What Is the €200,000 Flat Tax Regime?

The flat tax regime for new residents is governed by Article 24-bis of the Italian Income Tax Code (TUIR) and was introduced in 2017. It allows individuals who have not been tax resident in Italy for at least 9 out of the previous 10 years to become Italian residents and pay a fixed annual tax of €200,000 on all foreign-source income.

Key features include:

  • Annual €200,000 flat tax, regardless of the amount of foreign income
  • €25,000 additional flat tax per eligible family member
  • Available for 15 years, renewable annually
  • No requirement to declare foreign assets (RW section exemption)
  • Exemption from Italian wealth taxes (IVIE/IVAFE)
  • Exemption from CFC and exit tax rules
  • Family members can join the Regime by paying a reduced €25,000 flat tax.

However, Italian-source income is not covered by the flat tax, and this is where things become more complex when working in Italy.

What Qualifies as Foreign vs. Italian-Source Income?

The distinction between foreign and Italian income is crucial. According to Circular No. 17/E of 23 May 2017, the place where the economic activity is carried out determines the income’s source.

Italian-source income includes:

  • Employment physically carried out in Italy
  • Freelance work or consulting services performed in Italy
  • Business income from Italian operations or clients
  • Board memberships in Italian companies
  • Rental income from property located in Italy

Foreign-source income includes:

  • Dividends from foreign companies
  • Interest from foreign accounts
  • Capital gains on foreign securities
  • Rental income from property located outside Italy
  • Trust distributions from foreign trusts
  • Employment carried out abroad

Even if you’re working remotely for a foreign client or company, if the work is performed in Italy, it is considered Italian-source income.

Can You Work in Italy Under the Flat Tax?

Yes, you can work or do business in Italy under the €200k flat tax regime. The law does not prohibit any professional or economic activity in Italy. However:

  • Only foreign-source income is covered by the €200k flat tax
  • Italian-source income is taxed progressively under the ordinary IRPEF system
  • This includes employment, freelance, or corporate income derived from Italian activities

Therefore, you can combine the flat tax with regular taxation on Italian income—but you need to keep the two income streams separate for tax purposes.

How Is Italian-Source Income Taxed?

Italian income is subject to standard progressive income tax rates:

  • 23% on income up to €15,000
  • 25% on income between €15,001–€28,000
  • 35% on income between €28,001–€50,000
  • 43% on income above €50,000

Plus:

  • Regional surcharge: 0.7% to 3.33%
  • Municipal surcharge: 0% to 0.9%

This means that Italian-source income is taxed independently from the flat tax regime. It must be:

  • Reported separately in the tax return
  • Subject to IRPEF (with possible deductions and credits)
  • Potentially subject to INPS or other social contributions

Examples of Tax Scenarios

Case 1: Private Investor (No Work in Italy)
Only receives dividends from abroad and capital gains from foreign companies.
➡ Pays only €200k flat tax, with no IRPEF or social contributions.

Case 2: Consultant Living in Italy, Working for Italian Clients
Provides marketing services to Italian companies from Italy.
➡ That income is Italian-source and taxed progressively under IRPEF. Flat tax covers only foreign income.

Case 3: Freelancer Working Remotely for US Clients While Living in Rome
Even though clients are foreign, the activity is carried out in Italy.
➡ This income is Italian-source and taxed under IRPEF (not covered by €200k flat tax).

Case 4: Company Director in Italy, with Foreign Investments
Earns director fees from an Italian company and dividends from US companies.
➡ Director fees are taxed under IRPEF; dividends fall under flat tax.

Social Security and Contributions

If you work in Italy—either as a freelancer or employee—you may be subject to mandatory social contributions, unless you're covered by a foreign system under a totalization agreement.

Depending on your status:

  • Freelancers: Must register with INPS gestione separata or with a professional pension fund
  • Employees: Social security paid by employer and withheld from salary
  • Directors: Contributions may apply to fees depending on role and participation

Note: The flat tax regime does not exempt you from social security if you generate Italian income.

Reporting Obligations and Deadlines

Italian-source income must be declared in the standard tax return (Modello Redditi) and taxed normally. The €200k flat tax is declared in a separate section (Regime dei nuovi residenti) and paid in a lump sum.

Deadlines:

  • Flat tax payment: June 30 of each year
  • IRPEF return: generally due between May and November (depending on method)
  • Separate payment of INPS: based on activity and earnings

Can You Deduct Costs Against Italian Income?

Yes, if you're working in Italy as a freelancer or business owner, you can:

  • Deduct allowable business expenses against your Italian-source income
  • Potentially apply for simplified accounting regimes
  • Offset losses or carry forward deductible costs under ordinary rules

However, none of these deductions affect the €200k flat tax amount—this remains fixed regardless of your foreign income level or expenses.

Compatibility with the €200k Flat Tax Regime

Circular 17/E confirms:

  • The regime can be combined with ordinary taxation for Italian-source income
  • Italian income does not interfere with flat tax status, as long as the residency and foreign income conditions are respected
  • You can engage in employment, business, and directorship roles in Italy
  • You must be prepared for dual compliance (flat tax + IRPEF)

This structure is particularly useful for:

  • Entrepreneurs with foreign assets who want to run a business in Italy
  • Investors who take on local board positions
  • Freelancers with clients in both Italy and abroad

Strategic Recommendations

  • Segregate income streams: keep Italian and foreign income clearly distinct
  • Structure your activities: consider holding companies, cross-border setups, and professional invoicing
  • Limit local activity: if the flat tax is your main draw, avoid generating high taxable Italian income
  • Work with a tax advisor: Italian tax law is complex—professional guidance prevents mistakes and audits
  • Use advance tax rulings (interpello): in case of doubt, especially if your activity is cross-border or involves trusts

Final Considerations

The Italian €200,000 flat tax regime is powerful, but it’s not a blanket exemption. You can work in Italy, but Italian-source income is taxed separately and progressively.

Understanding the interaction between your international and local income is essential to avoid tax surprises. With the right planning, you can combine the regime’s benefits with a professional life in Italy—especially if you maintain most of your earnings abroad.

How Move to Dolce Vita Can Help

At Move to Dolce Vita, we assist international clients with:

  • Tax residency planning under the €200k regime
  • Strategic evaluation of income streams
  • Filing Italian tax returns for both flat tax and IRPEF income
  • Social security advice for freelancers and business owners
  • Advance tax rulings (interpelli) to secure positions in advance

Led by Italian tax lawyer Marco Mesina, we ensure that you relocate, work, and invest in Italy with confidence.

Thinking about working in Italy under the flat tax? Contact us today for a tailored tax consultation.

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