The 12.5% tax rate for investment income prevails

In general terms, income earned through financial investment by individuals outside their business capacity is taxed through a withholding tax or substitute tax based on two rates: 12.5% or 27%. The tax rate of 12.5% applies to interest, dividends, capital gains on listed securities, portfolio return and investment funds. The 27% rate is levied on interest earned from banking or postal deposit/current accounts, including certificates of deposit and some special cases (for example private bond issues with terms of less than 18 months). However, capital gains arising from the sale of shares representing "qualified" holdings (with more than 2% of voting rights or 5% of share capital in quoted companies, or more than 20% of voting rights or 25% of share capital in non-listed companies) are subject to the ordinary rate of taxation on 40% of their value.

In particular, with regard to investment funds, the 12.5% tax rate is applicable to the overall return of the portfolio (mainly dividends and capital gains). Upon redemption, no tax is due as tax is levied directly on the fund´s capital. The daily value of Italian funds is quoted net of taxation. However, in the case of foreign funds, the return is taxed upon redemption (at the rate of 12.5% as final tax for EU harmonized funds).

Investment income arising from entrepreneurial activity is included in the calculation of tax due on the operating results (see the section on IRES). There are several exemptions from tax for non-residents, which seek to attract investors residing in countries which ensure an appropriate exchange of information. Certain sources of income are excluded, such as interest on bank and postal accounts, interest on Government bonds and other widespread bonds as well as capital gains on major listed securities. Stock dividends are subject to a tax rate of 27%. Non-residents have a right to reimbursement of up to 4/9 (four ninths) of the withholding tax if they can demonstrate that they have definitively paid tax abroad on the same income, through certification by the relevant tax authorities. Foreign companies with holdings representing less than 25% of capital of the distributing company can request non-application (i.e. the refund) of the 27% withholding tax on dividends (Parent-subsidiary Directive).