Tax to be Withheld on Payments to Non-Residents
Italy has an extensive series of rules requiring Italian tax resident businesses and professionals to make withholding of tax on certain payments of various types of income, both where the recipient is tax resident in Italy and non tax resident. Individuals acting in a private, non business, capacity are not required to withhold tax on payments.
Whether withholding is due or not depends primarily on the status of the payer. Italian resident businesses, Italian permanent establishments/branches of foreign companies and professionals (except for those on the Regime Forfettario).
The type of withholding to be made can be divided into two types
- a final or definitive (a titolo d’imposta) withholding tax where the tax withheld satisfies the recipient’s tax liability completely with no requirement to report the income in an annual tax return. The recipient’s tax liability on the income is extinguished by the withholding tax.
- a payment on account (Ritenuta a Titolo d’Acconto) of the recipient’s tax liability on the income, in which case the gross income needs to be reported in an annual tax return. The tax withheld will therefore generally be available as a credit to offset the tax due on the relevant income which must be reported in an annual tax filing.
The tables below give a listing of types of income and whether the withholding tax is final or on account of the relevant tax liability.
| Income Type | Recipient Status | Withholding Rate | Tax Filing Requirement |
|---|---|---|---|
| Employment Income (Lavoro Dipendente) | Italian Resident | Progressive IRPEF rates | Mandatory (Used as a tax credit) |
| Self-Employment Income (Lavoro Autonomo) | Italian Resident (VAT-registered or occasional) | 20% on the taxable base | Mandatory (Used as a tax credit) |
| Short term Real Estate Letting/Rental Fees (Locazione Breve) | Italian Resident Individual (via intermediary) | 21% (Operated by intermediary) | Mandatory (Used as a tax credit against 21%/26% Cedolare Secca) |
| Commissions/Brokerage (Provvigioni) | Italian Resident (e.g., Agents) | 23% on a reduced taxable base | Mandatory (Used as a tax credit) |
| Copyright Royalties (Diritti d'Autore) | Italian Resident Author | 20% on a reduced taxable base | Mandatory (Used as a tax credit) |
| Interest/Income from Capital Investments | Italian Business (Subject to IRES) | Variable (e.g., 26%) | Mandatory (Forms part of business income) |
| Income Type | Recipient Status | Withholding Rate | Tax Filing Requirement |
|---|---|---|---|
| Interest/Income from Capital Investments | Individual (Non-business) | 26% (Standard flat rate) | None (Tax is final) |
| Interest on Italian Government Bonds | Individual | 12.5% | None (Tax is final) |
| Self-Employment Income (Lavoro Autonomo) | Non-Resident (No Italian PE) | 30% on gross amount | None (Tax is final) |
| Copyright Royalties (Diritti d'Autore) | Non-Resident Author | 30% on gross amount | None (Tax is final) |
Double Tax Agreements (DTA’s)
Italy has a wide network of double taxation treaties that may reduce or eliminate withholding taxes on cross-border payments to non Italian tax residents. Also, under the EU Parent-Subsidiary and Interest-Royalties Directives, qualifying payments between associated (as defined) EU entities may be exempt from withholding tax, subject to minimum shareholding and holding period requirements and other conditions.
See here for more details.
Examples
Final Withholding Tax
An Italian bank pays and individual (non business) interest on interest on a deposit account – the bank withholds tax at the flat 26% rate, no need to reprt the income
An Italian bank pays you the dividends or distributions from equity type investments or investment funds – the bank will withhold tax at 26% unless you have opted out of the default “managed” regime and are therefore liable to report the income in an annual tax return.