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Editor in chief: Angelo Scorza
05/03/18 10:00

What changes for the sale of equity stake in overseas companies

Studio TCL explains the effect of the new tax regime enforced on foreign corporations

Pursuant to 2018 Budget Law, a 26% alternative tax has also been enforced on capital gains and dividends arising from the sale of qualified shares (currently only applied on non-qualified shares) even if held in foreign companies. The new measures shall be enforced as from January 1st, 2019.

Regarding the sale of shares held in foreign companies by single individuals or non-trading entities (as well as ordinary partnerships) residing in Italy, however not holding these stakes as registered firms: if they are qualified shares, the alternative tax on capital gains will be set at 26%, thus replacing former IRPEF progressive rate imposed on part of the company's gain, essentially equal to  49.72% on capital gains arising before December 31st, 2017 and 58.14% on capital gains arising  from January 1st, 2018.

The problem appears on taxes paid abroad when capital gain arising on the sale of these shares is  charged in Italy at 26% alternative tax: in this specific instance the recovery of taxes paid  abroad is not allowed. This fact occurs when no Agreement to avoid double taxation has been negotiated between the two Countries or the existing Agreement empowers the Country where the gain was generated to impose capital gain taxes: the sale of shares between companies registered in Italy and France, whose bilateral Agreement envisages capital gain taxation in both countries, is quite a common practice. If the capital gain arising from the sale of qualified shares is generated in 2018, it will increase taxpayer's aggregate income (pursuant to the existing Act to be enforced until December 18th, 2018) and therefore 58.14% of the foreign tax will be deducted from the Italian capital gain tax; conversely, as from January 1st, 2019, taxes paid abroad will no longer be deductible, being the capital gain subject to alternative tax: in essence foreign income will not increase aggregate income in Italy and  tax credit will not be allowed.  

Furthermore, the closing date of the sale is a key element: capital gain is generated when shares have been formally transferred. Accordingly, if the sale was sealed by December 31st, 2017 and by then the payment was received, tax rate would be charged (in 2017) at 49.72%; vice-versa, if the sale was closed by December 2017 but the payment was settled in 2018, capital gain would still be subject to former tax regime but charged in 2018. In essence, if we consider the sale of a qualified share whose closing date results in 2018, taking for granted that payment was received in the same year, tax rate would be charged (in 2018) at 58.14%; conversely, if the sale was closed in 2018, but payment received in 2019, tax rate would still be charged at 58.14% although pertaining to financial year 2019.

In essence, the effects of the new regulation will only appear on sales negotiated after January 1st, 2019.


Fabrizio Moscatelli

Chiara Vurruso

PKF - Studio TCL Tax Consulting Legal  –

Genoa  –  Milan

TAG : Tax corner