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Investment Taxation for Expats in Italy

Submitted: March 2014

Taxable income in this category includes:

  • interest from bank and building society deposits
  • interest from government and corporate stocks (bonds)
  • rental income from properties both in Italy and abroad
  • dividends, and
  • capital gains.

Interest

Residents and non-resident individuals (who are residents of white-listed countries), are exempt from withholding tax on interest as a result of the EU Savings Tax Directive. For other residents interest income from Italian sources is subject to a withholding tax of 20% which is deducted at source. For non-residents who are not residents of a white-listed country, a withholding tax of 27% is deducted at source.  This is a final tax, meaning that there is no need to report interest income on an Italian tax return.

Rental income

For a resident, rental income worldwide is taxed as ordinary income and must be reported on your tax return. There is a standard deduction of 15% of the annual rent to allow for rental costs. If you are a resident receiving rental income from a country outside Italy, you should be able to offset tax paid abroad against your Italian tax liability.

For non-residents, only rental income that is from an Italian source is taxable; the same 15% standard deduction available to residents also applies.

Dividends

For residents, dividend income from worldwide sources is generally subject to a withholding tax of 20%, this is a final tax. However this does not apply if a dividend is received from an unlisted company in which the resident has either more than 20% of the voting rights, or more than 25% of the paid up capital. This is known as a ‘qualifying participation’. In such cases 49.72% of the dividend amount is taxable at the resident’s marginal rate. This also applies to dividends received from non-resident qualifying participations from white-listed countries; but in these cases the Italian bank handling the transaction will withhold 12.5% of the taxable amount, which can then be used as a credit against income tax on your final tax return. Dividends received from non-resident qualifying participations from countries that are not white-listed are fully taxable as income and will also have the 12.5% withheld as above.

Dividend payments to non-residents are subject to a final withholding tax of 20%. If there is an applicable tax treaty in place, the amount of withholding tax can be reduced.

Capital gains

For residents, most capital gains are taxed as ordinary income at your marginal rate and must be reported on your tax return. Capital gains made from the sale of interests in companies are treated differently. If the gain is made from the sale of an interest in a qualifying participation (see above), only 49.72% of the gain is taxable at your marginal rate. If the gain is made from the sale of an interest in a non-qualifying participation, the entire gain is taxable at a flat rate of 20%.

For non-residents the same rules apply as for residents unless there is a relevant tax treaty in place which includes a restriction on the ability for Italy to charge tax on the gain.

 

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