Rents, VAT registration, young people: the budget plays the flat tax card

There is still a long way to go, but some signs are beginning to emerge. In the 2027 budget dossier, the flat tax proposal could prove to be a winning move, at least in theory. Ultimately, everything will hinge on the feasibility of the measures and securing the necessary funding. The scope of the measures includes a flat tax for young people on contractual pay rises, rents – with the extension of the flat-rate tax scheme to shops in properties owned by private individuals – and VAT-registered businesses, with the threshold for turnover or remuneration raised from 85,000 to 100,000 euros. The underlying idea is to try to reduce the tax burden by circumventing the standard personal income tax (IRPEF) rates.

It was the Minister for the Economy, Giancarlo Giorgetti, who first put forward the idea and most recently reiterated it in his speech at the UDC party conference: ‘Any pay rises that employers might grant to young people below a certain age could be subject to favourable tax treatment. I recall the great success of the government’s initiative last year to apply a 5 per cent flat tax rate to contractual pay rises. I believe that this success could be replicated, with the necessary adjustments, for any pay rises granted to young people within companies.”

The proposal is to ‘encourage’ pay rises for younger taxpayers through a reduction in taxation. Giorgetti sees this as a team effort involving, on the one hand, employers to increase the pay packages for younger workers and, on the other, the tax authorities to grant favourable tax treatment on these increases. A ‘combined approach’, to put it in technical terms, capable of triggering a virtuous circle and thus ensuring greater purchasing power for taxpayers below a certain age threshold. This approach could also support the formation of families – particularly given the ever-pressing issue of demographic decline – and offer greater prospects for the future.

Also in the ‘Flat Tax’ chapter is the proposal put forward by Deputy Minister for the Economy Maurizio Leo, which was also announced during the UDC party conference. The idea is to extend the flat-rate tax on rents to include shops as well. Leo’s essential前提 is to ‘find the resources’. The measure, ‘if the right balance is struck’, will be ‘limited to certain categories’. There is already a precedent: the (as yet isolated) case of the application of the flat-rate tax regime planned for 2019. Only for tenancy agreements entered into that year was it provided that rents for properties in category C/1, with a floor area not exceeding 600 square metres and owned by private individuals, could be taxed at the flat rate of 21 per cent instead of the standard personal income tax (IRPEF). Subsequently, the tax delegation bill had rekindled hopes of a preferential tax rate on commercial properties let to businesses and professionals, but the measure remained unimplemented precisely due to a lack of resources. Now the issue is back on the agenda ahead of the 2027 budget.

The other flat tax at the centre of the debate on the Budget Bill concerns the increase in the revenue or remuneration threshold from 85,000 to 100,000 euros for the flat-rate scheme. The Lega is particularly insistent on this point. In addition to funding, the main obstacle stems from EU legislation. The amendment to the VAT Directive, which comes into force at the start of 2025 (transposed in Italia by Legislative Decree 180/2024), has removed the scope for derogations under the previous rules, under which it was ‘sufficient’ to request authorisation from the EU Commission. Now, in fact, there is a single exemption scheme with a turnover threshold set at 85,000 euros. In order to raise the threshold for the flat tax scheme for VAT-registered individuals, an amendment to the EU directive itself may be required.