten years) to pay a fixed annual substitute tax on all foreign-sourced income.

The government originally set the tax at €100,000 but doubled it to €200,000 in 2024 for new entrants, while family members can join for an additional €25,000 each. The regime can last for up to fifteen years and has attracted a growing number of wealthy foreigners, particularly since the United Kingdom abolished its non-dom system.

Today, almost 4,000 individuals have applied for the regime, making Italy one of the most attractive destinations for globally mobile wealth. These newcomers often purchase or rent luxury property, enroll their children in private schools, and consume at the high end of the economy, creating an indirect but significant economic impact.

Yet concerns persist. Italy’s Court of Auditors has questioned the scheme’s true benefits for the economy, noting in its latest annual report that while the government collects predictable revenue from the fixed tax, officials have little clarity about whether beneficiaries make meaningful contributions beyond their payments.

The government considers a major adjustment in this context: tying the flat tax to concrete investment obligations. According to reports in the Italian press, policymakers are exploring whether they should require beneficiaries to direct part of their wealth toward strategic sectors of the Italian economy.

The idea, which Lega MP Giulio Centemero supports, would involve investments in Italian government bonds, venture capital funds, innovative startups, or regulated collective investment vehicles. Real estate, which international demand already boosts, will unlikely qualify.

The approach would not be unprecedented among similar European flat tax schemes. Greece, which modeled its own regime on Italy’s original framework when it launched in 2019, already requires a minimum €500,000 investment in Greek assets as a condition for accessing its €100,000 annual flat tax.

This marks a potential turning point in the design of the regime, shifting it from a pure tax incentive toward an instrument of economic development. However, much remains uncertain.

Officials have not yet published any official draft, and the specifics (such as the size of the required investments, the timing, and whether the rules will apply to new applicants only) remain unclear.

The debate has also spilled over into the European political arena. France in particular has accused Italy of engaging in fiscal dumping, arguing that the flat tax unfairly distorts competition within the EU.

Only weeks ago, a French minister publicly criticized Rome for offering special treatment to the wealthy at a time when other countries are tightening their tax rules. Prime Minister Giorgia Meloni swiftly rejected the charge, underlining that the European Commission already approved the regime.

Indeed, despite critical rhetoric from high-tax countries, no one has initiated an infringement procedure, and Brussels has acknowledged that the Italian model complies with EU law. Nevertheless, the criticism highlights a deeper tension in Europe between fiscal sovereignty and fair competition.

Countries such as the Netherlands, Ireland, Portugal, Greece, and Malta have experimented with similar schemes, but Italy’s version (given its scale and international visibility) has become politically sensitive.

Italy has historically avoided retroactive changes to tax regimes, suggesting that existing beneficiaries will likely continue under current terms. However, the proposed changes create uncertainty for those who have not yet applied.

The timing of any new legislation remains unclear. Prospective applicants face the possibility that new investment requirements could apply to future entrants while existing beneficiaries operate under the original framework.

Individuals can submit advance tax rulings to Italian authorities to clarify their eligibility and applicable terms before any legislative changes take effect. This process provides formal confirmation of the conditions that will apply to specific cases.

The government has not announced a timeline for implementing the proposed changes. Current discussions focus on whether investment requirements would apply only to new applicants or extend to existing beneficiaries through some mechanism.

The uncertainty surrounding potential changes affects decision-making for high-net-worth individuals considering Italian tax residency. The final scope and implementation of any investment requirements await further legislative development.