Operational tax news - Italy update - 23 February 2011


Italian investment funds to be treated in the same way as foreign investment funds / Harmonisation of the tax treatment of UCITS and non UCITS foreign investment funds

Taxation of Italian investment funds in Italy

Italian investment funds are currently subject to a substitutive tax at a rate of 12,5% on any increase of their NAV and an equivalent tax credit in case of NAV decrease. Italian Investors are not subject to any additional tax on distribution or capital gains derived from those vehicles.

On 16 February 2011, the Italian Senate has approved a significant change in the taxation principles applicable to Italian investment funds. Based on this new law, the substitutive tax will not be applicable on the increase of the NAV any longer. But in line with the tax treatment applicable to foreign EU/EEA UCITS funds, a withholding tax of 12,5% will be applied on distributions and capital gains realized by investors upon the sale of their units of the Italian investment funds (other than real estate funds). A similar tax treatment will be applicable to the so-called Luxembourg historical funds.

Modification of the taxation of EU non UCITS foreign investment funds in Italy

In addition, the law will reduce the tax charge applicable to income derived from EU/EEA non UCITS regulated funds (subject to the inclusion in the list of countries which allow an adequate exchange of information with Italy). Distributions and capital gains derived from such funds by private individuals will also be subject to the same 12,5% withholding tax (instead of taxation at marginal rate), i.e. the same rate as the one applicable to income derived from Italian or foreign UCITS funds. For funds deposited abroad, the income will be reported in the tax returns and taxed at the same flat rate of 12,5%.

It is foreseen to have these dispositions enter into force as at 1st July 2011 further to its final approval by the Italian Parliament (further the approval of the Italian Senate) which should take place before the end of this month.

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