Paraguay or Italy in 2026: the expat tax regime versus 0% territoriality
Italy has one of the most publicized tax incentive schemes in Europe: the "regime impatriati," which exempts a portion of new residents' employment income for five years. La dolce vita with a tax discount: the marketing is appealing, and tens of thousands of skilled workers have responded. However, the scheme was significantly curtailed by the 2024 reform, Italian social security contributions are still due on total income, and most importantly: after five years, the full Italian tax bracket awaits, up to 43% plus additional levies.
Paraguay does not offer temporary discounts: it simply does not tax foreign income, for everyone, forever. This comparison quantifies the difference between a partial fixed-term exemption and permanent territoriality, over five and ten years, before comparing the cost of living, residency, and quality of life. The ten-year result amounts to hundreds of thousands of euros.
Dimension 1: Taxation
The "Impatriati" Scheme: How it works since 2024
| Aspect | Detail |
|---|---|
| The Principle | An exemption of 50% of employment income, salaries, and self-employment income, both Italian and foreign-sourced, for individuals who transfer their tax residency to Italy. Only half of the income is subject to the tax bracket. The exemption increases to 60% with a dependent minor child. |
| What changed in 2024 | The old scheme exempted 70%, and up to 90% in the South, for five years extendable to ten. The reform reduced the exemption to 50%, added an eligible income ceiling of €600,000 per year, tightened conditions—three years of prior Italian non-residency instead of two, high qualification requirement—and removed the generous extension: the current version is significantly less attractive than what was described in blog articles written before the reform. |
| Duration | 5 years, extendable by three years in certain cases, notably the purchase of a residence in Italy, with a reduced exemption during the extension. Afterwards: full tax bracket. |
| What the scheme does not cover | Two major blind spots. First, social security contributions: INPS is calculated on total income, without abatement, approximately 26% for a self-employed person in gestione separata. Second, passive income: dividends, interest, capital gains, and crypto are outside the scheme, taxed at the full rate of 26%. |
The Calculation That Changes Everything: 5 Years, Then 10 Years
Let's take a freelancer with €100,000 in annual income, structured as self-employed in Italy, and as a US LLC in Paraguay.
| Annual Item | Paraguay | Italy, Years 1 to 5, Impatriati Regime | Italy, Years 6 onwards, Full Tax Bracket |
|---|---|---|---|
| Taxable Base | €0 (foreign income, territoriality) | €50,000 (50% exempt) | €100,000 |
| Income Tax (IRPEF + regional and municipal surcharges) | €0 | ~€15,000 to €18,000 | ~€36,000 to €42,000 |
| Social Security Contributions (INPS, no abatement) | €0 | ~€24,000 to €26,000 | ~€24,000 to €26,000 |
| Accounting and Fees | ~€2,400 | €2,000 to €4,000, as a commercialista is essential | €2,000 to €4,000 |
| Total Levies | ~€2,400 | ~€41,000 to €48,000 | ~€62,000 to €72,000 |
| Net Income | ~€97,600 | ~€52,000 to €59,000 | ~€28,000 to €38,000 |
The reading is stark and unfolds in two stages. During the regime, years 1 to 5: "advantageous" Italy already levies €41,000 to €48,000 per year, because INPS disregards the exemption. The difference with Paraguay is approximately €40,000 to €45,000 per year, or €200,000 and more over the first five years. After the regime, years 6 to 10: the full tax bracket brings the levy to €62,000-€72,000, and the annual difference to €60,000-€70,000. Over ten years, the cumulative difference reaches €500,000 and more for this profile. The "impatriati" regime is not a gift: it's a welcome commercial discount on a subscription that becomes very expensive from the sixth year.
