Flat-rate tax: the decline in tax revenue is set to continue into 2026: -25.5%

Two indicators are starting to look like more than just a coincidence. Whilst we await a third indicator – which could provide further evidence and is likely to emerge with the tax payment figures for the summer months – the flat-rate tax on rents continues its downward trend. The year 2025 ended with an overall fall of 2.2 per cent, standing at 4.69 billion euros (see ‘Il Sole 24 Ore del Lunedì’ of 30 March), which, above all, marks the first reversal of the trend after 13 consecutive years of growth. The first five months of 2026 are following the same pattern: total revenue from the flat-rate tax on residential lettings stood at 318 million, representing a fall of 25.5% (-109 million) compared with the same period in 2025, although the trend in May was positive, with a 4-million increase compared with the previous year’s figure.

What might be causing this effect? Let’s make it clear straight away that, to get a detailed picture, we will have to wait at least until the details of the 2026 tax returns (relating to the 2025 tax year) are available; these are currently being submitted (the deadline for the 730 form is 30 September, whilst the Redditi form is due on 2 November). One possibility is that there may be a shift in the flat-rate tax from the 21 per cent rate for market-rate tenancy agreements to the 10 per cent rate for tenancy agreements with an agreed rent. It should be noted that there are specific restrictions on the application of the 10 per cent flat-rate tax to the latter. In fact, the reduced rate for agreed-rent tenancies may apply to tenancies signed in major cities (Bari, Bologna, Catania, Florence, Genoa, Milan, Naples, Palermo, Rome, Turin and Venice), in neighbouring municipalities, in other provincial capitals and in other smaller towns with high housing demand as identified by the CIPE. Furthermore, the 10% flat-rate tax may be applied in municipalities where a state of emergency was declared during the five years prior to 28 May 2014 and in municipalities affected by the 2016 earthquake in Abruzzo, Lazio, Marche and Umbria. Within this scope, a shift towards the 10 per cent rate may have resulted in lower tax revenue. Of course, the ‘balance of power’ must always be taken into account: the 2025 tax returns show that there are around 2 million property owners who paid the 21 per cent rate, whilst those paying the 10 per cent rate number 1.1 million.

There are also at least two other variables that will need to be investigated, should the third indicator also be confirmed by the data on summer payments (2025 final instalment and 2026 first instalment). On the one hand, the extent to which the shift from long-term residential lettings towards solutions more geared towards the tourist market (short-term lettings) may have had an impact. Here too, the latest figures available from the 2025 tax returns have shown the 26 per cent tax rate – which applies from the second property used for short-term lets – to have been a flop, generating just €17 million in additional revenue. It remains to be seen what will happen with the tightening of the rules that came into effect on 1 January, which imposes a VAT registration requirement from the third property onwards (and no longer from the fifth, as was previously the case).

The other variable relates to the extent to which the number of properties remaining vacant is increasing and, conversely, the extent to which those for which the tenancy remains in the informal sector are growing, thereby generating tax evasion. In this regard, however, it should be noted that the latest update to the report on the unobserved economy and on tax and social security evasion indicates an improvement in the tax gap relating to rentals for 2023: in absolute terms, 773 million compared with the 875 calculated for 2022, and in relative terms, 8.6 per cent compared with the previous 10.1 per cent.