Italy-USA Double Taxation Treaty
Italy-USA Double Taxation TreatyUpdated on Thursday 14th February 2019
based on 3 reviews.
Italy signed its first double taxation agreement with the United States in 1984. The treaty was replaced in 1999 with a new one, called the US - Italy Income Tax Treaty. Italy has made significant exceptions with respect to the source-country tax rates in order to obtain a partial foreign tax credit, which is what led to a better economic cooperation between the two countries. The agreement now follows the Organization for Economic Co-operation and Development model.
Among the provisions of the new double taxation treaty between Italy and the US, we mention the following: the elimination of the branch tax exemption in both countries, new regulations concerning the taxation system applicable to pensions and new arbitration regulations in Italy and the United States. Our team of Italian lawyers can assist foreign investors with further information on the tax rates applied via this agreement. Foreign businessmen can also rely on our attorneys for in-depth advice on the taxation system available in this country.
Taxation under the new Italy-US double tax agreement
Most of the changes brought to the new agreement refer to the taxation of passive income, business profits, profits and the taxation of branches offices in Italy and the US. The most significant changes were brought to the taxation of dividends, interests and royalties which are now taxed at source.
The new tax rates for dividends are: 15% in most cases, 10% if the recipient is a corporation owning at least 10% of the voting power in the US or Italian company paying the dividends and 5% if the beneficial owner is a corporation owning 50% of the voting power.
In order to qualify for the reduced rates, the beneficial owner must own the stock of the company paying the dividends for at least one year. The new tax rate for the taxation of interest has been reduced from 15% to 10%, but new exemptions have also been introduced.
At the same time, companies operating in Italy should know that, if they are tax residents of the United States of America, they can benefit from lower taxes regarding royalties, as stipulated by the provisions of the Italy - USA double tax agreement (DTA). Our law firm in Italy can offer legal advice on the taxes included in this agreement.
What are the taxes of the Italy – USA DTA?
What are the main entities to which the treaty is addressed to?
|Natural persons||According to the Article 4 of the treaty, the term “person” can refer to natural persons, partnerships, trusts or body of persons.|
|Companies||The treaty defines all types of corporate entities that are treated as corporate bodies in terms of taxation.|
|Enterprise of a contracting state||It defines a corporate body of a company registered as a tax resident of one of the contracting states which develops business activities in the other contracting state through a type of permanent establishment.|
|International traffic||The provisions of the treaty also refer at the taxation of the trading and traffic activities between the two contracting states, developed by air or sea.|
What is a permanent establishment?
Are there any stipulations concerning the taxation of immovable property?
Other provisions of the Italy-US double tax treaty
The new double taxation agreement allows the United States to tax US branches of Italian companies. The new treaty also allows Italy to tax a foreign company on a dividends equivalent amount. The agreement also changes the way pensions and other benefits are taxed.
According to the new provisions, these incomes are taxable only in the recipient’s resident country. US and Italian employees and employers will also benefit from deductions for cross-border contributions to pension schemes. For relevant information about the taxation of foreign companies, please contact our law firm in Italy.