The Rest of the Compared Taxation
| Aspect | Paraguay | Italy |
|---|---|---|
| Principle | Strict territoriality, Law 6380/2019, with no time limit or profile condition. | Worldwide taxation at the progressive scale, up to 43% plus regional and municipal surcharges of 1 to 3%. The "impatriati" regime is a five-year interlude in this system. |
| Passive Income and Crypto | 0% on foreign-sourced income and capital gains; crypto declaration obligation to DNIT beyond USD 5,000 per year, Resolution 47/2026, purely informative. | 26% on dividends, interest, capital gains, and crypto gains, "impatriati" regime or not: passive income is never covered by the exemption. An investor gains nothing from the scheme. |
| Assets Held Abroad | No holding tax. | Two minor wealth taxes often discovered too late: IVAFE, approximately 0.2% per year on the value of foreign financial assets, and IVIE, approximately 1% on the value of real estate held abroad, plus quadro RW, the exhaustive annual declaration of all foreign assets, under penalty of severe fines. Your US portfolio and your apartment abroad incur tax every year, even without any gains. |
| Corporate Tax | IRACIS: 10%. | IRES 24% plus regional IRAP of approximately 3.9%: nearly 28% combined. |
| VAT | IVA of 10%. | 22%. |
| Inheritance | 0% for all. | 4% in direct line beyond an allowance of one million euros per heir: one of the softest inheritance regimes in Europe, to Italy's honest credit. Still greater than zero. |
| The other Italian scheme: the flat tax for high net worth individuals | Not applicable: one regime for all. | A flat rate of €200,000 per year covering all foreign income, doubled from the original €100,000, modeled after the Greek non-dom but twice as expensive. Reserved for individuals with multi-million annual incomes; irrelevant for a freelancer. |
| Tax Treaty with France | None. | Yes, with automatic exchange of information. |
Tax Verdict: The "impatriati" regime appears to be the most appealing of European schemes, yet it is one of the most disappointing upon full calculation: INPS at 26% without abatement devours most of it for five years, passive income is never included, foreign assets are taxed on holding, and the sixth year brings back the full tax bracket. Against total and permanent territoriality, there's no contest: a €200,000 difference in five years, over €500,000 in ten.
Dimension 2: Cost of Living
| Monthly Item | Paraguay (Asunción) | Italy (Milan / Rome / Medium-sized cities) |
|---|---|---|
| Rent, two bedrooms | 500 to 900 USD | €1,300 to €2,500 in Milan, €1,000 to €1,800 in Rome, €600 to €1,200 in Bologna, Turin, or the South |
| Utilities | 80 to 150 USD | €150 to €350: expensive energy, heating in winter in the North, air conditioning in summer |
| Food | 300 to 600 USD | €350 to €700: markets and local products with exceptional value for money, restaurants from €15 to €40 |
| Health | 50 to 300 USD, by choice | National health service, covered by contributions, plus an optional private complementary insurance from €50 to €200 |
| Transportation | 80 to 200 USD | €50 to €300: metros in Milan and Rome, excellent high-speed trains, car superfluous in large cities |
| Full-time housekeeper | 200 to 350 USD | €1,200 to €1,800, including contributions: four to six times the Paraguayan cost |
| Leisure | 100 to 300 USD | €150 to €500: aperitivo, museums, weekends, constant temptation |
| Total, single person | 1,200 to 2,200 USD | €2,200 to €4,500 in Milan or Rome, €1,600 to €3,000 in a medium-sized city |
Cost of Living Verdict: Italy costs 60 to 100% more than Paraguay in large cities, 30 to 60% more in medium-sized cities. Combined with taxation, the effect on savings is overwhelming: the freelancer in our example saves €70,000 to €85,000 per year in Paraguay, compared to €10,000 to €30,000 in Italy under the "impatriati" regime, and almost nothing after the fifth year in a major city.
Dimension 3: Residency and Immigration
| Aspect | Paraguay | Italy |
|---|---|---|
| Access for a French national | 90 days of tourism, then temporary residency in 2 to 4 months, with a single trip and two days on-site via our Paraguayan tax residency service, from €1,400. | European freedom of movement: immediate settlement. Registration at your municipality's anagrafe and obtaining a codice fiscale handle administrative matters in a few weeks, Italian bureaucracy included. |
| Entering the advantageous tax regime | Automatic: residency implies territoriality, with no application process or profile conditions. | The "impatriati" regime requires an application and justification: three years of prior Italian non-residency, high qualifications, commitment to a minimum four-year residency period, failing which benefits are retroactively clawed back. A commercialista is essential from day one. |
| Naturalization | 3 years, de facto dual nationality. See our guide on Franco-Paraguayan dual nationality. | 10 years of residency for an ordinary foreigner, one of the longest periods in Europe. Notable exception: citizenship by descent for those with an Italian ancestor, a widely used path but recently restricted to the last two generations. For a French national without Italian roots, the interest is limited anyway. |
Immigration Verdict: Easier settlement in Italy, incomparably simpler access to the tax regime in Paraguay: automatic and without commitment, versus a conditional application with a retroactive clawback clause if you leave before four years. This last point is worth highlighting: the "impatriati" regime commits you, while territoriality leaves you free.
