Tag: Foreign companies

Italy’s IRES Premiale: The 2026 Distribution Trap for Italian Subsidiaries of Foreign Groups

Italian subsidiaries of foreign groups that elected Italy’s IRES Premiale for fiscal year 2025 — cutting their corporate income tax rate from 24% to 20% — now face a hard compliance deadline that affects every dividend decision their foreign parent makes through the end of 2026. Distribute the wrong reserve at the wrong time, and the four-percentage-point saving is clawed back in full, with the difference owed at the standard 24% rate.

The trap is easy to miss because the reduced rate looks, on paper, like a one-shot benefit already locked in by year-end accounts. It is not. The benefit becomes definitive only after a second-year holding period that runs all the way to 31 December 2026 for calendar-year taxpayers.

What the IRES Premiale actually is

The IRES Premiale was introduced by Italy’s 2025 Budget Law (Law No. 207/2024). For the tax period following the one in progress as of 31 December 2024 — typically fiscal year 2025 — companies that meet a strict combination of profit-retention, reinvestment, and employment conditions pay corporate income tax at 20% instead of 24%.

The conditions are cumulative. The company must allocate at least 80% of its 2024 net profit to a dedicated reserve. At least 30% of that reserve (and a minimum of 24% of 2023 profits) must be deployed into qualifying Transition 4.0 and Transition 5.0 capital assets, with a floor of €20,000. The workforce, measured in Annual Work Units, cannot fall below the average of fiscal years 2022–2024, and the company must hire new permanent employees equal to at least 1% of the headcount as of 31 December 2024 (a minimum of one new hire).

These are not light conditions, and they are paired with two long-tail forfeiture rules that companies routinely underestimate.

The distribution embargo

The first forfeiture rule is the one that catches international groups off guard. The 80% reserve created out of 2024 profits is treated as non-distributable until the end of the second tax year following the year of the benefit. For a calendar-year company, that means the reserve cannot be paid out — directly or indirectly — before 1 January 2027.

Distributing the reserve, or any amount that reduces it, before that date triggers the loss of the IRES Premiale. The company must repay the tax saved, recalculated at the ordinary 24% rate, with interest. There is a narrow corrective option to reconstitute the reserve before year-end, but that is fact-specific and rarely available in practice once a dividend has been resolved upon.

Why this matters for foreign parents

For Italian subsidiaries of foreign multinationals, dividend timing is rarely a purely Italian decision. Foreign parents often expect their Italian operations to upstream cash to fund group treasury, repay intercompany loans, or finance acquisitions. The IRES Premiale puts a hard fence around any 2024-profit reserve through the end of 2026 — and Italian rules treat distributions broadly. Branches and Italian permanent establishments of non-resident companies fall under the same regime: amounts attributed to the head office that reduce the dedicated reserve are assimilated to a profit distribution and trigger forfeiture.

A second forfeiture trap applies to the qualifying assets themselves. If the new Transition 4.0 or 5.0 assets are sold, transferred outside Italy, or diverted to non-business use within five tax periods, the benefit is also lost. Cross-border restructurings, intra-group asset transfers, and migrations of equipment to other jurisdictions all need to be screened against this rule for the entire holding period.

A Note for U.S. Citizens

U.S. parents and U.S. shareholders should pay attention to the timing mismatch the embargo creates. Deferring distributions out of the Italian subsidiary to preserve the IRES Premiale can shift the year in which Subpart F, GILTI, or PFIC consequences arise on the U.S. side, and may compress the foreign tax credit available against U.S. tax in any single year. U.S. citizens who hold Italian companies through pass-through structures should also model the interaction between Italian dividend timing and U.S. cash-flow assumptions before assuming the 4-percentage-point Italian saving falls through to net group tax.

Practical points

For groups that elected the regime, the priorities through end-2026 are clear. Map every reserve in the Italian sub’s equity and identify which one carries the IRES Premiale tag. Keep ordinary dividends limited to other distributable reserves — pre-2024 retained earnings, share-premium reserves, or current-year profits that do not feed the protected pot. Document any intercompany cash movements that could be re-characterised as a distribution. And before any cross-border asset transfer, confirm that the qualifying assets stay within the regime’s perimeter.

Final Considerations

The IRES Premiale is one of the most generous corporate tax breaks Italy has offered in recent years, but the value is fully captured only by groups that hold the line through the end of 2026. For Italian subsidiaries of foreign owners, that requires coordinated planning between the local management, the group treasury, and the international tax function — well before the next dividend cycle. Specialist advice is strongly recommended before resolving any distribution, asset transfer, or workforce change involving an entity that took the 20% rate.

A Note on 2026: The Measure Has Not Been Renewed

One point deserves emphasis for planning purposes: the IRES Premiale applied to the 2025 financial year only. The 2026 Budget Law (Law 199/2025) did not extend it, so for the 2026 financial year Italian companies revert to the ordinary 24% rate, plus IRAP. Proposals to renew the measure circulated during the parliamentary debate in the autumn of 2025 but did not survive into the final text. Groups that claimed the reduced rate for 2025 nonetheless remain subject to the lock-up described above: the reserve cannot be distributed before 1 January 2027 without triggering the clawback. In other words, the benefit has ended but the constraint has not.

