ITALY Law and Practice Contributed by: Giuliano Foglia, Foglia & Partners
provided that it has paid final taxes on dividends in its residence State (Article 27 (3) of Presidential Decree No 600/1973). Interest Inbound interest Interest income on loans granted to Italian resident individuals is included in the taxable base for income tax purposes and taxed at progressive tax rates. The payment is subject to a 26% advance withholding tax. Pursuant to Articles 1 and 2 of Legislative Decree No 239/1996, interest income received by Italian resident individuals on bonds issued by both Italian and foreign banks, listed companies, as well as Italian and for - eign listed bonds, are subject to a 26% substitute tax (12.5% substitute tax, if the bonds are issued by the Italian Government or by the governments of white-list jurisdictions). Withholding and substitute taxes are levied by Italian financial intermediaries that intervene in the payment. Pursuant to Article 18 of the ITC, if the foreign-sourced interest is not received or paid through an Italian inter - mediary, taxpayers must report it in the income tax return and apply the substitute taxation. However, the taxpayer may elect to include the interest in tax - able income for individual income tax at progressive rates and, in such a case, be entitled to the foreign tax credit. Interest received by companies is ordinarily included in the taxable income, subject to CIT at 24% rate. Outbound interest Interest paid by Italian resident entities to non-resident shareholders is, in principle, subject to a 26% final withholding tax pursuant to Article 26 of Presidential Decree No 600/1973. A 12.5% rate applies to interest on government bonds. The following domestic reduced tax rates or exemp - tions apply: • pursuant to Article 26 (5-bis) of Presidential Decree No 600/1973, interest paid on medium/long-term loans granted to Italian companies by EU/EEA banks and insurance companies, as well as institu -
tional investors resident in white-list jurisdictions, is exempt from withholding tax; • pursuant to Article 26-quater of Presidential Decree No 600/1973, implementing Directive 2003/49/EC (so-called Interest and Royalties Directive or IRD), no withholding tax is levied (if the relevant condi - tions are met) on interest paid to an associated EU company; and • pursuant to the provisions of Article 6 of Legisla - tive Decree No 239/1996, interest on bonds and similar instruments is exempt from withholding tax, provided that foreign-resident recipients qualify as: (a) entities resident for tax purposes in a white-list jurisdiction; (b) international organisations and bodies estab - lished under international agreements imple - mented and effective in Italy; (c) foreign institutional investors established in white-list jurisdictions (eg, insurance compa - nies, investment funds, SICAVs, pension funds and asset management companies); or (d) central banks. In addition, the domestic withholding tax rate can also be reduced (generally, to 10%) pursuant to the rel - evant provisions of the applicable DTCs. Royalties Inbound royalties Royalties derived by the author/inventor of intellectual property, industrial inventions, processes, formulas and know-how are taxable on 75% of their amount (or 60% if the author/inventor is under 35). Royalties derived by individuals other than the author/ inventor are taxable on 75% of their amount if the assets generating the royalties have been acquired for consideration and on 100% of their amount if not acquired for consideration. Royalties derived by companies are ordinarily includ - ed in the taxable income, subject to CIT at 24% rate. Outbound royalties Royalties paid by Italian resident entities to non-res - ident persons are subject to a 30% final withholding tax (Article 25 of Presidential Decree No 600/1973).
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