ITALY Law and Practice Contributed by: Guido Alberto Inzaghi, Ivana Magistrelli, Silvia Gnocco and Gabriele Paladini, SI – Studio Inzaghi
including depreciation (excluding land) and interest (as long as this exceeds interest receiv - able), up to an amount equal to 30% of earnings before interest, taxes, depreciation and amorti - sation (EBITDA) in each fiscal year. Interest due on loans aimed at purchasing real estate proper - ties for “letting” that are secured by mortgages over the same properties is fully deductible. The taxable income of a real estate company in relation to the leasing of residential real proper - ties for IRES purposes is represented by the rent minus maintenance expenses and interest up to these limits. No other costs are deductible. Interest is not deductible from an IRAP stand - point. The taxation of dividends distributed to share - holders depends on the nature of the share - holder. Dividends in favour of a foreign individual are generally subject to a withholding tax of 26%. Withholding tax rates can be reduced by any double tax treaty signed by Italy with the country of residence of the foreign investor. Dividends distributed to a company that is resident in the EU or EEA and subject to IRES therein are liable to a 1.2% withholding tax (to avoid discrimination with dividends received by Italian resident companies). Exemption from Ital - ian withholding tax under the Parent-Subsidiary Directive may apply. Dividends paid by an Italian resident company to foreign undertakings for collective investments (UCIs) are exempt from withholding tax if the fol - lowing conditions are met (EU UCIs): • UCIs are established in the EU or EEA; and
• UCIs are compliant with Directive 2009/65/EC (UCITS) or are alternative investment funds managed by managers subject to regulatory supervision in the country where they are established, pursuant to the AIFMD Directive. In the case of direct investment performed by a foreign company (without a permanent estab - lishment in Italy, noting that ownership of Italian real estate does not automatically give rise to a permanent establishment in Italy), the income derived from letting property 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 deriving from the sale of real estate properties may vary according to the structure of the investments. Profits on the sale of a property realised by an Italian corporate vehicle are subject to IRES and IRAP at the aggregate rate of 27.9%, regard - less of how much time has lapsed since acquisi - tion. The profit is represented by the difference between the agreed purchase price and the net tax value of the property at the time of the sale. In some cases, it is possible to spread the liabil - ity for tax on capital gains over a period of five years. In a sale of the participation into an Italian vehi - cle, the capital gain is subject to Italian income tax at a rate of 26%. Capital gains from the sale of real estate directly owned by a foreign investor without a perma - nent establishment in Italy are not subject to
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