Italy’s Elective 15% CFC Tax: 2026 Guidance Simplifies Compliance for Multinational Groups

On 31 March 2026 the Italian Revenue Agency issued long-awaited guidance on the elective 15% tax introduced into Italy’s Controlled Foreign Company (CFC) regime by the 2023 international tax reform. The new measure offers Italian-controlled foreign subsidiaries a simplified route to satisfy the CFC effective-taxation test, replacing a notoriously complex calculation with a flat 15% charge on accounting profits. The April 2026 clarifications confirm retroactive effect from 1 January 2024 and resolve several open questions on eligibility, duration, and the treatment of dividends.

Why the CFC test was a problem

Italian CFC rules attribute the income of a low-taxed foreign subsidiary directly to its Italian parent, even if no dividend is paid. The “low tax” threshold is set at 15% effective taxation, calculated as the ratio between the foreign company’s tax burden (current taxes, deferred taxes, and any portion of the qualified domestic minimum top-up tax under Pillar Two) and its accounting pre-tax profits. In practice, this calculation requires reconciling local GAAP financials, jurisdiction-specific tax adjustments, and Pillar Two figures every year — a heavy compliance exercise for groups with multiple foreign subsidiaries.

How the elective 15% regime works

Instead of running the full effective-tax-rate test, the Italian parent may elect to pay a substitute tax of 15% on the net accounting profit of the controlled foreign company, grossed up for current and deferred taxes, asset write-offs, and provisions. The election deems the standard CFC test satisfied, removing the need to attribute the foreign company’s income to the Italian parent.

The regime has three key design features confirmed by the new guidance. The election lasts three financial years, is irrevocable for the entire period, and renews automatically unless expressly revoked. It applies on an all-or-nothing basis: once chosen, it covers every CFC of the group whose passive income exceeds one-third of total revenue. The foreign company’s financial statements must be certified by locally authorised professional auditors, and those audited figures must feed into the Italian parent’s standalone or consolidating accounts.

If control is lost during the three-year period, or if the audit-certification requirement is no longer met, the option ceases — and where the audit failure affects one entity, the cessation extends to all CFCs of the group simultaneously.

Practical takeaways for foreign-owned and Italian groups

The retroactive application from 1 January 2024 is significant: groups can revisit financial years already filed and, where the 15% substitute tax produces a more favourable outcome, recover an unduly burdensome CFC inclusion through amended returns.

The choice between the elective 15% and the standard ETR test is rarely automatic. The flat regime tends to be advantageous where the foreign jurisdiction has timing differences that distort the standard ETR — large deferred tax movements, accelerated depreciation, asset write-offs — but where the underlying business is genuinely active. By contrast, where the foreign tax burden already comfortably exceeds 15% in cash terms, the standard test remains preferable because no Italian substitute tax is due at all.

Profit distributions from CFCs covered by the election receive coordinated treatment: the substitute tax paid at parent level is taken into account when dividends flow up, preventing the economic double taxation that would otherwise arise.

Final Considerations

The elective 15% regime is one of the most concrete simplifications introduced by Italy’s recent international tax reform, and the April 2026 guidance closes most of the operational gaps that had discouraged groups from opting in. For multinational groups with Italian holding structures — and for foreign-headed groups whose Italian parent or sister entity controls subsidiaries in lower-tax jurisdictions — the 2024 retroactive window is a real opportunity to reduce both compliance cost and tax exposure.

The interaction with Pillar Two, with double tax treaties, and with the CFC and anti-deferral rules of other jurisdictions is highly fact-specific. Anyone considering the election, or revisiting prior CFC inclusions, should run the numbers under both methods and obtain professional advice before filing.

Italy’s 2026 PEX Reform: New Thresholds for Capital Gains on Minority Stakes in Italian Companies

Italy’s 2026 PEX Reform: New Thresholds for Capital Gains on Minority Stakes in Italian Companies

Italy’s 2026 Budget Law (Law 199/2025) has reshaped the way capital gains on shareholdings are taxed at the corporate level. Starting 1 January 2026, the Participation Exemption (PEX) — the long-standing regime that exempts 95% of qualifying capital gains from corporate taxation — applies only when new size thresholds are met. For holding companies, entrepreneurs, and cross-border investors, this is not a technical footnote: it is a structural change that affects deal economics, exit strategies, and how minority investments are held.

What the PEX Regime Does

Under Article 87 of the Italian Income Tax Code (TUIR), capital gains realised by an IRES taxpayer on the sale of a qualifying shareholding are 95% exempt, meaning only 5% of the gain is subject to Italy’s 24% corporate income tax — an effective rate of just 1.2%. The same regime applies by extension to EU and EEA companies selling Italian participations, provided they have no permanent establishment in Italy. Until the end of 2025, the core PEX requirements were qualitative: the subsidiary had to be a genuine operating business, resident in a non-blacklisted jurisdiction, with the shareholding held for at least 12 months and classified as a financial fixed asset.

What Changed in 2026

The 2026 Budget Law keeps the qualitative conditions but adds a quantitative gate. From 2026 onward, the 95% exemption on capital gains is available only if the shareholding disposed of meets at least one of the following:

A direct or indirect participation of at least 5% of the share capital or voting rights, or

A shareholding with a tax value of at least €500,000.

If neither threshold is satisfied, the capital gain is fully taxable at the ordinary 24% IRES rate — a dramatic jump from the 1.2% effective rate most groups are used to. The same thresholds mirror those now applicable to intercompany dividends under Law 199/2025, creating a unified regime for both distributions and exits.

