• Service: Tax, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 7/11/2014

Italy - Withholding, substitute tax rate increase for “financial income” 

July 11:  New law in Italy reflects an increase of the rate of withholding and substitute tax on certain income from financial instruments—including dividends, interest, premiums, and capital gains.

Rate increase to 26%

Law Decree no. 66 of 24 April 2014 was converted into Law no. 89 of 23 June 2014, and published in the Italian official gazette no. 143 of 23 June 2014.

Articles 3 and 4 of the law confirm an increase, from 20% to 26%, in the rate of withholding and substitute tax with respect to income from various financial instruments—including dividends, interest, premiums, and capital gains (as previously proposed by the Italian government).

The effective date is from 1 July 2014.

Not applicable to certain income

The changes do not affect certain types of investment income, such as income from Italian government bonds or securities issued by other public bodies and similar instruments (e.g., securities issued by supra-national organisations recognised by Italian law and non-Italian government bonds from “white-list countries”). These types of income remain subject to substitute tax at a rate of 12.5%.

Reduced IRAP rate

The increased withholding and substitute tax rate was introduced to counterbalance a decrease in the rates of the Italian regional tax on productive activities—IRAP—as provided in article 2 of the new law.

From the tax periods beginning after 31 December 2013:

  • The standard IRAP rate of 3.9% has been reduced to 3.5%.
  • The IRAP rate for financial institutions has been reduced from 4.65% to 4.2% and the IRAP rate for insurance companies has been reduced from 5.9% to 5.3%.

After amendments introduced during the parliamentary process, the substitute tax rate currently applicable to the yearly net result of pension funds (i.e., 11%) was replaced by an 11.5% rate which applies only for the tax year 2014.

However, the 11% domestic withholding tax on outbound dividend payments to EU/EEA pension funds remains unaffected.

Tax authority guidance

Also, the Italian tax authority on 27 June 2014 released Circular no. 19/E to clarify the scope and application of the enacted changes.

Substitute tax on certain loans

Law Decree no. 91/2014 of 24 June 2014 (of which, article 22 was effective 25 June 2014) concerns interest on medium- and long-term loans (i.e., loans having a maturity of more than 18 months) and paid by Italian companies to:

  • Banks (credit institutions) established in an EU Member State
  • Insurance companies established in an EU Member State and authorised under the law of the same Member State
  • Qualifying investment funds established in an EU/EEA “white-list country”

Such interest will not be subject to domestic withholding tax.

This law decree (which, under the Italian legislative regime, must be converted into law by the Italian Parliament within 60 days of its coming into force) also introduces tax facilities for the issuing of non-listed bonds and extends the application of the 0.25% substitute tax applicable under certain conditions to medium- and long-term loan agreements.

For more information, contact a tax professional with the KPMG member firm in Italy.

Sabrina Navarra


Roberto Romito


©2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.

The KPMG logo and name are trademarks of KPMG International.

KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever.

The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Direct comments, including requests for subscriptions, to
For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at:

+ 1 202 533 4366

1801 K Street NW
Washington, DC 20006.


Share this

Share this


Subscribe to receive the latest TaxNewsFlash email alerts (you must select the option for TaxNewsFlash)

Already a Subscriber? Login

Not a member? Subscribe now