Cross‑Border Tax Forecast 2026 in Italy

As from 1 January 2026, individuals transferring their habitual abode to Italy and opting for the “new tax resident regime” become subject to an increase of the annual flat tax amount: from EUR 200,000 to EUR 300,000 for the main taxpayer and from EUR 25,000 to EUR 50,000 for each family member.

The 2026 Budget Law raises the lump-sum tax due under the special regime for new residents, which allows a derogation from ordinary worldwide taxation rules. Italian source income remains fully taxable under ordinary rules, while foreign source income is subject to the fixed substitute tax. The regime lasts 15 years and may be extended to qualifying family members.

The increased tax burden may reduce the regime’s attractiveness for mid-to-high income individuals, limiting its appeal predominantly to high net worth taxpayers. Reliance on the undefined concept of “habitual abode” may create interpretative uncertainty and litigation risks.

Individuals who moved to Italy during 2025 should assess whether sufficient factual elements exist to demonstrate “habitual abode” before 1January 2026, thereby accessing the previous regime. Monitoring upcoming tax authority guidance will be essential.

Revision of the IRAP rules governing intra‑EU dividends and the regulation of refund claims enters into force as of the tax period ongoing on 31 December 2025.

The 2026 Budget Law modified the exclusion quota (from 50% to 95%) from the IRAP tax base for dividends received by resident financial intermediaries and insurance companies from EU subsidiaries, provided that all conditions of the EU “Parent-Subsidiary” Directive are met and remuneration on the relevant instruments is fully non-deductible in the issuer’s state.

Financial intermediaries and insurance companies must verify compliance with the EU Directive to apply the 95% exemption from IRAP. For prior periods, companies may file a refund claim for excess IRAP paid, subject to statutory time limits.

Companies should check that the 48-month refund statute of limitation has not expired and monitor the forthcoming implementing measures from the Italian tax authorities.

From 1 January 2026, access to dividend exemption and participation exemption (“PEX”) rules is subject to new, more restrictive thresholds.

The 2026 Budget Law limits the regime to shareholdings representing at least 5% of the share capital or having a tax value of at least EUR 500,000. A look-through approach applies for shareholdings indirectly held through group entities under de jure control. The same thresholds apply for non-residents seeking the reduced 1.2% Italian withholding tax on dividends.

Investment structures with highly fragmented ownership may fail to meet the new threshold, resulting in full taxation. Uncertainty persists regarding the partial disposal, particularly whether the threshold must be verified on the entire holding rather than the tranche sold.

Companies should review and classify their participations to determine which qualify under the new rules and remain alert for clarification by the Italian tax authorities.

A new consolidated VAT code (Testo Unico IVA or TUI IVA) has been approved and enters into force as from 1 January 2027.

The TUI IVA consolidates existing VAT legislation by merging the previous main VAT law with the scattered provisions enacted over the years through ancillary and special laws. At this stage, consolidation is purely formal: no amendments have been made to taxable events, rates, exemptions, deductions or compliance obligations.

Since the TUI IVA does not modify the substantive rules, immediate operational impacts are limited. However, the coexistence of the old structure (still familiar to taxpayers) and the newly reorganised text may generate temporary interpretative uncertainty.

Moreover, future VAT reforms – now facilitated by the consolidated framework – could introduce material changes affecting businesses once legislative initiatives resume.

Taxpayers should review the new consolidated text to map references and ensure alignment of internal procedures with the updated legislative structure.