The Law Decree no. 91 of 24 June 2014 ("Competitiveness Decree 2014") was converted into Law no. 116 of 11 August 2014 and came into force on 21 August 2014 and has introduced some relevant measures, aimed to favour investments in Italy.

Our focus here is on articles 21 and 22 of the Decree, in which the Italian Parliament has provided the abolition of withholding tax on interest paid to banks located in the European Union and on interest of “non-listed bonds” subscribed by qualified investors.

Withholding tax on interest from loans

The Law Decree has introduced innovative measures relating to the payments of interest deriving from medium-long term loans, ie loans having a maturity of at least 18 months.

Particularly, in the case of loans granted to Italian companies by

  •  Banks established in the European Union,
  • Insurance companies incorporated and operating in compliance with European member state law
  • Unleveraged Investment Funds incorporated in the European Union or in the white-list European Economic Area,

the Law Decree has provided for an exemption from the application of the withholding taxes on interest, which are ordinarily applicable at the rate of 26% on the basis of the domestic rule, or at the lower rate provided for by the Treaties against double taxation, if any (for example, 10% according to the Italy/UK Treaty).

Bonds and financial notes

The Decree has also introduced an exemption from withholding tax on the payments of interest deriving from non-listed bonds, financial notes, and other similar instruments, held by Qualified Investors, as defined in the Italian Stock Exchange Authorities’ Regulations (see art. 100 of the Financial Code, “TUF”).

In addition, the exemption also applies to interest on bonds, other similar instruments and financial notes paid to Investment Funds incorporated in Italy or in a European Union member state, if:

  • more than 50% of their assets are invested in bonds, other similar instruments and financial notes, and
  • their quotas are held by Qualified Investors.

Lastly, the exemption also applies on interest deriving from bonds, other similar instruments and financial notes, paid to securitisation vehicles incorporated in Italy, if:

  • more than 50% of their assets are invested in bonds, financial notes and other similar instruments, and
  • the bonds issued by the securitisation vehicles are held by Qualified Investors.

Substitutive tax on medium-long term loans

The Decree has extended the Substitutive tax regime, previously applicable to medium-long term loans granted by banks and financial intermediaries, to:

  •  medium-long term loans granted by Italian securitisation vehicles
  • Insurance companies incorporated and operating in compliance with European member state law
  • Investment Funds incorporated in the European Union or in the white-list European Economic Area

In addition, the Substitutive tax regime also applies in the case of a transfer of loans and of the related guarantees, made at a later stage.

It is worth noting that the Substitutive taxation applies in the measure of 0.25% instead of Registration Tax, Mortgage tax, Cadastral Tax and Stamp duty.

In conclusion, we observe that all the above measures are clearly aimed to attract the foreign investors in Italy.