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Italian Tax Regime: Investments Benefit Foreign Investors


From 1 July 2011 a new tax regime involving Italian common investment funds will come into force.

The main changes concern:

  • the tax regime of Italian investment funds (other than real estate investment funds)
  • the tax regime of proceeds arising in the hands of Italian resident investors from foreign investment funds not complying with the EU Directive 2009/65.

Taxand Italy explores the new regime and how it will benefit foreign investors.

The new tax treatment involves the abolition of the 12.5% tax, which currently applies on an accrual basis at the Italian resident fund level, with a related transition to a tax regime based on taxation in the hands of the investors on a cash basis.

Therefore the funds will have to determine, at 30 June 2011, the values of quota to calculate the basis for taxation, at investor level of future profits from investments.

From 1 July 2011, a 12.5% withholding will apply on income received by investors. Such withholding tax will be levied also to non-resident investors, except for investors resident in white listed countries.

The above rules will concern Italian common funds - other than real estate funds that are subject to a different tax regime - irrespective of their compliance with the EU Directive 2009/65.

The 12.5% withholding will also apply on income received by Italian resident investors from non-resident common funds. The withholding tax treatment was already applicable with regards to foreign investment funds already compliant with the EU Directive 2009/65.

The 12.5% withholding tax will be applied by the financial intermediary involved in the cashing process. The withholding can be either a final or an advance payment depending on whether the investors are individuals or corporate investors.


Taxand's Take

The new regime will involve a projection on tax relevance for certain investments both in Italian funds and from the foreign investment funds for Italian investors.

The new tax provisions may have an impact on current investments flows and structure and may require a reorganisation of certain flows of investments through common funds.

Several aspects will need to be clarified, for example: compensation by the management company of withholding tax for the investors with tax credits of the funds; switch from a fund to another following the harmonisation of the tax regimes. Clarification from tax authorities is still expected.

Your Taxand contacts for further queries are:
Guido Petraroli
T. +39 02 7260591

Alberto Ferrario
T. +39 02 7260591

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Taxand's Take Author