Summary: Under the Italian tax law non-residents (either companies and partnerships) are liable to tax in Italy only on the relevant income effectively derived therein (principle of territoriality). In this regard, dividends are liable to a finale withholding tax with different tax rates according to the provisions set forth by the domestic, European and conventional rules.
Domestic rules
As a general rule, under the Italian tax law non-residents (either companies and partnerships) are liable to tax in Italy only on the relevant income effectively derived therein (principle of territoriality).
In this respect, Art. 27 of Presidential Decree no. 600/1973 (hereinafter “Decree”) provides for that dividends paid by Italian resident companies to non-residents (companies and partnerships) without PE in Italy are liable to a final 27% withholding tax. For dividends on saving shares (e.g. shares without voting rights), the rate of the mentioned withholding tax is reduced to 12.50%.
Please note that when the 27% withholding tax rate applies, upon certain conditions non-residents are entitled to claim to the Italian Tax Authorities a request for a partial reimbursement of the above withholding tax. In particular, the Decree states that “non-residents … have the right to claim back up to four-ninths [4/9] of the withholding tax paid [on dividends], to the extent they will be able to prove to the Italian Tax Authorities, by providing documentation issues by their competent domestic Tax Authorities, that a final taxation has occurred in their State of residence on the same dividend income”.
Hence, based on the above non-resident recipients by firstly facing a withholding tax of 27% could de facto benefit from a refund up to 12% of the amount of dividend income taxed in Italy. For sake of clarity, it must be noted that the refund should be considered as being up to 4/9 of the 27% withholding tax paid in Italy, and it has to be computed by taking into consideration the amount of the final tax paid by the non-resident recipient on the same dividend income in its State of residence. For seek of completeness, please consider the following scenarios with respect to the State of residence:
– If no taxes are paid up on the dividend income, then no refund is claimable towards the Italian Tax Authorities;
– If separated taxation is settled for dividend income, then the refund is claimable on the basis of such separate tax paid up to the limit of 4/9 of the withholding tax paid in Italy;
– If dividends are included in the taxable base for ordinary taxation, then the refundable amount up to 4/9 of the Italian withholding tax will be based on the amount of the ordinary tax attributable to the dividend income.
Finally, please note that special rules and tax rates (final 1.375% withholding tax) are provided for only dividends paid to companies (no partnerships) resident within the EU and EEA States that allow exchange of information (at this stage only Norway).
(to be continued)..
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