Dimension 4: Quality of Life
| Aspect | Paraguay | Italy |
|---|---|---|
| Culture and Heritage | Charming Guarani-Hispanic culture, modest heritage. | Unparalleled worldwide: the highest number of UNESCO sites on the planet, Rome, Florence, Venice, two thousand years of art and architecture on every corner. In this regard, Italy is incomparable. |
| Gastronomy | Simple and generous: asado, sopa paraguaya, chipa. | One of the two or three greatest cuisines in the world, and arguably the most beloved: each region is a universe, each meal an event. A daily quality of life factor, not a cliché. |
| Landscapes | Rich but underdeveloped nature, no coastline. | Alps, lakes, Tuscany, Amalfi Coast, Sicily, Sardinia: an exceptional density of beauty per square kilometer, including sea and mountains. |
| Security | Homicide rate of 7 to 9 per 100,000. | Around 0.5 per 100,000, among the lowest in the world. Pickpockets in tourist areas, organized crime present in some regions but without impact on expatriate life. Real seismic risk, however, in part of the territory, and some active volcanoes in the South. |
| Health | Good private care in Asunción, insufficient public care. See our expatriate health guide in Paraguay. | The national health service, one of Europe's good universal systems despite delays and marked disparities between North and South. Excellent private care as a complement. Clearly superior to Paraguay. |
| Connections and Time Zone | Regional connections only; 5 to 6 hours time difference with Paris. | Paris 1.5 hours flight, transalpine TGV, all of Europe by low-cost, and no time difference with France: same time zone. For French clients, perfect alignment. |
| Language | Spanish. | Italian: the most accessible language for a French speaker. Linguistic integration happens in a few months. |
Quality of Life Verdict: Italy probably offers the most desirable living environment in our entire series of comparisons: culture, cuisine, landscapes, health, Europe with no time difference. This is precisely why its case is most instructive: the dolce vita is real, and so is its tax price. Paraguay responds with cost of living, affordable help, and asset building.
Dimension 5: Synthesis
| Dimension | Paraguay (/10) | Italy (/10) | Advantage |
|---|---|---|---|
| Taxation during the "impatriati" regime | 10 | 4 | Paraguay |
| Taxation after the regime | 10 | 2 | Paraguay |
| Passive income and crypto | 10 | 3 | Paraguay |
| Holding taxes on foreign assets | 10 | 4 | Paraguay |
| Cost of living | 9 | 5 | Paraguay |
| Sustainability and freedom of the regime | 9 | 3 | Paraguay |
| Naturalization | 8 | 4 | Paraguay |
| Culture and heritage | 4 | 10 | Italy |
| Gastronomy | 5 | 10 | Italy |
| Landscapes, sea, and mountains | 4 | 10 | Italy |
| Criminal security | 7 | 9 | Italy |
| Health | 6 | 8 | Italy |
| Proximity to France and time zone | 4 | 10 | Italy |
| Overall Score | 96/130 | 82/130 | Paraguay |
Which country for which profile
Paraguay is for you if:
- Your priority is wealth accumulation: a €200,000 difference over five years, over €500,000 in ten, for a freelancer earning €100,000.
- You have passive income or cryptocurrencies: Italy taxes them at 26% even under the expatriate regime, plus IVAFE on holdings.
- You refuse time-limited and conditional regimes: five years, retroactive clawback clause, income cap, required qualifications. Territoriality has none of that.
- You want to remain free to leave: the expatriate regime commits you to four years of residency, or you have to pay everything back.
- You want quick naturalization: three years versus ten.
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