ITALY Law and Practice Contributed by: Guido Alberto Inzaghi, Ivana Magistrelli, Silvia Gnocco and Gabriele Paladini, SI – Studio Inzaghi
the applicable tax treaty rate. Dividends paid by an Italian resident company to foreign undertakings for collective investments (UCIs) are exempt from withholding tax if the following conditions are met (EU UCIs): (a) UCIs are established in the EU or EEA; and (b) UCIs are compliant with Directive 2009/65/ EC (UCITS) or are alternative investment funds managed by managers subject to regula - tory supervision in the country where they are established, pursuant to the AIFMD Directive. In the case of direct investment performed by a for - eign company (without a permanent establishment in Italy, noting that ownership of Italian real estate does not automatically give rise to a permanent establish - ment in Italy), the income derived from letting prop - erty is subject to IRES, which is payable at a rate of 24%. 95% of the gross income derived from letting is taxable and no depreciation or other costs can be deducted. Italian REIFs are not subject to IRES or IRAP and foreign investors may benefit from a withholding tax exemption if certain requirements are met. Tax on capital gains from the sale of real estate may vary depending on the structure of the investments. Profits on the sale of a property realised by an Ital - ian corporate vehicle are subject to IRES and IRAP at the aggregate rate of 27.9%, regardless of how much time has lapsed since acquisition. The profit is the dif - ference between the agreed purchase price and the property’s net tax value at the time of sale. In some cases, it is possible to spread the liability for tax on capital gains over a period of five years.
Upon the sale of participation in an Italian vehicle, the capital gain is subject to Italian income tax at a rate of 26%. Capital gains from the sale of real estate owned direct - ly by a foreign investor without a permanent establish - ment in Italy are not subject to IRES if the property is sold more than five years after its acquisition. If the sale occurs within five years, IRES applies at a rate of 24%. Taxable income is the difference between the price agreed for the sale of the property and its acqui - sition cost. Starting from 1 January 2023, Italy introduced a so- called property-rich companies rule, in line with the OECD Model Tax Convention, which regards capital gains realised by foreign investors from the direct or indirect sale of a participation in an Italian vehicle owning certain real estate assets. These gains may be subject to Italian income tax, including in the case of the sale of participations in a foreign vehicle owning a participation in an Italian real estate company. A financial transactions tax or Tobin Tax is payable at a rate of 0.2% on the agreed price by the purchaser of shares in an Italian resident joint stock company, even if the purchaser and the seller are not Italian residents. 8.5 Tax Benefits Italian REIFs benefit from a favourable tax regime compared to unregulated real estate companies, including exemptions from income taxes on real estate proceeds and reduced transfer taxes; further - more, regulated foreign investors may qualify for a tax exemption on proceeds derived from their participa - tion in a REIF if certain requirements are satisfied.
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