Italy’s proposed 26 percent exit tax: time to reconsider where you live?

 Italy’s proposed 2027 Budget Bill has introduced a potentially significant new consideration for internationally mobile individuals: a proposed 26% exit tax on unrealised capital gains when certain Italian tax residents transfer their residence abroad.

 If approved in its current form, Article 17 could fundamentally change the tax considerations for individuals who have built businesses, accumulated investment portfolios or established substantial financial interests while resident in Italy.

 The proposal is particularly relevant to individuals who have been Italian tax-resident for at least six of the preceding ten tax years and hold qualifying financial assets and rights with an aggregate value of at least €800,000.

 Importantly, the proposed tax is not a tax on total personal wealth. It is intended to tax certain unrealised gains arising before departure, potentially creating a significant tax liability without the taxpayer having sold the underlying investments or received any cash proceeds.

 For internationally mobile individuals, this raises an important question: where should they establish their tax residence, and how can they protect themselves against conflicting claims of residence by different jurisdictions?

 1. The importance of timing

 The proposal is intended to apply to transfers of tax residence taking effect from 1 January 2027.

 For individuals who have already left Italy, the proposed measure should not automatically create an exit-tax liability retrospectively.

 However, for those who remain Italian tax-resident and are considering relocating, the next few months could be particularly important.

 A proper assessment should include:

• The individual’s Italian tax residence history.
• The nature and value of their financial assets.
• The acquisition cost and unrealised gains on investments.
• Direct and indirect ownership of companies and partnerships.
• Existing holding companies, trusts and succession structures.
• The intended destination and the applicable double taxation treaty.

 The distinction between personal investments, business interests and partnership structures will be particularly important.

 2. The United Kingdom: the Foreign Income and Gains (FIG) regime

 The UK remains an attractive international destination, particularly for entrepreneurs, professionals, investors and internationally connected families.

 Since 6 April 2025, the UK has introduced the Foreign Income and Gains (FIG) regime, replacing the former remittance basis.

 Under the new regime, qualifying new UK residents can claim relief on eligible foreign income and gains arising during their first four consecutive tax years of UK residence.

The principal eligibility condition is that the individual must have been non-UK tax-resident for at least ten consecutive tax years immediately before becoming UK-resident.

 This is an important opportunity for individuals relocating from Italy who satisfy the qualifying conditions.

 However, the FIG regime is not available simply because someone moves from Italy to the UK. Individuals who have already been UK-resident for several years, particularly those who arrived before 2021, will generally not qualify on that basis.

 For those who do qualify, the regime can offer considerable advantages, particularly where foreign investments, overseas business interests and international income streams are involved.

 The UK also has a comprehensive double taxation convention with Italy.

 Article 4 provides a framework for resolving competing claims of tax residence, using criteria including:

• Permanent home.
• Centre of vital interests.
• Habitual abode.
• Nationality.
• Mutual agreement between the competent authorities.

 This framework is important for individuals who maintain economic, family or property connections with Italy while establishing genuine residence in the UK.

 The treaty does not, however, automatically eliminate an Italian exit-tax liability. Its interaction with any new domestic exit-tax provisions would need to be examined separately.

 3. Switzerland: forfait taxation and international residence planning

 Switzerland offers another potentially attractive alternative, particularly for wealthy individuals with substantial international investment portfolios.

 Certain foreign nationals who establish residence in Switzerland and do not undertake gainful employment there may qualify for expenditure-based taxation, commonly known as the forfait fiscal or lump-sum regime.

 Rather than calculating tax exclusively by reference to worldwide income and wealth, the taxable basis is determined by reference to the individual’s living expenditure, subject to statutory minimums and other calculations.

 The regime is administered at cantonal level and its availability, cost and conditions vary.

 It can be particularly interesting for internationally mobile individuals who:

• Have substantial foreign investment portfolios.
• Derive income from international business interests.
• Do not intend to undertake gainful employment in Switzerland.
• Want a stable and predictable tax environment.
• Are prepared to establish genuine Swiss residence.

 Switzerland also has a double taxation convention with Italy.

 The treaty provides residence tie-breaker provisions, including permanent home, centre of vital interests and habitual abode.

 For individuals considering Switzerland, the combination of a negotiated tax arrangement, a genuine relocation and the protection offered by the Italy-Switzerland treaty deserves particular attention.

 It is important to stress that forfait taxation does not automatically exempt foreign income from taxation in every treaty situation. Treaty relief and the relevant income must be examined carefully.

 4. Other potential jurisdictions

 The UK and Switzerland are not the only possible destinations.

 Depending on personal circumstances, nationality, source of wealth, business activities and family requirements, other jurisdictions may also deserve consideration.