Who Is Most Affected

The reform hits minority investments hardest. The clearest losers are holding companies and corporate investors whose stake in an Italian target sits below 5% and whose tax basis is under €500,000. This is a common profile in several situations: founders whose shareholding has been diluted across successive funding rounds; early-stage investors in startups that have since raised significant capital; family holding structures with small strategic positions; and corporate venture arms holding observer-sized stakes. On exit, these investors now face a full 24% corporate tax on the gain instead of the familiar 1.2% effective rate.

Club Deals and Joint Investments

Club deals — where several investors pool capital into a single special-purpose vehicle to acquire a target — are particularly exposed. If the pooled SPV holds 5% or more of the target, PEX applies at the SPV level; the problem arises when individual investors in the SPV hold below-threshold indirect positions through their own corporate vehicles. The Italian Parliament has signalled, through Chamber Act 2750/2025, that legitimate club-deal structures should not be treated as abusive. Detailed implementing guidance is still awaited, and investors structuring club deals in 2026 should document the business rationale of each layer carefully.

A Note for U.S.

U.S. citizens and U.S.-based investors holding Italian participations through corporate vehicles need to reassess the after-tax economics of their Italian positions. A gain that was once taxed at 1.2% in Italy and credited against U.S. federal tax under the Foreign Tax Credit rules is now potentially taxed at 24% in Italy. Depending on the structure, this may generate excess foreign tax credits, shift the residual U.S. liability, or trigger review under anti-hybrid and PFIC rules where investments sit inside non-U.S. holding companies. The Italy–U.S. tax treaty does not override these domestic Italian thresholds. Any restructuring should be modelled jointly by Italian and U.S. advisors before the next disposal event.

Final Considerations

For groups that hold Italian investments strategically through corporate entities, the 2026 PEX reform is a reason to revisit the tax basis and percentage of every participation on the books. Where minority stakes fall below both thresholds, options include consolidating holdings, stepping up the tax basis through elective revaluations when available, or timing disposals in light of the new rules. As always with Italian tax reform, the qualitative conditions of PEX still matter and must be verified alongside the new quantitative gate. Professional advice is essential before any disposal, reorganisation, or cross-border restructuring affecting Italian participations.

Non-EU Companies in Italy: The €50,000 VIES Guarantee Is Mandatory and Here to Stay

Non-EU Companies in Italy: The €50,000 VIES Guarantee Is Mandatory and Here to Stay

Since April 2025, any company incorporated outside the European Union or the European Economic Area that conducts intra-Community VAT transactions through Italy has been required to provide a financial guarantee of at least €50,000. The obligation was introduced by a Ministerial Decree of 4 December 2024 and became operational with the Revenue Agency implementing measure of 14 April 2025, which set the procedure and started the 60-day clock for businesses already registered. It survived its first serious legal challenge in early 2026. Foreign companies that have been waiting for a court-ordered reprieve should no longer count on one.
What Is VIES and Why It Matters
The VAT Information Exchange System (VIES) is the EU-wide database that identifies entities entitled to apply zero VAT on cross-border sales and purchases between registered businesses. Active VIES listing is essential for any company involved in intra-Community supply chains: without it, every cross-border sale to an EU buyer is subject to full Italian VAT, and the ability to purchase goods zero-rated from EU suppliers disappears. For companies that rely on European trade flows, exclusion from VIES is a serious operational disruption.
Who Must Provide the Guarantee
The obligation falls exclusively on non-EU and non-EEA companies that operate through an appointed fiscal representative in Italy. This is the key distinction. EU-based companies can register for Italian VAT directly and are exempt from the guarantee. Companies based in the United States, the United Kingdom (post-Brexit), Canada, Switzerland, and other non-EEA countries cannot use direct VAT registration and are legally required to appoint a fiscal representative — a locally based individual or entity jointly and severally liable for their Italian VAT obligations. It is this class of companies that must now post the guarantee.
What the Guarantee Requires
Three forms of security are accepted under the MEF Decree of December 4, 2024: a deposit in Italian government bonds or state-backed securities, an insurance surety bond, or a bank guarantee issued under Law No. 348/1982. The minimum amount is fixed at €50,000, with no possibility of reduction based on company size or transaction volume. The guarantee must be issued in favour of the director of the Revenue Agency’s Provincial Office at the fiscal representative’s tax domicile and must remain valid for a minimum of 36 months. For new registrations, the guarantee must be in place from day one. Companies already listed in VIES when the obligation was introduced had until June 13, 2025 to comply; those that failed to do so face automatic exclusion from the VIES database.
The Court Challenge and Its Outcome
A coalition of approximately 20 non-EU businesses — primarily Chinese e-commerce traders supported by two trade associations — filed an appeal with the Regional Administrative Court of Lazio (TAR Lazio), arguing that applying the same €50,000 threshold to all foreign companies regardless of risk profile violated the proportionality principle under both Italian and EU law. After a hearing held on January 28, 2026, the TAR Lazio issued Ruling 4986/2026 dismissing the appeal on procedural grounds: the challengers had filed outside the 60-day deadline running from the publication of the December 2024 decree. The court did not rule on the merits of the proportionality argument, but no suspension was granted and the obligation has remained fully in force throughout. The practical message for any company still watching the litigation is straightforward — the legal window for challenge has closed, and compliance is the only viable path.
The Second Guarantee: The One Borne by Your Representative
A point that is often missed, because the two measures were adopted within days of each other: alongside the €50,000 guarantee owed by the foreign company, a separate Ministerial Decree of 9 December 2024 imposed good-standing requirements and a guarantee on the fiscal representative itself, scaled to the number of companies it acts for — from €30,000 for two to nine represented businesses up to €2,000,000 for more than a thousand, for a minimum of 48 months. The two guarantees are cumulative and serve different purposes. The practical effect for foreign groups has been a thinner market: fewer providers willing to act as fiscal representative, and higher fees from those that remain. It is a further argument for comparing the representative route against an Italian subsidiary before committing.
A Note for U.S. Companies
For U.S. businesses entering the Italian market or already holding Italian VAT registration through a fiscal representative, the guarantee requirement creates a concrete and recurring compliance cost. The annual premium for an insurance surety bond — the most commonly used form — typically falls between 1.5% and 4% of the guaranteed amount, translating to roughly €750 to €2,000 per year. This should be factored into Italian market-entry budgets. U.S. companies with existing VIES registrations that have not yet submitted the guarantee are exposed to deregistration at any time, which would immediately affect their ability to conduct zero-rated intra-EU transactions. Given the joint and several liability structure, non-compliance also creates reputational and financial risk for the Italian fiscal representative, which can strain an otherwise workable professional relationship.
Final Considerations
The €50,000 VIES guarantee has moved from a contested new regulation to settled law. For any non-EU company that sells goods or services cross-border within the EU via Italy, or that sources from EU suppliers using Italian VAT registration, implementation is now the only question on the table. Companies that have not yet complied should act without further delay. Those planning Italian market entry for the first time should build the guarantee requirement — and its ongoing cost — into their setup timeline from the outset. A qualified Italian tax adviser can identify the correct guarantee form, verify the submission requirements at the relevant Revenue Agency office, and coordinate with the fiscal representative to ensure the obligations are met correctly on both sides.

