The Italian Parliament has approved the 2026 Budget Law, introducing a range of fiscal measures affecting individuals, employees, investors, and businesses. The new provisions revise personal income taxation, limit certain deductions, update employment income rules, and significantly reshape the tax framework for short-term rentals, investments, and financial transactions.

For foreign nationals living in Italy, property owners, and investors with cross-border interests, understanding these changes is essential. This article summarises the most relevant measures of the 2026 Italian Budget Law and outlines their potential impact in practical terms.

To discuss your situation, get in touch for a free consultation, or access our  FREE guides  for foreigners planning to buy, sell, renovate, or live in Italy.

Revision of Personal Income Tax (IRPEF)

The 2026 Budget Law confirms the three-bracket IRPEF system, while reducing the tax rate applicable to the second income bracket.

Applicable rates for 2026:

• 23% for income up to €28,000
  
• 33% for income between €28,001 and €50,000
  
• 43% for income exceeding €50,000
  

Impact:

This measure reduces the marginal tax burden for middle-income taxpayers, including employees and expats earning Italian-source income.

New Limitations on Tax Deductions for High-Income Earners

For taxpayers with annual income exceeding €200,000, the law introduces a reduction of €440 in the total amount of expenses eligible for the standard 19% tax deduction.

The limitation does not apply to:

• healthcare expenses
  
• donations to political parties
  
• insurance premiums for catastrophic events
  

Example:

A foreign executive earning over €200,000 may see reduced tax savings on certain personal or work-related expenses, while healthcare deductions remain fully available.

Employment Income and Workplace Benefits

Salary Increases and Contract Renewals

Salary increases granted in 2026 under collective bargaining agreements signed in 2025–2026 benefit from preferential taxation, unless the employee opts out through a written declaration.

Meal Vouchers and Company Meals

• Meals provided through company canteens or organised catering remain fully tax-exempt
  
• The daily tax-exempt limit for electronic meal vouchers is increased to €10
  

Tip for expats:

Employer-provided benefits may now be slightly more tax-efficient, particularly where meal vouchers are used.

Short-Term Rentals and B&B Properties

The 2026 Budget Law introduces major changes to the taxation of short-term rentals and tourist lettings.

Key rules:

• The maximum number of properties allowed without being considered a business is reduced from four to two
  
• The standard flat tax rate on short-term rental income is set at 26%
  
• The reduced 21% flat tax rate applies to only one property, provided that:
  
  • the activity is carried out outside a business framework
    
  • no more than two properties are rented short-term
    

If more than two properties are used, the activity is presumed to be entrepreneurial. In this case:

• an Italian VAT number is required
  
• rental income is treated as business income
  
• both the 21% and 26% flat tax regimes are excluded
  

Scenario:

A foreign investor owning three short-term rental apartments in Italy will now fall within the business tax regime, with VAT and ordinary income taxation obligations.

Renovation and Energy Efficiency Deductions

Tax deductions for building renovation and energy efficiency works are confirmed, with revised rates:

• 36% for expenses incurred in 2025 and 2026
  
• 30% for expenses incurred in 2027
  

The law also updates reference periods for certain incentives and extends higher deduction rates, where applicable, through 2026.

Practical note:

Foreign property owners planning renovations may still benefit from higher deductions if works are carried out before 2027.

Flat-Rate Tax Regime (Regime Forfettario)

Access to the flat-rate regime for self-employed individuals is confirmed for 2026.

Taxpayers may continue to apply the regime even if, in the previous year, they received employment or similar income exceeding €35,000. This remains particularly relevant for freelancers and consultants relocating to Italy.

Tax Incentives for Foreign Residents

All existing tax regimes designed to attract foreign residents are confirmed.

For high-net-worth individuals opting for the substitute tax regime on foreign-source income:

• the annual flat tax increases from €200,000 to €300,000
  
• eligibility requires non-residence in Italy for at least nine of the ten previous tax periods
  

Example:

A foreign entrepreneur relocating to Italy may continue to benefit from simplified taxation on foreign income, subject to the updated flat tax.

Cryptocurrency and Financial Transaction Taxation

The 2026 Budget Law increases taxation on crypto-related gains:

• capital gains from cryptocurrency transactions rise from 26% to 33%
  
• euro-pegged tokens remain taxed at 26%
  

The Financial Transaction Tax (Tobin Tax) is also increased:

• 0.2% for transactions on regulated markets
  
• 0.4% in other cases
  

Investors trading crypto assets or Italian securities should reassess their reporting and tax obligations.

Capital Gains, Dividends, and Business Investments

Participation Exemption (PEX)

From 2026, access to the PEX regime requires:

• a shareholding of at least 5%, or
  
• a fiscal participation value of at least €500,000
  

Spread of Capital Gains

The possibility to spread capital gains taxation over five years is now limited to:

• sales of a business or branch held for at least three years
  
• transfers of athlete performance rights by professional sports companies
  

All other capital gains are taxed in full in the year realised.

Incentives for Investments in Business Assets

Enhanced depreciation applies to qualifying investments made between 1 January 2026 and 30 September 2028:

• +180% for investments up to €2.5 million
  
• +100% for €2.5–10 million
  
• +50% for €10–20 million
  

The incentive applies to qualifying tangible and intangible assets interconnected with production or supply systems.

Rottamazione Quinquies (Tax Debt Settlement)

The Budget Law introduces a new tax debt settlement procedure allowing taxpayers to regularise outstanding tax liabilities, subject to specific conditions. This may be particularly relevant for long-term residents with unresolved Italian tax positions.

Finally…

The 2026 Italian Budget Law introduces targeted changes across income taxation, real estate, investments, and financial transactions, while confirming several existing regimes. For expats, foreign investors, and property owners, the most sensitive areas remain:

• short-term rental classification
  
• flat-tax regime eligibility
  
• crypto and capital gains taxation
  
• renovation incentives
  

Given the technical nature of these provisions and their interaction with prior legislation, careful analysis is essential.

At De Tullio Law Firm, our team specialises in Italian and cross-border tax, property, and inheritance matters. Contact us for tailored advice on how the 2026 Budget Law may affect your situation, or access our FREE guides for foreigners planning to buy, sell, renovate, or live in Italy.