 United Arab Emirates

 The UAE offers an attractive personal tax environment, with no general federal personal income tax currently imposed on individuals.

 It also has a double taxation agreement with Italy.

 For entrepreneurs and investors with international business interests, Dubai and Abu Dhabi may provide an interesting combination of business infrastructure, international connectivity and tax efficiency.

 However, establishing a UAE residence visa or obtaining a tax residence certificate is not, by itself, sufficient to resolve an Italian residence dispute. The individual’s actual presence, home, family and economic connections must support the relocation.

 Monaco

 Monaco can be an interesting option for qualifying individuals, particularly those seeking proximity to Italy, France and the wider European financial community.

 Its personal taxation framework is particularly favourable for many residents, although French nationals are subject to special rules.

 The relationship between Monaco and Italy requires particular attention, including the applicable bilateral arrangements and the individual’s nationality and circumstances.

 Other European and international jurisdictions

 Portugal, Cyprus, Malta and other international financial centres may also offer opportunities, depending on the individual’s profile and the applicable tax regimes.

 However, the existence of a favourable domestic tax regime does not necessarily mean that a jurisdiction offers the best protection against an Italian claim of tax residence.

 The relevant double taxation treaty, where one exists, and its interaction with Italian domestic law must always be considered.

  5. The importance of double taxation treaties

 One of the most important aspects of international relocation is avoiding dual tax residence.

 An individual may believe that they have become resident in another country while the Italian tax authorities continue to consider them Italian tax-resident.

 Italian domestic legislation contains several residence criteria, including physical presence, habitual residence, domicile and registration in the resident population register.

 Where two countries claim residence, the relevant double taxation convention may provide a mechanism for resolving the conflict.

 The OECD-based treaty approach generally considers the following criteria in sequence:

1. Where the individual has a permanent home available.
2. Where their centre of vital interests is located.
3. Where they habitually live.
4. Their nationality.
5. Mutual agreement between the two competent authorities, where necessary.

 These provisions are particularly important for individuals who retain Italian property, business interests, family connections or professional relationships after relocating.

 Nevertheless, a treaty is not a substitute for genuine relocation.

 A person cannot simply choose a jurisdiction with a favourable tax treaty, obtain a residence certificate and assume that Italy has lost the right to tax them.

 The substance of the relocation must support the position.

 Furthermore, double taxation treaties primarily allocate taxing rights and provide mechanisms for relief from double taxation. They do not necessarily prevent a domestic exit tax from applying to gains deemed to arise at the moment of departure.

 That question will become especially important if Article 17 is enacted.

 6. What should internationally mobile individuals do now?

 For individuals who are still Italian tax-resident and considering a move, I would recommend a structured review before the end of 2026.

 This should include:

 A. Tax residence analysis

 Review the individual’s residence history, physical presence, family circumstances, business activities and economic interests.

 B. Asset and capital gains assessment

 Identify the assets potentially falling within the proposed legislation, their tax basis and their unrealised gains.

 C. Destination analysis

 Compare the UK, Switzerland, UAE and other relevant jurisdictions, taking account of domestic taxation, residence requirements, succession planning and double taxation treaties.

 D. Corporate and partnership structures

 Examine whether direct and indirect holdings, LLP interests, investment companies and other structures could fall within the proposed rules.

 E. Documentation

 Ensure that the relocation is genuine and properly documented, including accommodation, physical presence, employment or business activities, family arrangements and tax registration.

 F. Legislative monitoring

 The Budget Bill remains subject to parliamentary approval and amendment. The final legislation, implementing provisions and administrative interpretation will be critical.

 7. A strategic opportunity, not simply a tax problem

 The proposed Italian exit tax should not be viewed exclusively as a new tax burden.

 For many internationally mobile individuals, it is also an opportunity to reconsider their international structures, residence arrangements and long-term wealth planning.

 The choice between the UK, Switzerland, the UAE or another jurisdiction should never be based exclusively on headline tax rates.

 It should reflect the individual’s personal circumstances, business interests, family requirements, succession objectives and the protection available under applicable international tax treaties.

 For individuals who have already established residence abroad before 2021, it is equally important to distinguish their existing position from the proposed rules governing future departures from Italy.

 The fundamental principle is that international tax residence must be established in substance, not simply on paper.

 In an environment of increasing international tax transparency and cooperation, careful planning, proper documentation and the correct use of double taxation treaties will be more important than ever.

 

 Alessandro Belluzzo is an international tax and wealth planning professional advising entrepreneurs, business owners, families and internationally mobile individuals on cross-border tax, corporate and wealth structuring.

This article discusses a proposed legislative measure and is for general information only. The final legislation and individual circumstances must be reviewed before any relocation or restructuring decision is made.