Intra-Group Service Costs in Italy: What the 2026 Cassazione Ruling Means for Multinational GroupsItaly’s

Intra-Group Service Costs in Italy: What the 2026 Cassazione Ruling Means for Multinational Groups

Italy’s Supreme Court has issued a landmark ruling that significantly tightens the conditions under which Italian companies within multinational groups may deduct costs charged by parent or affiliate entities. The decision — Cassazione n. 5753 of 13 March 2026, involving an Italian subsidiary of Shell — confirms and reinforces a demanding standard that applies to any company operating in Italy as part of a corporate group.
The Core Principle: Inerenza
Under Article 109 of the Italian Consolidated Income Tax Act (TUIR), a cost is only deductible if it is inerente — that is, genuinely relevant and connected to the income-generating activity of the Italian entity claiming the deduction. This is not a technicality; it is the foundational gatekeeper for any business expense deduction in Italy.
For intra-group charges, the principle operates with particular rigour. The mere existence of a cost-sharing agreement, an intercompany contract, or paid invoices is not enough. The Italian company must demonstrate that the services charged actually served its own business operations and produced — or were objectively capable of producing — a real economic benefit for the recipient.
The Benefit Test: What You Must Prove
The Cassazione in ruling n. 5753/2026 confirmed that the burden of proof falls entirely on the Italian subsidiary. To sustain the deduction, the company must be able to show:

-the precise nature and scope of the services received;
-that those services were actually performed and delivered to the Italian entity (not merely invoiced);
-the real and quantifiable benefit the subsidiary derived from them;
-adequate documentation of the associated costs and payments.

It is not sufficient to say that services formed part of a group-wide programme or that the parent’s overhead was allocated on a pro-rata basis. The Italian entity must be able to establish concretely what it received and why that service was useful to it specifically.
Shareholder Activities: What Cannot Be Recharged
A critical distinction confirmed by the ruling — and consistent with the OECD Transfer Pricing Guidelines — is the treatment of shareholder activities. These are services that the parent company performs in its own interest as a shareholder: strategic group oversight, corporate governance, consolidated accounting, group-level brand management, and similar activities that serve the structure as a whole rather than any particular subsidiary.
According to settled Italian case law and OECD guidance, these costs cannot legitimately be recharged to subsidiaries. They respond to the needs and interests of the parent, not those of the Italian entity. Including such charges in an intercompany cost allocation without adequate segregation exposes the entire set of deductions to challenge.
The Temporal Competence Issue
The ruling also reaffirmed the non-derogable nature of temporal competence rules under Italian law. A company cannot elect to claim a deduction in a different tax year to manage its tax results. Costs must be recognised and deducted in the period to which they economically belong. Attempting to absorb prior-year charges into a more convenient year — outside of the formal procedures for amended returns or refund claims — will not be accepted by the tax authorities or the courts.
Practical Implications for Group Companies in Italy
Any Italian entity that is part of a multinational group — whether the Italian operation is a subsidiary, a branch, or a principal structure — should review its intercompany arrangements in light of this ruling. The key risk areas are: cost-sharing agreements where the benefit to the Italian entity is not clearly documented; management fee structures where operational services and shareholder activities are not clearly separated; and historical deductions claimed under arrangements that pre-date current documentation standards.
The Revenue Agency has consistently challenged intra-group cost deductions where documentation is generic, and the courts have continued to uphold that approach. Ruling n. 5753/2026 gives added judicial weight to this line of enforcement.
A Note for U.S. entities
U.S. persons who own or manage Italian subsidiaries through U.S. parent entities face a layered compliance picture. On the Italian side, the rules described above apply fully. On the U.S. side, the IRS has its own transfer pricing regime under Section 482 of the Internal Revenue Code, which requires intercompany charges to reflect arm’s length pricing and to be supported by contemporaneous documentation. Where an Italian subsidiary is disallowed a deduction because the benefit test is not met, this can also affect the U.S. parent’s consolidated tax position, including the treatment of any income received as a management fee. U.S.-owned groups operating in Italy should ensure that their Italian transfer pricing documentation and their U.S. Section 482 documentation are aligned and mutually consistent. Specialist advice on both sides is strongly recommended.
Final Considerations
Ruling n. 5753/2026 does not introduce new law, but it consolidates and sharpens a rigorous judicial standard that Italian tax authorities are actively applying. For multinational groups with Italian operations, the message is clear: intercompany cost arrangements must be backed by substance, specificity, and contemporaneous documentation — not just contracts and invoices. Companies that review and strengthen their documentation now, and that clearly separate operational service charges from shareholder-level overhead, will be in a significantly stronger position in the event of an audit. Given the complexity of these issues, professional advice tailored to the group’s specific structure is essential.

