Introduction of withholding tax exemption in Italy

Deloitte Malta Tax Alert

On 29 September 2016, the Italian Tax Authorities issued the Resolution No. 84/E providing clarifications on the tax treatment of qualifying interest on medium or long-term loans, following the amendments introduced by Law Decree No. 91 of 24 June 2014.

In general, interest income paid to non-resident banks with no permanent establishment in Italy is subject to a final withholding tax at a rate of 26% (or at a reduced rate when a double tax treaty applies). However, following these amendments, provided that certain regulatory provisions apply, no withholding tax should be levied on interest on medium or long-term loans granted to enterprises resident in Italy, where the non-resident lender has no permanent establishment in Italy and is any of the following:

  • A bank established under the law of an EU Member State;
  • An entity listed in article 2(5), No. 4 to 23, of Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institution and the prudential supervision of credit institutions and investment firms;
  • An insurance company established and licensed under the law of an EU Member State; or
  • An institutional investor, whether or not subject to tax, set up in a country included in the Italian white list and subject to regulatory supervision in its home country.

The Italian Tax Authorities clarified that such interest income is not subject to tax in Italy and, consequently, qualifying non-resident lenders are not required to submit a tax return in Italy. Eligible lenders should consider the compliance requirements necessary to access this exemption.

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