FORM A COMPANY NOW

REQUEST
CALL BACK

FREE CASE EVALUATION

Italy-UK Double Taxation Treaty

Italy-UK Double Taxation Avoidance

Updated on Thursday 31st October 2019

Rate this article

based on 2 reviews.


Italy-UK-Double-Taxation-Avoidance

The treaty for the avoidance of double taxation between Italy and the United Kingdom (UK) was signed in 1988. The provisions of the agreement became applicable starting with 1990 and the document is available for both natural persons and legal entities that are tax residents of the both contracting states. With regards to the enforcement of the treaty, the following are available:
 
  • the treaty for the avoidance of double taxation between Italy and UK was signed in Pallanza on 21st of October 1988;
  • the agreement became applicable starting with 31st of December 1990;
  • in the UK, the treaty became applicable starting with 1st of January 1991 (for the petroleum tax);
  • the validity of its provisions with regards to the corporate tax in the UK started at 1st of April 1991;
  • in Italy, the document was ratified by the Law no.329 of 5 November 1990. 

 

The basic taxes that are the subject of the double taxation treaty signed by the two countries are the following: in the UK - the income, the corporate, the capital gains and the petroleum revenue taxes and in Italy, the personal and corporate incomes taxes and the local income tax
 
The convention also applies to any similar taxes levied in Italy and the United Kingdom. Considering the agreement covers the taxation of companies, the first articles of the convention also establish which UK and Italian companies will benefit from these provisions. The double taxation agreement refers to the following companies: associated enterprises and permanent establishments. For detailed information about all the taxes covered by the treaty, you may ask our Italian lawyers.
 

Fiscal domicile according to the Italy-UK double tax treaty

 

The first articles of the double taxation treaty between Italy and the United Kingdom establish the fiscal domicile of residents in order to determine where taxes are collected. An individual or company is liable to pay taxes in the country of residence, respectively of incorporation or place of management in case of companies.

With respect to individuals residing in both countries, the fiscal domicile is determined as it follows: the individual will be taxed in the country he/she has a permanent home, in the country being the center of vital interests, the individual will be taxed in the country he/she has an habitual place of living, if the center of vital interests cannot be determined, or in the individual’s national country.

 

What is a permanent establishment under the Italy-UK treaty? 

 
One of the terms defined by the treaty for the avoidance of double taxation signed by Italy and the UK refers to permanent establishments. This term is of great importance as it defines the place of taxation of a business. Article 5 of the treaty defines a permanent establishment as a place in which various business activities are developed, which can be charged with the taxes available in one of the two jurisdictions. 
 
Thus, the term takes into consideration a place of management, a branch office, a factory, an office, a workshop, mines and similar establishments that are set up with the purpose of exploiting natural resources, but it also refers to construction sites where the operations are carried out on a continuous basis for a period longer than one year.
 
A permanent establishment set up in Italy or the UK does not refer to the following: locations that are used for the storage of merchandise belonging to a company, the maintenance of stock of goods kept in a location for storage, display or delivery, the maintenance of goods that will be processed by another company and others, which can be presented by our team of Italian lawyers.  
 

What is the structure of the Italy-UK double tax treaty? 

 
The treaty signed by the two countries follows the OECD model, which is created based on seven main ideas: the scope for which the treaty is signed, the general definitions referring to the nature of the taxable entities, the taxation of income obtained by corporate entities and various types of natural persons, the taxation of capital, the main methods used for the avoidance of double taxation, special provisions referring to the respective treaty and the final provisions (referring to the entry into force of the document and to its termination). 
 

What is the tax system applicable for independent personal services?

 
The treaty for the avoidance of double taxation stipulates the manner in which the taxation of independent personal services can be done in the two contracting states. This is regulated under the Article 14 of the document, which can be detailed by our team of Italian lawyers. As a general rule, the income that is obtained by a person engaged in independent personal services will be taxed in the country where the person is a tax resident
 
However, if the provision of services is done in the other contracting state, the person will be taxed there, but only for the profits obtained in the respective state. Independent personal services can refer to a wide range of economic activities that can be developed by natural persons and they can refer to the services provided by lawyers, accountants, architects, engineers, artists, persons developing scientific or educational services and others.  
 

What are the tax provisions referring to shipping and air transportation? 

 
Companies involved in shipping or air transportation activities in Italy and UK can also benefit from the provisions of the treaty; our law firm in Italy can present the legislation addressed to these business operations and, in respect to their taxation, it is necessary to know that profits obtained by such companies will always be taxed in the country where they have set up their effective management. 
 
 

What are the tax considerations for royalties in Italy and UK? 

 
Article 12 of the double tax treaty signed by Italy and the UK provides the legal framework for the taxation of royalties. Our team of Italian lawyers can present more details on the general tax system related to royalties available in Italy
 
When we refer to royalties that arise in a contracting state that have to be paid to the resident of the other contracting state, it is necessary to know that the taxation will be done in the latter state. The taxation can also be done in the country where the royalties arise, but only in specific conditions, which can be presented by our law firm in Italy
 

Taxation of dividends under the Italy-UK double tax agreement

 

The taxation of the dividends in Italy and in the UK can be applied following the next system: at a 5% tax rate, if the beneficial owner holds at least 10% of the share capital in the company paying the dividends and at 15% in all other cases. The elimination of double taxation will be done through a tax credit in the United Kingdom and as a tax exemption in Italy. For additional information about the double taxation agreement with the UK, you may also contact our law firm in Italy.