Goodbye Bureaucracy: The “EU Inc.” to End Long Wait Times for European Startups

The “EU Inc.” to End Long Wait Times for European Startups

For decades, expanding a business across the European Union meant navigating 27 different legal systems, a mountain of paperwork, and—most frustratingly—unpredictable waiting times. Whether it was the weeks required for a traditional Italian SRL or the complex notarization processes in Germany, the “long wait” has been the primary barrier to innovation.

That is finally changing. With the formal introduction of the EU Inc. (the Unified European Company) in March 2026, the European Commission has launched a direct strike against administrative delays.

The 48-Hour Revolution

The most significant breakthrough of the EU Inc. is the “48-hour rule.” Under this new regulation, entrepreneurs can incorporate a company online across the entire Union in less than two days. This replaces a process that previously took weeks or even months in certain member states.

How the “Long Times” are Being Cut:

• Digital-First Identity: By using the eIDAS (European Digital Identity) framework, founders no longer need to appear physically before a notary or government official. Verification is instantaneous and cross-border.
• The “28th Regime”: The EU Inc. functions as a simplified legal template that exists alongside national laws (like the SRL or GmbH). Because it is governed by a single EU Regulation, there is no need to wait for local courts to interpret national variations.
• Low-Cost Entry: To further accelerate the process, incorporation fees have been capped at €100, removing the financial friction that often slowed down the initial filing phases.

Why This Matters Now

The fragmentation of 60 different company types across the EU was costing the economy billions in lost time. The EU Inc. provides a standardized “passport“ for businesses. Once registered, a company can operate in any member state without the need to “re-learn” local corporate law or wait for secondary approvals.

Current Status

As of March 2026, the legislative proposal is moving through the European Parliament. While national SRLs will remain an option for local businesses, the EU Inc. is positioned to become the default choice for any founder who values speed and scalability over traditional, slow-moving structures.

The Roadmap: When will “EU Inc.” arrive in Italy?

While the proposal was officially introduced in March 2026, the transition from a Brussels regulation to a functional “Italian” option involves a specific legislative cycle. Based on the standard EU “Ordinary Legislative Procedure,” here is the estimated timeline for implementation:

Key Steps for the Italian Implementation:

1. Digital Onboarding: Italy will need to fully activate the interoperability between its national digital IDs (SPID/CIE) and the European Digital Identity Wallet to allow “one-click” incorporation.
2. Notarial Transition: A major shift will involve moving from traditional physical deeds to digital-native protocols. The Italian Notariat is already working on remote video-conferencing systems to comply with these faster EU standards.
3. Automatic Tax ID: To meet the 48-hour goal, the Italian Revenue Agency (Agenzia delle Entrate) will need to automate the issuance of VAT numbers (Partita IVA) for EU Inc. companies, bypassing current manual checks that often cause the “long wait” times today.

Assignment of Assets to Shareholders in Italy (2026): Framework, Benefits and Key Considerations

Assignment of Assets to Shareholders in Italy (2026): Framework, Benefits and Key Considerations

In recent years, Italian tax legislation has periodically reintroduced a favorable regime allowing companies to assign certain assets directly to their shareholders under reduced taxation.

The 2026 Budget Law confirms this approach once again, offering a limited-time opportunity for companies to reorganize their asset structure in a more efficient manner from both a tax and corporate perspective.

Nature of the transaction

The assignment of assets to shareholders consists in the transfer of company-owned assets—most commonly real estate—to shareholders in lieu of cash distributions.

From an accounting standpoint, the transaction results in a reduction of the company’s net equity, while shareholders receive value in kind rather than in monetary form.

This mechanism is particularly relevant where companies hold assets that are no longer instrumental to their business activity, such as non-operational real estate or investments retained for purely patrimonial purposes.

Legislative rationale

The reintroduction of this regime reflects a clear policy objective.

Over time, a significant number of companies have accumulated assets that are not directly connected to their core business. The legislator aims to facilitate:

the simplification of corporate structures

the separation between operating activities and passive assets

the reduction of entities holding assets without a genuine business function

In this context, the regime represents a tool to promote greater transparency and efficiency in corporate asset management.

