Exit Tax 2027: What Changes for Those Leaving Italy and Why New Residents Are the Most Exposed

The 2027 Budget Bill, currently before the Chamber of Deputies, introduces an exit tax for individuals, that is, a tax on gains accrued on financial investments at the time the taxpayer ceases to be resident in Italy, even if those gains have never been realised. Until now, a mechanism of this kind applied only to businesses, whereas for private individuals a move abroad had no effect on unrealised capital gains. The new rules concern all residents holding significant financial assets, but they are of particular interest to those who have settled in Italy under the new residents regime, the so-called flat tax on foreign income, and it is precisely in relation to them that the current text produces its most questionable effects.

Who it applies to

To understand the scope of the issue, one must start from the rules set out in the Budget Bill. The tax applies to individuals, as well as to simple partnerships and non-commercial entities, including trusts not carrying on business activities, that transfer their tax residence abroad from 1 January 2027. The charge applies where two conditions are jointly met: residence in Italy for at least six of the last ten years, and the holding of financial investments - shareholdings, securities, currencies, derivative instruments and crypto-assets - with a total value of no less than EUR 800,000 at 31 December of the year preceding departure. Real estate, on the other hand, is excluded.

Two aspects of these requirements deserve attention. The first is that, as can be inferred from the text, the threshold is a condition for application and not a tax-free allowance, so exceeding it results in the taxation of the entire gain and not merely of the portion above the threshold. The second concerns the effective date: following the 2024 reform, the criteria determining tax residence also include physical presence in Italy for the greater part of the year and, since the tax period cannot be split, those who left Italy in the second half of 2026 generally remain resident for the entire year and lose their residence from 1 January 2027. In the absence of clarification, although this would not be retroactivity in the strict sense, the new tax could therefore also affect transfers that have already taken place.

How it is calculated and when it is paid

As regards the determination of the tax, for each investment the market value at 31 December of the year preceding departure is compared with the purchase cost, and only the positive differences are added together. A first limitation of the rules already emerges at this stage, as the text does not allow gains to be offset against unrealised losses: a person holding one security with a gain of EUR 100,000 and another with a loss of the same amount is taxed on EUR 100,000, even though their overall wealth has not increased. The ordinary rates, generally 26%, apply to the gain so determined, with a lower charge for government bonds.

The tax must be paid within 180 days of the transfer. Those who move to another European Union country, or to a State that cooperates with Italy on the exchange of information and the collection of taxes, may opt to defer payment until the investments are disposed of, but only in part, as they are in any event required to pay half of the tax immediately and to provide adequate security. The deferral lasts five years for transfers within the European Union and ten years in other cases, and the tax is not due on investments that are not disposed of within that period, on those passed on by inheritance, or in the event of a return to Italy, with a right to a refund of any amounts overpaid. Gratuitous transfers and transfers to family members or controlled companies made during the deferral period, on the other hand, trigger taxation of the entire gain determined on exit, while no deferral at all is permitted for those moving to a non-cooperative State.

It is precisely the mechanism of the advance payment and the security that represents the weakest aspect of the provision. The Court of Justice of the European Union has in fact recognised that Member States may quantify the tax at the time of exit, while specifying, however, that those moving to another Member State must be allowed to defer payment without a generalised requirement to provide security (judgments of 11 March 2004, Case C-9/02, de Lasteyrie du Saillant, and of 7 September 2006, Case C-470/04, N). A provision requiring the immediate payment of half of the amount due is therefore open to challenge, and Parliament can reasonably be expected to intervene on this point.

The case of new residents

It is in relation to the beneficiaries of the “new residents” regime that the new tax raises the greatest concerns. It should be recalled that the regime is reserved for those who transfer their residence to Italy after having been tax resident abroad for at least nine of the ten preceding tax periods, and provides for the payment of a fixed annual tax, currently up to EUR 300,000 depending on the date of arrival, which covers income produced abroad, including capital gains on foreign investments, with the sole exception of those on qualifying shareholdings realised in the first five years, which are subject to ordinary taxation. The regime also exempts taxpayers from wealth taxes on foreign assets and from the obligation to report them in their income tax return, except, according to the Italian Revenue Agency's position, for qualifying shareholdings.

Despite this favourable treatment, which the legislator conceived precisely to attract wealth from abroad, the new exit tax provides no exclusion for new residents, many of whom have already completed the required six years of residence. As a result, a gain on a foreign security, which if realised during the stay in Italy would be entirely covered by the fixed tax, becomes subject to the ordinary rate merely as a result of the transfer. Furthermore, since the gain is calculated on the original purchase cost and not on the value of the investments upon arrival in Italy, the charge also affects the increase in value accrued before arrival, with a risk of double taxation for those who have already paid an exit tax in their country of origin.

There is, moreover, no shortage of arguments that the charge should not apply, at least, to foreign investments covered by the regime, since the provision limits taxation to cases in which the transfer results in the loss of the State's taxing rights, whereas for the foreign income of a new resident the legal system has already defined its claim in the amount of the lump-sum tax. This is, however, not a self-evident reading, and would require express confirmation from the legislator. From a practical standpoint, the exemption from reporting foreign assets also makes it difficult for the tax authorities to verify the threshold and the carrying values, while for pensioners who have opted for the 7% tax on foreign income, the consistency of the system would suggest applying any exit charge at the same rate.

What can be assessed today

In this context, a new resident intending to leave Italy in the coming years has a number of options. Those who have not yet completed six years of residence can plan their transfer before reaching that limit, thereby avoiding the new tax altogether. Those who have already exceeded it may consider disposing of foreign investments standing at a gain while the regime still applies and then repurchasing them, so that the gain remains covered by the fixed tax and the new purchase price becomes the reference cost, provided that the transaction is completed by 31 December of the year preceding departure.

This is, however, a solution to be assessed on a case-by-case basis, as it should be borne in mind that it produces no benefit for qualifying shareholdings in the first five years of the regime, nor for investments that are in any case subject to ordinary taxation, and that an immediate repurchase, motivated solely by tax savings, could be challenged as an abuse of law. As already mentioned, the choice of destination country also affects the final cost, since only a transfer to the European Union or to a cooperative State allows half of the tax to be deferred; finally, for assets held through trusts, it should be borne in mind that distributions to beneficiaries made during the deferral period would be taxed on the entire gain determined on exit.

What could change

All these assessments must, however, be read in the light of a text that will in all likelihood be amended. According to reports in the specialist press, the Government is considering a series of measures, including, first and foremost, a revision of the provision aimed at not penalising those who transferred their residence to Italy in legitimate reliance on the new residents regime. Also reportedly under consideration are the use of the value of the investments upon arrival in Italy as the reference value instead of historical cost, the elimination of the advance payment and the security for transfers within the European Union, an increase in the EUR 800,000 threshold, and certain exemptions for investments in start-ups and innovative SMEs and for employees. None of these amendments, however, has been formally tabled at present.

Until final approval, therefore, it is not advisable to take irreversible decisions, but those intending to leave Italy in 2027 should already reconstruct the value and tax cost of their investments at 31 December 2026, as this will be the basis on which the tax is determined. For new residents in particular, the time to assess the alternatives is now, while the room for planning remains open.