The dividend tax in Italy increased by 26% starting with July 2014 and the new rate applies to all the dividends received after 1st July 2014, according to the Decree Law 66. This measure is part of a set of changes taken by the Italian authorities in order to relaunch the local economy, affected by the economic crisis.
The Italian Government decided to change also the taxation of other types of income, such as the interest and capital gains, and reduce the regional corporate tax (IRAP). These measures were expected to be part of a law approved by the Parliament. Our team of lawyers in Italy can offer an in-depth presentation regarding the taxation of corporate entities and assist with advice on how to register for taxes a newly founded business.
Table of Contents
The difference between the old and the new dividend tax in Italy
The old rate for dividend tax was 20% and the new rate – 26% – is applicable for other types of income taxes too, such as on interests, capital gains etc. The exceptions are interests and capital gains on Italian Government bonds for which it is applied a different rate – 12,5%.
The companies from the European Union that receive dividends from Italy can benefit from a reduced rate on the dividend tax or they can be exempt from paying. In order to benefit from the exemption, the company should hold minimum 10% of the subsidiary for minimum one year.
The dividend tax must be paid by all entities that receive dividends from Italy. The non-resident companies are taxed differently from the resident companies. The rate of 26% is applicable for loan interest, capital gains, dividends, interest on bonds obtained from Italy; our team of Italian lawyers can offer more information concerning the dividend tax legislation.
It is necessary to know that the Italian tax legislation stipulates that a withholding tax on dividends can be applied at a rate of 1.2% in the case of distributions paid to shareholders who are residents of the European Economic Area, which also includes the European Union.
The standard tax rate, of 26%, is also applicable to dividends and capital gains that are included in the category of nonqualified participations. The qualified participation is defined depending on the nature of the company (listed companies and non-listed companies). Investors interested in opening a company in Italy must also know that the dividend tax is also applied to qualified participations, but this is a newer regulation, imposed starting with 1st of January 2018.
Foreigners buying a property in Italy can discuss all legal aspects with our lawyers specialized in real estate transactions. We can provide support in verifying the respective property and more precisely the documents to assure clients that there are no disputes before signing the transaction. In this case, we mention that energy certificates, a title deed, building permits, and cadastral documents are important in the sale and purchase of a house, and we will prepare the rigorous checks.
What are the requirements for dividend tax exemption in Italy?
Dividends in Italy can benefit from a solid exemption on the payment of the corporate tax (of 95%). This is applicable in the case of domestic and foreign dividends that are paid by subsidiaries to Italian business entities. In this case, there are no holding periods required. Holding companies in Italy can benefit from the same type of tax exemption.
It is necessary to know that this exemption does not apply in the case of a subsidiary of a black-list entity. In this particular situation, the dividends can benefit from a 50% exemption. Our team of Italian lawyers can provide more information on the stipulations addressed to black-list entities involved in business activities with other companies.
What are main Italian dividend tax rates, based on the company’s residency?
We have presented above most of the tax rates that are applicable for the taxation of dividends in Italy. In order to better understand the tax thresholds available for corporate entities in Italy, we have prepared a short presentation below, which can be further presented by our team of Italian lawyers:
- • companies incorporated in Italy – there is no withholding tax on dividends;
- • Italian residents (natural person) – the withholding tax on the distribution of dividends is applicable at the standard rate;
- • companies incorporated in the European Union – such companies can benefit from an exemption on the payment of this tax;
- • Swiss companies – payments of dividends made by Italian companies to Swiss businesses can benefit from a full exemption on the withholding tax on dividends;
- • dividends can also be taxed at different tax rates, based on the double tax treaties that were signed with the countries where foreign companies have their tax residence.
What does the EU Parent- Subsidiary Directive in Italy stipulate?
As member of the European Union (EU), Italy complies with the tax requirements applicable at the level of the community. Thus, in respect to the distribution of dividends between Italian resident companies and foreign companies registered in the EU, the EU Parent-Subsidiary Directive applies (Directive 2011/96/EU). Under the regulations of the Directive, an Italian subsidiary opened by a EU company can be exempted from paying the withholding tax on dividends, as long as the parent company respects the following criteria:
- • the parent company is registered as a tax resident in one of the EU’s member states;
- • the parent company qualifies under the provisions of the Directive;
- • the foreign company pays the corporate income tax in its residency country;
- • holds minimum 10% of the subsidiary’s capital for a period of at least one year.
Other important taxes for companies in Italy
Companies that perform economic activities in Italy have to pay also the corporate tax, at a rate of 31.4%. The values of the rates decreased in the last years and that’s why Italy has become an attractive destination for foreign investments. The Italian corporate taxes include IRES (27.5%) and IRAP (3.9%). The rates for these two components of the corporate tax are different, according to the type of activity performed by a company and to the region where the activity is performed.
The corporate tax in Italy is comprised of two main taxes, as we mentioned above – the national corporate tax (IREP) and the regional corporate tax (IRAS). All corporate entities are required to register for the payment of this tax with the Inland Revenue, this being required after the investors have completed the formalities concerning the registration of the company. The tax is collected by the institution and the company’s representatives are required to submit accounting documents in a given period of time.
IRAP is a corporate tax that is collected at the level of the region in which the business carries its operations. In the case of Italian companies that carry business activities in multiple regions in Italy, the collection of the IRAP will be computed based on the costs associated with employment in the respective regions.
If you need more information about the dividend tax you have to pay in Italy and other taxes imposed by the Italian authorities, you may contact our Italian lawyers. Our law firm in Italy provides tax advice services and help foreign investors open companies and obtain special permits and licenses for their businesses.