Italy's Deputy Economy Minister Maurizio Leo has effectively shut down a signature fiscal priority of the League party, signaling that expanding the flat tax for self-employed workers to €100,000 in income is technically unworkable—a move that adds fresh tension to the ruling coalition's tax reform agenda while reshaping expectations for residents and freelancers navigating the country's evolving fiscal landscape.
Why This Matters
• Flat tax ceiling stays at €85,000: The current threshold for the 15% flat rate will not rise to €100,000, blocking a key League demand.
• Middle-class tax cut more likely: A 7-in-10 chance exists for extending the 33% IRPEF rate to incomes up to €60,000, worth up to €1,000 in annual savings.
• New residency levy jumps 50%: Wealthy foreigners moving to Italy from January 1, 2026, will pay €300,000 annually, up from €200,000.
• Autumn budget review decisive: Deficit data in October will determine if €3 billion can be unlocked for further cuts.
The Technical Wall Blocking Expansion
Leo, the architect of Italy's ongoing tax overhaul and a senior figure in the Brothers of Italy party, told the Forum in Masseria 2026 that raising the flat tax cap beyond its current €85,000 ceiling collides with European Union VAT rules. Brussels permits member states to exempt businesses from VAT collection only up to €85,000 in turnover, a hard limit encoded in EU directives.
Pushing the flat tax to €100,000 would create a bifurcated system: income tax calculated under the simplified regime but VAT obligations still triggered at €85,000, forcing freelancers and sole traders into dual compliance regimes. "The extra complexity, I think, makes it impractical," Leo said, acknowledging the League's "legitimate expectations" while dampening hopes that the coalition's most vocal proponent of supply-side cuts could deliver on its marquee pledge.
The current €85,000 threshold was itself a product of the Meloni government's first budget in 2023, when it lifted the cap from €65,000. That move benefited an estimated 1.8 million partite IVA (VAT-registered freelancers), primarily in professional services, retail, and digital sectors. Going further, however, would require either renegotiating EU frameworks or accepting administrative friction that undermines the flat tax's appeal: simplicity.
Middle-Income Relief on the Horizon
While the League's ambitions hit a ceiling, a separate tax initiative targeting salaried employees and moderate earners appears more viable. Leo confirmed the government wants to extend the 33% IRPEF bracket to cover incomes between €50,000 and €60,000—a band currently taxed at the top rate of 43%.
The math is straightforward. For someone earning €60,000, the 10-percentage-point reduction on the final €10,000 tranche would cut annual tax bills by up to €1,000. Combined with the 2026 reduction that already brought the second bracket (€28,000 to €50,000) down from 35% to 33%, a taxpayer at the €60,000 mark could see cumulative savings approaching €1,440 per year.
But the price tag is steep: €3 billion annually. When pressed by journalist Bruno Vespa on the odds of securing funding, Leo rated the probability at "7 out of 10," adding with a wry smile that he wished he were "a minister without portfolio—they move more freely." The quip underscored the fiscal tightrope facing Italy's Treasury, which must balance tax relief against eurozone deficit rules and bond market scrutiny.
Autumn Deficit Data Will Decide
The government plans to wait until October, when updated public finance figures become available, before committing to the extension. If tax revenues surprise to the upside—particularly from the concordato preventivo, a new compliance mechanism for businesses—Leo suggested the funds could materialize. "If things go well in October, we can find the resources," he said.
Separately, Italy's finance ministry is combing through the country's labyrinthine tax code, scrutinizing 600 line items of deductions, credits, and exemptions (the so-called "tax expenditures") for potential savings. Leo described the search as looking for "intelligent interventions" that could free up revenue without triggering political backlash.
What This Means for Residents
For freelancers and partite IVA earning above €85,000, the status quo holds. Those operating near the threshold will continue to weigh the trade-off between staying under the cap to preserve the 15% flat rate or accepting higher ordinary IRPEF rates in exchange for scaling their business. The lack of upward flexibility also cements Italy's position as a moderate outlier in European flat tax policy: Eastern European states like Bulgaria (10%) and Romania (10%) apply their simplified rates without income ceilings, though their systems lack the VAT wrinkle that complicates Italy's design.
For employees and professionals in the €50,000 to €60,000 band, the next four months are a waiting game. The potential relief is material—enough to cover several months of mortgage interest or a modest vacation—but not guaranteed. Households should plan conservatively, treating the cut as a possibility rather than a certainty until the 2027 budget law passes Parliament late this year.
For landlords and young renters, Leo floated a separate proposal: reducing the VAT on rental income from 10% to 5% when the lessor is a construction company. The measure would lower costs in the increasingly popular "rent-to-buy" and corporate landlord markets, though Leo stressed it remains contingent on finding coverage.
Coalition Friction and the League's Bind
The flat tax debate exposes fractures within Italy's right-wing coalition. The League, led by Matteo Salvini, has long championed radical tax simplification as part of its populist-nationalist brand, framing the flat tax as an antidote to bureaucratic overreach. Brothers of Italy, the senior partner under Prime Minister Giorgia Meloni, has prioritized middle-class wage earners and families—a demographic that overlaps imperfectly with the self-employed base the League courts.
Leo's frank dismissal of the €100,000 target, delivered in a public forum, signals that Italy's fiscal policy is firmly under the control of the Prime Minister's party, with coalition partners forced to accept technical and budgetary realities. The League has noticeably softened its flat tax rhetoric over the past year, likely anticipating this outcome.
The Wealthy Residency Levy Climbs
Separately, Italy has raised the stakes for ultra-high-net-worth individuals seeking tax residency. Starting January 1, 2026, new entrants to the "neo-residenti" regime will pay €300,000 per year as a substitute tax on foreign-source income, up from €200,000. Dependents will be charged €50,000 each, double the prior €25,000 rate.
Those who secured residency before year-end 2025 retain the old pricing for up to 15 years. The government aims to filter the applicant pool, prioritizing genuine economic integration over passive wealth parking. Some League lawmakers have proposed requiring minimum investments in Italian startups or research institutions as a condition of access, though those amendments have not yet been codified.
The increase positions Italy as a pricier but still competitive destination relative to Switzerland or Monaco, especially after the United Kingdom dismantled its "non-dom" system. Advisors report rising interest from France, the Netherlands, and Brazil.
Fiscal Calendar Ahead
Italy's 2027 budget cycle will formally begin in September, with Leo and Economy Minister Giancarlo Giorgetti presenting the Draft Budgetary Plan to Brussels by mid-October. Between now and then, the government will monitor:
• Second-quarter GDP growth, which will influence revenue projections.
• Concordato preventivo uptake, as businesses finalize advance tax agreements.
• Bond spreads, which constrain fiscal flexibility if investors grow nervous.
For now, residents can expect a holding pattern: no dramatic expansion of the flat tax, a reasonable shot at middle-income relief, and incrementally higher barriers for wealthy foreigners. The ambition of sweeping tax simplification—once a rallying cry for the League—has given way to the arithmetic of coalition governance and European compliance.
