Dividend Tax in Italy
Dividend Tax in ItalyUpdated on Saturday 23rd March 2019
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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.
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.
What are the requirements for dividend tax exemption in Italy?
What are main Italian dividend tax rates, based on the company’s residency?
- • 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?
- • 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.
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.