In accordance with the 2021 Finance Law, Italy has established a 0% withholding tax rate on dividends sourced from Italy when received by EU/EEA entities, specifically funds regulated under the UCITS IV Directive or non-UCITS funds managed by firms supervised by the Directive 2011/61/EU of the European Parliament and of the Council of 8 June, 2011 (AIFM Directive).

Additionally, this withholding tax exemption has been expanded to include capital gains realised by these qualifying funds on eligible participations.

The Italian Tax Authority (ITA), in ruling no. 148/2024 of 11 July, 2024, affirms the application of the exemption regime established under Article 1 of Law No. 178/2020 (Budget Law 2021). This ruling applies to Italian source dividends and capital gains resulting from the sale of qualified participations by foreign investment funds.

The Budget Law 2021 introduced the exemption regime for Italian-source income, consisting of dividends and capital gains or losses deriving from the disposal of qualified participations, obtained by foreign collective investment undertakings (OICR) established in an EU or EEA Member State and complying with the Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 (UCITS Directive).

In the ruling, no. 148/2024, the tax agency was requested to verify the capital gains exemption concerning profits realised from Italian holdings by a French alternative investment fund, which was structured as a simplified stock company (SAS). This fund is registered with the French AMF supervisory authority, which manages funds under the AIFM Directive.

The Italian tax agency has confirmed that the capital gains exemption is applicable provided the investment vehicle qualifies as an alternative fund and is regulated in its Member State as per the AIFM Directive.