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Italy’s 2023 Budget Bill introduced, in the Italian Income Tax Act (IITA), an Investment Management Exemption (IME) which is effective as of 1 January 2023. The IME is a ‘safe harbor’ that allows eligible foreign investment vehicles (including private equity and hedge funds) and controlled entities to avoid being deemed a permanent establishment (PE) in Italy due to local activities carried out by their investment managers.

The IME includes: 

  • a ‘safe harbor’ aimed at encouraging the establishment of investment managers in Italy and under certain conditions, the elimination of PE issues for the foreign investment vehicles and controlled entities, and
  • a connection to the presence of such investment managers in Italy (whether they are traders, deal teams, local partners, etc.), and removes the triggering of a ‘nexus’ for the investment income of the investment structure (and therefore of the investors).

The Italian Ministry of Economy and Finance will implement the IME through a decree.

Action item: Foreign investment vehicles should consider how the IME could impact their operations. They should analyze their position for Italian tax purposes and consider the potential benefits of the new safe harbor. In addition, they should consider the potential Italian tax benefits for individuals under the so-called ‘impatriate’ regime.