Non-resident Companies

Non-resident companies are those that for the greater part of the tax year do not have their legal headquarters, place of effective management or main business purpose in Italy.

IRES Taxable Income

Non-resident companies and entities of each kind (including partnerships) are subject to Corporate income tax (IRES) only on income derived from Italy.

IRAP Taxable Income

Non-resident companies and entities of each kind (including partnerships) are also subject to the Regional tax on productive activities (IRAP) if they maintain a permanent establishment in Italy for at least 3 months. The computation of the Regional tax on productive activities follows the rules for resident companies.

Business Income

Business income is taxable in Italy only if derived through a permanent establishment. If a permanent establishment exists, all Italian-source income is taxable under a force-of-attraction principle. Income is taxed according to the same rules as those applicable to resident companies.

Branch Profit Tax

Italy does not levy any tax on branch profits paid to the parent company (except for the normal IRES and IRAP taxation).

Other Income

If a non-resident company does not have a permanent establishment in Italy, it is taxed separately on all sources of income derived from Italy.

Income and capital gains from immovable property

Capital gains from immovable property are taxable in Italy if the property is situated in Italy. However, such capital gains are subject to the corporate income tax only if the sale takes place within 5 years from the purchase or construction of the immovable property.

Rental income from immovable property is taxable in Italy if the property is situated in Italy. Such income is determined according to the higher of the cadastral value (deemed rental value) of the property or the actual rental income reduced by 5%.

Capital gains on the sale of shares and other participations

Capital gains from the selling of participating interests are subject to taxation in Italy only if the participation is in an Italian company.

In the case of participations in listed companies, however, if the amount of participation sold during a 12-month period does not exceed 2% of the voting rights, or 5% of the capital, the capital gain is not regarded as Italian-source income (the capital gain is not subject to taxation in Italy).

In the case of non-listed participations, if the amount of participation sold during a 12-month period does not exceed 20% of the voting rights, or 25% of the capital, the capital gains are subject to a 26% (as of 1 July 2014, previously 12.5%) substitute tax (these participations are referred to as "non-qualified participations"). However, such capital gains are not subject to taxation if the seller is a resident of a country that Italy has an adequate exchange-of-information system with (a whitelist of the states and territories that have an adequate exchange-of-information system has been issued by a ministerial decree).

If the size of the participation sold during a 12-month period exceeds:
- 2% of voting rights, or 5% of capital, in the case of participations in listed companies, or
- 20% of voting rights, or 25% of capital, in the case of other participations,
the capital gain is included in taxable income for 49.72% of its amount. In such a case, capital losses are deductible by the same percentage.

The taxpayer must report the capital gains and losses in the annual tax return. However, the 26% substitute tax may be paid through a resident-authorized intermediary (normally a bank or other financial institution) on each single capital gain and, in this case, the capital gain is not reported in the annual tax return.

A double taxation treaty between Italy and the transferor's country of residence, containing a provision similar to Art. 13 of the OECD Model Convention (adopted in most of the tax treaties concluded by Italy), generally prevents capital gains on the sale of movable property from being taxed in Italy.

Dividends, interest and royalties

Dividends, interest and royalties paid by Italian resident companies to non-resident companies without a permanent establishment in Italy are normally subject to a final withholding tax, subject to reduction under the relevant treaty provisions (see Payment of Dividends, Interest and Royalties).

Tax Returns

Resident-authorized intermediaries generally satisfy the Italian tax liability of non-resident companies by way of a final withholding tax, or through the application of a substitute tax. If this is not the case (e.g. business income derived through a permanent establishment, income and capital gains from immovable property), the non-resident company must file a tax return and appoint a tax representative in Italy. The assessment procedures are the same as for resident companies.

International Ruling

Multinational companies may request a ruling from the Italian tax authorities with particular reference to transfer pricing and the payment of dividends, interest and royalties. A ruling is binding on both parties for 3 fiscal years. The Italian tax authorities send a copy of the ruling to the competent authorities in the state where the taxpayers involved in the ruling are residents or where they are established.

Municipal Tax on Immovable Property

Non-resident companies owning immovable property in Italy are subject to the Municipal tax on immovable property (see Taxes on Capital - Municipal Tax on Immovable Property).