Tax treatment

The principal advantage of the regime lies in its tax treatment.

Under ordinary rules, the assignment of assets would generally trigger taxation on capital gains at standard corporate rates, in addition to indirect taxes.

The favorable regime replaces this with a substitute tax, typically applied as follows:

8% in ordinary cases

10.5% for non-operating companies

The taxable base is determined by the difference between the tax value of the asset and its transfer value.

For real estate, companies may opt to use the cadastral value, which is often lower than market value, thereby reducing the taxable base and overall tax burden.

Indirect tax benefits

In addition to the substitute tax, the regime provides for reduced indirect taxation.

Registration tax is generally applied at a reduced rate, while cadastral and mortgage taxes are often due in fixed amounts.

These reductions contribute significantly to the overall efficiency of the transaction when compared to ordinary disposal mechanisms.

Conditions and requirements

Access to the regime is subject to specific conditions.

In particular:

shareholders must already qualify as such by 30 September 2025

the transaction must be duly approved and formalized, including, where applicable, notarial deeds

careful consideration must be given to the tax implications at shareholder level

As a result, the operation requires proper planning and coordination across legal, accounting and tax profiles.

Deadlines

The regime is strictly time-limited, and compliance with deadlines is essential.

30 September 2026: deadline to complete the assignment and to pay 60% of the substitute tax

30 November 2026: deadline for payment of the remaining 40%

Failure to meet these deadlines results in the loss of the favorable regime and the application of ordinary taxation.

Practical relevance

In practice, the assignment of assets to shareholders may be particularly appropriate in situations such as:

the presence of non-operational real estate within corporate structures

the need to separate business activities from patrimonial assets

corporate reorganizations or preparation for liquidation

extraction of value by shareholders in a tax-efficient manner

It therefore represents not merely a tax measure, but a broader instrument of corporate and financial planning.

Italy – Shareholder Loans and Intra-Group Financing: Subordination under Article 2467 Civil Code

Italy – Shareholder Loans and Intra-Group Financing: Subordination under Article 2467 Civil Code

Shareholder loans are widely used to finance Italian companies, particularly within closely held businesses and multinational corporate groups. Italian law, however, provides a specific safeguard for creditors: in certain circumstances, shareholder loans may be subordinated to the claims of other creditors.

Recent case law from the Italian Supreme Court (Corte di Cassazione) has clarified the scope of this rule and confirmed that it may also apply to intra-group financing structures.

The Legal Framework

The relevant provision is Article 2467 of the Italian Civil Code, which governs shareholder loans in limited liability companies (S.r.l.).

Under this rule, the repayment of shareholder loans is subordinated to the satisfaction of other creditors where the financing was granted:

• in the presence of an excessive imbalance between debt and equity, or

• in a financial situation in which a capital contribution would have been reasonable instead of debt financing.

The rationale behind the rule is to prevent shareholders from supporting an undercapitalized or financially distressed company through loans rather than equity, thereby shifting the business risk onto external creditors.

Supreme Court Guidance

In Cass. civ., Sez. I, 8 July 2025, no. 18599, the Italian Supreme Court provided important clarification regarding the application of the subordination principle in the context of corporate groups.

The Court confirmed that the rule contained in Article 2467, read together with Article 2497-quinquies of the Civil Code, may apply not only to loans granted directly by shareholders but also to financing arrangements within a corporate group where a company exercises direction and coordination over another entity.

In particular, the Court emphasized that subordination may apply even where the financing is structured through intermediate group entities. In such cases, courts must look beyond the formal structure of the transaction and assess its economic substance, including the role of the controlling company and the financial condition of the subsidiary.

If the financing effectively replaces a capital contribution that should have been made to support the company, the resulting claim may be treated as subordinated.

Practical Implications for Corporate Groups

The decision highlights the need for careful planning of intra-group financing arrangements involving Italian companies.

Parent companies financing subsidiaries in financial difficulty should consider that:

• intra-group loans may be recharacterized as subordinated claims;

• courts will focus on the economic substance of the financing rather than its formal structure;

• channeling financing through intermediate entities will not necessarily prevent the application of the subordination rule.

Where a subsidiary requires financial support in a distressed situation, equity injections may in some cases be more appropriate than shareholder loans.

Conclusion

The recent Supreme Court ruling confirms that Italian courts take a substance-over-form approach when assessing shareholder and intra-group financing.

For corporate groups operating in Italy, the decision serves as a reminder that shareholder loans granted in situations of financial imbalance may be subordinated to external creditors, particularly where the financing effectively replaces equity support.

Careful structuring of shareholder and intra-group funding remains essential to avoid unexpected limitations on repayment.

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.

Italy Implements New Compliance Framework for the Global Minimum Tax (Pillar Two)

Italy Implements New Compliance Framework for the Global Minimum Tax (Pillar Two)

Italy has taken a decisive step in implementing the Global Minimum Tax (GMT) by introducing a structured set of compliance obligations for companies that belong to large multinational groups. The decree issued on 7 November 2025 defines how Italian entities must prepare, file, and pay the various components of the minimum tax under the OECD Pillar Two framework.

