ITALY Law and Practice Contributed by: Emidio Cacciapuoti, Giorgio Bobba and Davide Massiglia, ADVANT Nctm
For funds other than real estate investment funds, a 26% (final or advanced) withholding tax is generally applied by the investment fund’s management company on proceeds arising from such investments. In particular, reference will be made to proceeds from: • distributions of the fund (either in cash or in kind); and • liquidation of the funds or redemption/transfer of the funds’ units – in such a case, the tax - able base of the proceeds is determined as the difference between the value of the units on the redemption/liquidation/transfer date and the weighted average subscription/pur - chase price. In more detail, proceeds realised by Italian resident investors holding fund units as private assets are subject to a 26% final withholding tax, to be applied by the management company. For proceeds arising from the transfer of fund units, the 26% final withholding tax must be lev - ied by the management company or by the Ital - ian financial intermediary that has been engaged by the investor to manage the transfer of the fund units. If the management company or any other Italian financial intermediary does not act as the withholding tax agent with regard to such proceeds, the investor will be required to include them in its annual income tax return and autono - mously pay the final substitute tax at a rate of 26%. The above 26% withholding tax does not apply to proceeds paid to (or realised by) Italian indi - vidual investors holding the fund units through a portfolio that is subject to the “discretionary portfolio regime” ( regime del risparmio gestito ). Such proceeds are included in the increase of
the portfolio’s net asset value, and are potentially subject to 26% taxation on an accrual basis. Proceeds realised by Italian resident inves - tors holding the fund units as business assets, entities engaged in entrepreneurial activity and permanent establishments of foreign investors qualify as business income and are fully subject to tax in the hands of the recipient (eg, 24% IRES for Italian resident companies or 27.5% IRES for banks), and also to IRAP for some taxpayers (eg, banks). A 26% advance withholding tax is lev - ied upon the payment of such proceeds by the management company, but is not applicable to proceeds realised by insurance companies if the fund units qualify as assets allocated to cover the actuarial reserves according to the applica - ble life insurance regulations. Italian non-mandatory pension funds ( forme di previdenza complementare ), Italian undertakings for collective investment and Italian real estate investment funds are not subject to tax with regard to proceeds arising from an investment into alternative funds, and no withholding tax or substitute tax is withheld and/or levied by the management company on such proceeds. Proceeds realised by non-resident investors from a participation in an alternative fund are, in principle, subject to 26% withholding tax, to be levied by the management company. However, no withholding tax applies on proceeds paid out by alternative funds, provided that the foreign recipient does not have a permanent establish - ment for tax purposes in Italy and is either: • the beneficial owner of the income and resi - dent for tax purposes in a country that grants an adequate exchange of information with the Italian tax authorities (“White List Countries”); or
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