The 2023 Budget Bill, expected to be enacted before year-end, introduces in the Italian Income Tax Act (IITA) an investment management exemption (IME). In brief, the IME is a safe harbor aimed at providing certainty that foreign investment funds (and controlled entities) will not trigger a permanent establishment (PE) due to activities in Italy of a fund’s (senior) asset managers.
Features of the IME in the Budget Bill include:
- A ‘safe harbor’ from PE issues aimed at encouraging the transfer of fund managers to Italy.
- Reduced risk connected to the presence of fund managers in Italy (whether they are traders, deal teams, local partners, etc.), thereby seeking to reduce the attraction and taxation of fund income (and therefore of nonresident investors) in Italy.
- Allowing the operations of sponsor management companies (and PEs) in Italy (with regular taxation of the business income of management companies), and allowing the fund (and therefore the investors) to maintain the tax regime of the country of residence/location.
The Italian Ministry of Economy and Finance will implement the regulation through a decree.