A key point clarified by the decree is who is actually subject to these obligations. The rules apply to Italian resident entities that are part of multinational or national groups with consolidated annual revenues of at least €750 million, calculated according to the criteria used for the group’s consolidated financial statements. This includes parent companies, controlled subsidiaries, permanent establishments in Italy of foreign groups, and Italian sub-holding companies. In practice, any Italian entity belonging to a group that meets the €750m revenue threshold will fall within the scope, regardless of its own individual size. Smaller Italian subsidiaries of a large multinational group are therefore fully covered by the GMT obligations even if their local turnover is modest.

For these qualifying entities, Italy now requires the submission of a dedicated “minimum tax return.” The model is a unified declaration consisting of a general section with identification and group information, plus annexes specific to each form of minimum tax introduced by domestic legislation. Importantly, the obligation to file applies even when no additional tax is due. This ensures full transparency for the Italian tax authorities and alignment with the global GloBE reporting structure.

The decree also outlines the technical rules for preparing the return. All amounts must be expressed in euros, with mandatory conversion for companies reporting in foreign currency. Payments will be executed via the F24 form using new tax codes issued by the Agenzia delle Entrate.

Deadlines have been set to balance the need for compliance and the complexity of implementation. As a general rule, the return must be filed within fifteen months of the end of the fiscal year. During the first year of application, this period is extended to eighteen months to help groups adapt their internal processes and coordinate with foreign headquarters.

Penalties align with Italy’s standard tax-administration framework, but the law provides a temporary “soft-landing”: for the first three years of the regime, penalties do not apply unless there is intentional misconduct or serious negligence. However, responsibility remains significant, as Italian entities may be jointly and severally liable alongside other relevant group companies.

For multinational groups operating in Italy, this marks the beginning of a new compliance environment. Companies must immediately verify whether the group exceeds the €750m threshold, identify the Italian entity responsible for filing, and adjust internal systems to collect the data required by the GloBE model. Coordination with parent companies becomes essential to ensure consistency between global minimum-tax calculations and the Italian return. Robust documentation practices will also be crucial, given the expected scrutiny from tax authorities during the first years of application.

In essence, the decree does not simply introduce a new tax form—it establishes a full reporting architecture for global minimum tax compliance in Italy. Groups falling within the threshold should begin preparing early, ensuring that data flows, governance structures, and cross-border communication lines are fully aligned with the new rules.

Healthcare Transparency Under the Spotlight: Navigating the Sunshine Act

Healthcare Transparency Under the Spotlight: Navigating the Sunshine Act
The Italian Sunshine Act, introduced by Law 62/2022, is a major step forward in promoting transparency in the healthcare sector. It is designed to regulate and make public the economic relationships between companies operating in the health industry and healthcare professionals or organizations. Inspired by similar legislation in the United States and Europe, the law aims to:

Prevent corruption and conflicts of interest

Reinforce public trust in the healthcare system

Guarantee the right to access information on financial ties that may influence clinical or administrative decisions

At the heart of the law is the “Sanità Trasparente” (Transparent Healthcare) registry, an open-access platform managed by the Ministry of Health, where companies must publish detailed reports on all transfers of value (ToV) made to healthcare professionals or organizations.

📘 Legal Background: How the Law Evolved
The law came into force in June 2022, with a phased implementation plan. Within a few months, the Ministry was tasked with setting up the registry and defining its technical specifications. Public consultations followed in 2023, and by 2025 the first pilot tests of the online platform were initiated.

The official activation of the registry is expected by the end of 2025, triggering the obligation for companies to begin reporting data on a semiannual or annual basis, depending on the type of relationship.

🧑‍⚕️ Who Is Involved?
The legislation affects three main categories of stakeholders:

Producing Companies: Businesses that manufacture, distribute, or organize events in the human or veterinary health sector—including suppliers of goods and services, even if not strictly medical.

Healthcare Professionals: Not only doctors and nurses, but also administrative personnel and decision-makers who influence procurement or use of medical technologies and resources.

Healthcare Organizations: Hospitals, universities, research institutes, ECM providers, professional bodies, patient associations, and scientific societies.

💬 What Must Be Reported?
Companies must report electronically the following:

Transfers of value (money, goods, services, or other benefits) if they exceed certain thresholds:

Over €100 (single) or €1,000 annually for individuals

Over €1,000 (single) or €2,500 annually for organizations

Agreements that provide economic benefit (direct or indirect): participation in events, consultancy, training, research, etc.

Financial relationships: shareholdings, bonds, royalties related to intellectual property

Each report must include key data: beneficiary identity, value, reason, nature of the transfer, and intermediaries if applicable.

📅 Deadlines and Reporting Cycles
The law establishes two types of reporting cycles:

Semiannual reporting for agreements, transfers, and sponsorships

Annual reporting for shareholdings and royalties

Reports must be submitted in the period following the one in which the transaction took place. For example, a sponsorship in the first half of 2026 must be reported by December 2026.

🌐 The “Sanità Trasparente” Portal
The portal has two distinct user views:

A public area, accessible to anyone, where it is possible to search by beneficiary, agreement, or sanction

A company dashboard, for uploading XML files, validating data, checking for errors, and managing submissions

It is a comprehensive monitoring and transparency tool managed by the Ministry of Health.

🚨 Enforcement and Penalties
The Ministry of Health is responsible for enforcement, supported by the Carabinieri NAS (Health Protection Unit) and the Guardia di Finanza.

