What the Exit Tax Could Mean for Individuals Leaving Italy
A draft of the Italian 2027 Budget Bill has been released. The proposals remain subject to parliamentary approval and amendment.
The Bill proposes an exit tax for certain individuals transferring their tax residence abroad. The measure could tax unrealised gains on investments even where the individual has not sold the assets or received any proceeds.
For internationally mobile individuals, the proposal raises questions about the timing of departure, the valuation of investments and the availability of funds to pay the tax. Its interaction with Italy’s annual tax residence rules deserves particular attention.
The proposal appears in Article 17 of the draft Budget Bill, It is not yet enacted law.
The draft provides for a ministerial implementing decree. That requirement should not be read as an express postponement of the proposed January 2027 starting date.
Who would be affected?
The draft sets out three principal conditions. An individual must:
- Transfer their tax residence away from Italy after having been Italian resident for at least six of the preceding ten tax periods.
- Hold assets and rights within the provision’s scope with an aggregate normal value of at least €800,000 at the relevant valuation date.
- Make a transfer of residence that causes Italy to lose its taxing rights over the relevant income.
The proposal therefore does not apply to every person leaving Italy. Nationality is not the test: the provision could affect both Italian citizens and foreign nationals who have lived in Italy.
The assets concerned are defined by reference to specified capital-gains categories in the new consolidated income-tax legislation. The €800,000 figure should not be read as a simple test of an individual’s total worldwide wealth. The classification of particular investments and financial arrangements will matter.
What does the €800,000 threshold mean?
The threshold concerns the value of the relevant assets and rights, rather than the amount of their unrealised gains.
It is also a threshold for entering the regime, not an allowance deducted from taxable gains. A person with relevant assets worth €900,000 would not simply be taxed on the €100,000 exceeding the threshold.
Instead, the draft calculates the charge by adding the positive differences between each relevant asset’s normal value (market value) and its applicable tax cost. Its reference to positive differences also raises a question about the treatment of investments standing at a loss.
The tax would follow the rules ordinarily applicable to the relevant income categories; the proposal does not establish one universal exit-tax rate.
The threshold may be amended during Parliament’s consideration of the Bill. For now, however, €800,000 is the figure in the draft, and an increase should not be assumed.
When would it apply?
Article 17 expressly states that the rules would apply where the loss of Italian tax residence takes effect from *1 January 2027*
The proposed valuation date is the last day of the tax period preceding the period in which the loss of residence takes effect.
On the ordinary whole-year tax residence approach, someone who is Italian tax resident for 2026 and nonresident for 2027 could therefore fall within the new rules, with relevant assets valued at 31 December 2026.
This is an important distinction: the proposed commencement rule refers to the effective loss of tax residence, rather than simply the date on which someone physically leaves Italy.
How does this interact with annual tax residence?
Italy’s domestic rules generally determine an individual’s residence for an entire tax year by reference to whether the relevant residence conditions are met for the greater part of that year. The analysis involves more than counting days abroad, and applicable tax treaties can affect the outcome.
Consequently, someone who physically leaves Italy during the latter part of 2026 might nevertheless remain Italian tax resident for 2026 and become nonresident only for 2027.
On the wording of the draft, that person could potentially be within the new exit-tax regime, even though the physical move took place before the legislation was enacted. This is an interpretation of how the provisions fit together, rather than a conclusion that every late-2026 departure would be caught.
The interaction with treaty residence and any applicable split-year treatment will need careful examination.
Would there be a retrospective effect?
There is a legitimate question here, but it requires a distinction between the proposed legal trigger and the earlier circumstances taken into account.
The draft is framed as applying to a loss of residence effective from January 2027. Nevertheless, it could affect relocation decisions already taken in 2026 and bring into account gains accumulated before the new legislation. Article 17 contains no express general rebasing of investments to their value when the new regime starts.
Those features raise questions about transitional protection, legal certainty and taxpayers’ reasonable reliance on the rules in force when they made their decisions.
They do not, by themselves, establish that the proposal is unconstitutional. Italian constitutional case law does not treat retrospective non-penal legislation as automatically invalid. Its justification, reasonableness and effect on legitimate expectations are relevant to the assessment. [
For taxation, the constitutional principle of ability to pay is also relevant. The Constitutional Court has explained that retrospective taxation is not inherently unconstitutional, but may be unlawful where it infringes a constitutional principle.
The appropriate conclusion at this stage is that the commencement and transitional arrangements deserve scrutiny. It would be premature either to dismiss the concerns or to state that the proposed tax would necessarily be unconstitutional.
When would payment be due?
The draft requires payment within 180 days of the effective loss of tax residence*. It is not clear if this means the date on which a transfer abroad is made, triggering a loss of tax residence, cancellation of resident with the Anagrafe or the last day of a tax year for which the individual is resident.
A deferral option would be available for moves to EU member states and certain other jurisdictions with qualifying arrangements for information exchange and assistance in recovering tax debts.
However, this would require both:
- An upfront payment of 50% of the tax within the ordinary deadline.
An appropriate guarantee. - The proposed deferral period covers five tax periods following the year residence is lost for EU moves, and ten for other qualifying destinations.
Within that regime, the draft provides for relief where assets remain undisposed of through the relevant period. It also provides relief in specified circumstances involving death or a return to Italian tax residence, with excess payments refunded. Different rules apply to subsequent sales, gifts and certain related-party transfers.
These provisions could materially reduce the ultimate liability, but the upfront payment and guarantee could still create a substantial cash-flow burden.
What needs clarification?
Several practical issues remain important:
Residence and deadlines
how the 180-day payment rule would operate where residence status depends on circumstances assessed over the tax year.
Valuation and tax cost
particularly for unquoted investments and assets acquired many years earlier.
– **International double taxation:** whether the destination country would recognise the Italian exit-tax valuation or allow relief when the investment is eventually sold.
Transitional protection:how the rules should treat moves already undertaken or committed to before enactment.
Implementation: the detail of guarantees, reporting, deferral elections and refunds.
When would payment be due?
The draft requires payment within 180 days of the “effective loss of tax residence”. It is not clear if this means the date on which a transfer abroad is made, triggering a loss of tax residence, cancellation of resident with the Anagrafe or the last day of a tax year for which the individual is resident.
A deferral option would be available for moves to EU member states and certain other jurisdictions with qualifying arrangements for information exchange and assistance in recovering tax debts.
However, this would require both:
- An upfront payment of 50% of the tax within the ordinary deadline.
An appropriate guarantee. - The proposed deferral period covers five tax periods following the year residence is lost for EU moves, and ten for other qualifying destinations.
Within that regime, the draft provides for relief where assets remain undisposed of through the relevant period. It also provides relief in specified circumstances involving death or a return to Italian tax residence, with excess payments refunded. Different rules apply to subsequent sales, gifts and certain related-party transfers.
These provisions could materially reduce the ultimate liability, but the upfront payment and guarantee could still create a substantial cash-flow burden.
Action Points
For individuals considering a move, the immediate task is to establish their likely tax-residence position, identify potentially relevant investments and retain reliable acquisition-cost records. Decisions should be based on the final legislation and the applicable treaty, rather than on an assumption that leaving physically before the end of 2026 would necessarily put the move outside the new rules.
Please contact us if you would further information