Several recent rulings concerning the tax exemption applicable to institutional investors into Italian real estate investment funds (“*REIFs*”) have provided additional clarity on the Italian tax position. In addition to the existing official guidelines on taxation of investment funds, these latest rulings give guidance on the most recurrent investment schemes typically used by international institutional investors into the Italian market.

Italian tax and exemptions on income of non-resident investors into Italian REIFs

While Italian REIFs are generally not subject to income taxes (with some exceptions), non-resident unit holders (holding the units through a non-Italian permanent establishment) may be taxed on:

(i) proceeds distributed by the REIF (with a final 26% withholding tax); or
(ii) capital gains arising from the sale of the REIF’s units (with a final 26% substitutive tax or exceptionally at the standard tax rates).
In both cases, subject to certain conditions, non-resident unit holders may qualify for a full tax exemption. With particular regard to the withholding tax, a full exemption applies to proceeds paid to:

  • foreign pension funds and foreign investment funds established in countries included in a so-called "white list";
  • international entities or organizations established in accordance with international agreements enforced in Italy and central banks or institutions which also manage the official reserves of a country (including sovereign wealth funds).



Such exemptions apply in the case of both direct investment and indirect investment into Italian REIFs through a wholly owned investment vehicle.

For investors not entitled to the above exemption, tax treaties may provide for tax relief depending on the circumstances.

Latest guidelines on withholding tax exemptions

With regard to foreign pension funds and investment funds established in countries included in the "white list” (currently consisting of more than 130 States/territories including U.S.A., Singapore and Cayman Islands), the Italian tax authorities have made it clear that it is necessary to assess whether the foreign entity can be assimilated into an Italian fund (for tax purposes).

For these purposes, the foreign entity should have following characteristics (duly documented):

  • the entity’s capital is represented by units subscribed to by a plurality of investors;
  • the investment policy is clearly identified in the fund rules;
  • the entity is managed by a managing company acting autonomously and independently from the investors (who do not have managing rights), pursuant to the fund rules;
  • the entity or its manager is authorized to carry out its activity by a public regulatory body (and is subject to regulatory oversight);
  • other (e.g. the entity’s assets are deposited with a third custodian).

In such context, the latest guidelines confirm that the withholding tax exemption may apply to the following entities considered akin to Italian REIFs:

(i) a Singaporean real estate investment trust whose managing entity, set up and established in Singapore, is duly authorised by and subject to the surveillance of the Monetary Authority of Singapore. Such an entity is set up as a unit trust and the deed of trust identifies its investment policy. The tax authorities clarified that although unit trusts are generally different from Italian investment funds, in this case the Singaporean REIT meets the minimum conditions listed above;
(ii) a Cayman Islands limited partnership whose managing entity, set up and established in U.S.A., is duly authorised by the U.S. securities and Exchange Commission (the tax authorities clarified that umbrella registrations pursuant to SEC’s regulations may also qualify for these purposes). In this context, a manager is an independent entity specifically appointed by the general partner of the limited partnership, in charge of the investment decisions, acting autonomously and independently from the limited partners pursuant to a clearly identified investment policy;
(iii) a US limited partnership whose managing entity, set up and established in U.S.A., is duly authorised by the U.S. securities and Exchange Commission, having as its sole limited partner a vehicle fully owned by a State’s Monetary Authority. The tax authorities clarified that a State’s Monetary Authority still represents a plurality of investors for Italian tax purposes (in other cases the tax authorities reached the same conclusion for sovereign wealth funds).

In all the above cases, the exemption from withholding tax (as well as substitutive tax) is always subject to procedures and formalities that the investors should meet in a timely fashion. Most of the time, the level of analysis and the documentary evidence depends on the approach taken by each Italian fund manager acting as withholding agent.

A preliminary analysis of the investment scheme and of the entities involved for Italian tax purposes is crucial at the investment planning and structuring stage.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.