Companies are fully accountable for the accuracy and completeness of the information submitted.

Penalties include:

€1,000 + 20x the unreported value for missing ToV disclosures

€5,000 to €100,000 for false or incomplete information

50% reduction in fines for companies with annual revenue under €1 million

Names of fined companies will be published in the registry for at least 90 days

🛠️ Becoming Compliant: An Operational Approach
Complying with the Sunshine Act is not just about sending XML files. It requires an organizational shift:

Mapping all types of value transfers

Updating SOPs, contracts, and compliance models (e.g., 231 Model)

Involving key departments (legal, marketing, CRM, finance, compliance)

Digitalizing approval workflows and data collection

As one speaker emphasized: “Start from the organization, not the tool.”

✅ Digital Tools and Real-World Examples
The presentation showcased companies already investing in dedicated platforms to manage:

ToV tracking

Workflow approvals

XML reporting

Budget control and event oversight

A case study of Theras Group was highlighted. Starting in 2019, they built a full internal platform for managing transparency-related processes. By 2025, all ToV and event-related workflows were fully digital, compliant, and efficiently controlled.

🎯 Conclusion
The Sunshine Act presents a significant challenge—but also a unique opportunity. It invites companies to strengthen their internal governance, align with evolving ethical standards, and demonstrate a clear commitment to transparency and integrity.

Those who act early will not only comply with the law, but also enhance their reputation, competitiveness, and trustworthiness in the healthcare ecosystem.

Italy 2025: Tax Incentives and Opportunities for Foreign Companies Investing or Expanding in Italy

Italy 2025: Tax Incentives and Opportunities for Foreign Companies Investing or Expanding in Italy

• Introduction

Italy continues to position itself as an attractive gateway for international business.
The 2025 Budget Law introduces new tax measures designed to attract foreign investors, support innovation, and reward reinvestment and employment growth.
For companies planning to establish operations in Italy — or to reorganize their EU presence — these incentives can make a measurable difference in effective taxation and strategic planning.

• Key Measures for Foreign Companies

🔹 Reduced Corporate Income Tax (IRES) at 20% for 2025
The Italian 2025 Budget Law (Law No. 207/2024) introduces a temporary reduced corporate tax rate of 20% (instead of the standard 24%) for companies that:

Allocate at least 80% of their 2024 profits to legal or special reserves;

Reinvest those profits in eligible “Transition 4.0 / 5.0” assets (digital, energy-efficient or green technologies);

Increase or maintain employment levels.

This measure rewards companies that keep profits in Italy and reinvest in productivity and innovation rather than distributing dividends abroad.

🔹 R&D and Innovation Tax Credits
Companies (including subsidiaries of foreign groups) can benefit from:

A 5% tax credit on qualifying R&D and innovation expenditures for FY 2024-2025;

A cap on eligible costs per year, depending on the type of innovation activity (green, digital, or design).

The credit is deductible from corporate income tax and can be combined with regional incentives.

• Strategic and Operational Implications

🔹 Investment Incentives in Southern Italy (ZES – Special Economic Zones)
Foreign or Italian companies investing in Southern regions — such as Puglia, Calabria, Sicily, Campania, Basilicata, Sardinia — may qualify for a tax credit up to 40% of eligible investments in tangible assets (buildings, plants, machinery).
To qualify, the investment must be made within a defined ZES area and aligned with regional development objectives.

For foreign businesses evaluating an Italian entry or expansion, tax benefits must be balanced with compliance and operational considerations:

Entity choice: decide between an Italian subsidiary (S.r.l. or S.p.A.) or a branch, depending on activity level and exposure.

Accessing incentives: ensure investments meet the technical requirements under the “Transition 4.0 / 5.0” guidelines.

Profit allocation strategy: reinvestment and reserve allocation are key to qualify for the 20% IRES.

ZES opportunities: choosing a location within a Special Economic Zone can drastically reduce effective investment costs.

Ruling and certainty: large foreign investors may seek advance tax rulings with the Italian Revenue Agency to confirm eligibility and avoid disputes.

• Compliance and Due Diligene Checklist

Before an investment, a professional adviser should verify:

Corporate structure: branch vs subsidiary, permanent establishment risk.

Profit use: at least 80% allocated to reserves (for IRES reduction).

Type of investment: ensure assets qualify under Transition 4.0/5.0 criteria.

Location: confirm if the site falls inside a ZES eligible area.

Employment impact: increase or maintain workforce level.

Interaction with double tax treaties and foreign tax credit positions.

Advance ruling opportunities with the Italian Revenue Agency.

• Why Italy Now

Italy is modernizing its fiscal framework to compete with Spain, Portugal, and Eastern Europe in attracting capital and expertise.

The combination of reduced corporate tax, ZES incentives, and innovation credits offers a real advantage for companies that integrate investment and employment plans.

The challenge lies in navigating Italy’s formal compliance environment — where proactive tax planning and legal alignment are crucial.

• Conclusion

Italy in 2025 represents a renewed opportunity for foreign enterprises seeking both market access and fiscal competitiveness in Europe.
The system rewards stability, reinvestment, and innovation.
Yet each case requires a tailored evaluation, considering:

the nature of the investment,

the group’s international tax position, and

the evolving Italian regulatory landscape.

For investors and advisors alike, this is the right time to explore Italy’s new business incentives — before the expected revision of rates in 2026.