Italy’s Cabinet Approves 2027 Budget Bill with Flat Tax Extension
Italy’s Council of Ministers approved the 2027 Budget Bill on October 28, 2026, confirming an extension of the flat tax regime for self-employed workers up to 100,000 euros while splitting the current framework to satisfy European Union rules, informazionefiscale.it reported.
Extending the Flat Tax to 100,000 Euros Without VAT Simplifications
The newly approved draft budget raises the revenue ceiling for the flat tax regime from its current 85,000 euro limit up to 100,000 euros starting January 1. The move aims to provide tax relief for self-employed professionals through a substitute tax rate of 15 percent, or 5 percent for the first five years of business.
Surpassing the 85,000 euro threshold comes with a catch. To bypass restrictions under European Union rules—specifically Directive UE 2020/285—the government carved the flat tax into two tiers. Professionals earning between 85,000 and 100,000 euros must handle value-added tax under ordinary rules, file annual returns, and submit relevant data communications to the tax agency.
That compromise strips away the traditional exemptions of not issuing invoices with VAT, skipping periodic settlements, and avoiding annual VAT declarations. ANSA reported that the flat tax expansion for autonomous workers carries a lighter fiscal cost for the state than other rejected measures, such as a flat tax on thirteenth-month salaries. The package also includes a permanent exemption on car stamps for small and medium vehicles alongside housing and work prorogues.
Impending Expiration for Employee and Pensioner Thresholds
While attention centers on the higher revenue cap, a separate temporary threshold governing taxpayers who earn income from employment or pensions faces expiration on December 31, 2026. Informazionefiscale.it noted that the current temporary allowance lets individuals earning up to 35,000 euros apply the flat tax to secondary self-employed activities.
Without intervention in the final budget text, that limit drops back to 30,000 euros on January 1, 2027. Official dossiers from the previous budget cycle pegged the cost of the 35,000 euro threshold at 79.4 million euros for the current year and 140.9 million euros for 2027. Taxpayers exceeding the lower 30,000 euro cap will lose eligibility for the flat tax and must return to progressive IRPEF tax brackets and ordinary VAT management.
Middle-Class Workers Receive Tax Reductions
The broader 23.5 billion euro budget package forces tradeoffs across several fiscal priorities. ANSA reported that middle-class workers and pensioners earning over 50,000 euros will see an annual tax reduction of 500 euros through an adjustment lowering the 43 percent rate to 33 percent for income bracket segments between 50,000 and 55,000 euros. That measure carries an estimated cost of 1.2 billion euros.
Proposals to apply a flat tax of 10 to 15 percent on thirteenth-month bonuses were dropped entirely during cabinet negotiations due to resource constraints. Additional measures under evaluation include youth-focused incentives and potential pension flexibility allowing retirement at age 64 with a contributory recalculation. Parliament continues debate on the text ahead of final legislative approval.