Archivio: Gennaio 14, 2026

Italy’s New Dividend Regime for Entrepreneurs and Cross-Border Investors (Law 199/2025)

Italy’s New Dividend Regime for Entrepreneurs and Cross-Border Investors (Law 199/2025)

The Italian Budget Law for 2026 (Law 199/2025) has profoundly reshaped the taxation of dividends received by entrepreneurs and companies.
The reform does not abolish the traditional participation-exemption system, but it radically changes its logic: from a general rule to a selective privilege, available only for “economically significant” shareholdings.

This shift has particularly strong consequences in cross-border structures, where dividend flows between Italy and foreign holding companies are now subject to stricter eligibility tests.

1. The philosophy behind the reform

For decades, Italian tax law was built around a simple principle:
profits should not be taxed twice as they move up a corporate chain.

That principle was implemented through:

Article 59 of the TUIR for entrepreneurs and partnerships;

Article 89 of the TUIR for corporations (IRES taxpayers).

Dividends were largely exempt, regardless of the size of the participation.

Law 199/2025 keeps the same objective but changes the mechanism.
The exemption now depends on whether the shareholder’s stake represents a real economic investment rather than a mere portfolio holding.

From 1 January 2026, the Italian system introduces a “material participation” test.

2. Entrepreneurs and partnerships (IRPEF business income)

Entrepreneurs and partnerships do not receive dividends as private investors: dividends become part of their business income.

Under the old regime, dividends were partially exempt almost automatically.
Under the new Article 59 TUIR, the rule is reversed:

Dividends are fully taxable,
unless the participation meets one of the following thresholds:

at least 5% of the company’s capital, or

a tax value of at least €500,000.

Only if one of these thresholds is met does the dividend enjoy partial exemption. In that case, only 58.14% of the dividend is taxed, while 41.86% is excluded from the tax base.

Small participations that fall below both thresholds are now taxed in full.

This is not a technical detail: it represents a shift from a “participation principle” to a capital-intensity principle.

3. Corporations (IRES taxpayers)

The same philosophy is applied to corporate shareholders under Article 89 TUIR.

Previously, dividends received by Italian companies were almost always 95% exempt.

From 2026, that exemption survives only if the participation satisfies the same 5% or €500,000 threshold.

If it does, the dividend remains 95% exempt.
If it does not, the dividend becomes fully taxable.

Again, the logic is clear: Italy wants to grant tax neutrality only to structural investments, not to passive or fragmented holdings.

4. Timing: when do the new rules apply?

The decisive factor is not when the profits were generated, but when they are distributed.

The new regime applies to all dividends whose distribution is approved on or after 1 January 2026.

This means that even profits accumulated years ago will fall under the new rules if they are distributed after that date.

5. Why this matters even more in cross-border structures

This reform is particularly impactful for international investors and multinational groups.

a) Dividends received in Italy from foreign subsidiaries

An Italian entrepreneur or holding company receiving dividends from a foreign company must now verify whether its participation meets the 5% or €500,000 test.

Many international structures involve:

minority stakes,

layered holdings,

investment vehicles with small direct percentages.

Those dividends may now become fully taxable in Italy, even though they were previously sheltered by the participation exemption.

b) Dividends paid by Italy to EU and EEA shareholders

Italian law provides a reduced 1.20% withholding tax for dividends paid to companies resident in the EU or EEA.

Law 199/2025 makes this benefit conditional upon the same participation thresholds used for the dividend exemption.

If the EU shareholder does not hold at least:

5% of the Italian company, or

a participation with a tax value of €500,000,

the 1.20% withholding may no longer apply.

This creates a direct link between domestic exemption rules and cross-border withholding relief.

c) Indirect holdings and multinational chains

The law also introduces a sophisticated concept:
the participation test must be applied on a group basis.

This means:

indirect holdings inside a group must be taken into account,

but percentages must be “demultiplied” through the ownership chain.

In international holding structures, this often pushes the effective stake below 5%, even when the ultimate parent believes it controls much more.

This is one of the most technically sensitive aspects of the reform.

6. What this reform is really about

This is not a tax increase in disguise.
It is a filter.

Italy is telling investors:

If you commit real capital and hold a meaningful stake,
the system will continue to protect you from economic double taxation.

If your investment is small, fragmented or purely financial,
dividends will be taxed like ordinary business income.

For cross-border investors, this creates a new imperative:
structure matters.

Holding percentages, investment size and corporate chains are no longer neutral. They now directly determine whether dividends are tax-efficient or fully taxable.

When Is a Foreign Company Really Italian? The Supreme Court Gives a Clear Answer

When Is a Foreign Company Really Italian? The Supreme Court Gives an (almost) Clear Answer

In judgment No. 32441 of 12 December 2025, the Italian Supreme Court confirmed a very important principle for international groups and foreign-based companies connected to Italy.

The case concerned a Luxembourg company that the Italian Tax Agency had tried to treat as tax-resident in Italy under the doctrine of “esterovestizione” — the idea that a company is only formally foreign but is in reality managed from Italy. On that basis, the Tax Agency had tried to tax the Luxembourg company’s profits in Italy for IRES and IRAP.

Both the first-instance tax court and the Lombardy Regional Tax Court rejected the assessment, holding that the Tax Agency had not proven that the company was actually run from Italy and that the Luxembourg company had its own real decision-making structure. The Tax Agency appealed to the Supreme Court, arguing that the lower courts had misunderstood how “effective management” should be assessed.

The Supreme Court rejected the appeal and sided with the taxpayer.

The Court made it very clear that, under Italian law and EU law, a foreign company can be treated as Italian-resident only if its “seat of administration”, meaning its effective management, is actually located in Italy. This is not a formal test and not a question of who owns the shares. It is a factual test based on where the company’s central management and administration really take place.

Most importantly, the Court reaffirmed that, in a group structure, the fact that an Italian parent or Italian shareholders give strategic direction to a foreign subsidiary is not enough to move the subsidiary’s tax residence to Italy. That kind of influence is normal in corporate groups and is protected by EU freedom of establishment. To qualify as esterovestizione, the Tax Agency must show something much stronger: that the foreign company is a purely artificial structure, a “letter-box” company, whose board and management have been effectively replaced by the Italian parent — in other words, that the parent has taken over the foreign company’s entrepreneurial and administrative powers so completely that the foreign entity no longer has real autonomy.

The Court also confirmed that the burden of proof lies with the Tax Agency. It is the tax authorities who must demonstrate that the foreign company is artificial and that its effective management is actually in Italy. If the taxpayer produces evidence of real activity, real directors, real meetings, and real decision-making abroad, that is enough to defeat an esterovestizione assessment unless the authorities can disprove it.

In this case, the courts found that the Luxembourg company had its own premises, directors, corporate governance, and decision-making in Luxembourg, and that the Tax Agency had not proven otherwise. Therefore, the company remained tax-resident in Luxembourg.

From a practical point of view, this judgment is very significant for international groups, holding structures, and expatriate-owned companies. It confirms that having an Italian parent, Italian shareholders, or strategic guidance from Italy does not automatically make a foreign company Italian-resident. What matters is whether the foreign company has real substance and real governance where it is established.

At the same time, it sends a clear message: if a foreign company is only a shell, with all real decisions taken in Italy, then Italian tax residence can still be asserted. But the authorities must prove it, and the proof must show genuine artificiality, not just control or influence.

In short, the Court has drawn a strong line between legitimate international corporate structures and abusive paper companies, giving much greater legal certainty to groups that build real operations abroad.