2023 budget bill introduces the permanent establishment Investment Management Exemption

Prepared by Dario Sencar, Gianluigi Bizioli, Andrea Porcarelli, Elena Briguglio and Simone Acerbis

The 2023 Budget Bill (Budget Bill), expected to be enacted before year end, introduces in the Italian income tax act (IITA) the Investment Management Exemption (IME) that, in a nutshell, is a safe harbor aimed at providing certainty to foreign investment fund (and controlled entities) over the no triggering of a PE due to the activities in Italy of fund’s (senior) asset managers.

Key topics connected to the IME includes:

  • The introduction of a “safe harbor” from PE issues aimed at encouraging the transfer of fund’s managers in Italy.
  • The reduction of the risk connected to the presence of fund’s managers in Italy (whether they are traders, deal teams, local partners or other) e.g., the attraction and taxation of fund’s income (therefore of non-resident investors) in Italy.
  • Allowing the operations of sponsor’s management companies (and PE) in Italy (with regular taxation of the business income of management companies) but granting the fund (and therefore the investors) the maintenance of the tax regime of the country of residence/location.

The Italian Ministry of Economy and Finance shall implement the regulation through a decree.

Foreign investment funds should consider their potential impact structures in the light of the new IME. They should analyze their position for Italian tax purposes and consider the benefits deriving from the new exemption (also in the light of the potential Italian tax benefits for individuals, so called “impatriate” regime).


The exemption

As regards the definition of the agency PE the new para. 7ter of Article 162 of IITA, as proposed by the Budget Bill, provides that a PE does not exist if independent (see below) asset/investment managers (both Italian or non-Italian tax residents, including those operating in Italy thorough a PE), habitually, and even exercising discretionary powers,

  • enter into contracts for purchasing, selling or negotiating financial assets, derivative and receivable on behalf of the foreign investment vehicles (or their direct / indirect controlled companies),
  • actively contribute, including with preliminary and ancillary activities, to the executions of the transactions under previous point.

For the purposes of the exemption the asset/investment management are deemed to be independent if (new para. 7quater of Article 162 of ITC):

  • The foreign investment vehicle (and its subsidiaries) are resident or located in a “white list” country (see Article 11(4)(c) of Legislative Decree no. 239 of 1 April 1996).
  • The relationship between the foreign investment vehicle (and controlled entities) and the asset manager meets the following independence requirements (that will be detailed by a Decree that will be issued from the Ministry of Economics and Finance):
  • The asset / investor manager which carries out its activity in Italy – in the name of and/or on behalf of the foreign investment vehicle,
  1. does not hold any directorship/managing power on controlling bodies of the investment vehicle (and of its direct or indirect subsidiaries), and
  2. has no entitlement on more than 25% of the profits of the foreign investment vehicle (also considering profits entitlements held by other entities of the group).
  • The Italian tax resident asset / investor manager – or (if any) the permanent establishment in Italy of the non-resident entity – should support its remuneration by proper transfer pricing documentation (as set for Article 1(6) of Legislative Decree no. 471 of 18 December 1997). A guidance of the Italian Tax Authorities will provide guidelines.

Additionally the Budget Bill also introduced para. 9bis of Article 162 of IITA regarding the PE fixed place of business exemption to the foreign investment vehicles (and its controlled entities). More in detail, provided that the above conditions are met, the Italian entities – carrying out activity in Italy through Italian based personnel – do not constitute an Italian Pe fixed place of business of the foreign investments vehicle merely due to the fact that the activity exercised by the Italian enterprise is for the actual benefit of the foreign investment vehicle.

The new IME regime is particularly relevant considering the potential tax benefits allowed to inbound individuals and the “new” certainty that will be allowed to foreign investment vehicles in Italy.

The so-called ‘impatriate’ regime

The Italian legal system introduced the Inbound Tax Regime in 2015, the aim of which is to attract human capital to Italy in order to contribute to development of the country’s economy.

The Inbound Tax Regime applies once taxpayers have met the following requirements:

  • transfer of tax residence to Italy pursuant to Article 2 of the IITA;
  • the taxpayer has not been in Italy during the two tax periods preceding the transfer of residence for tax purposes to Italy;
  • the new resident undertakes to keep Italian residence for at least two years; and
  • the taxpayer carries out his/her activity mainly in Italy.

Upon meeting the above conditions, Article 16 of the Decree provides that individuals who transfer their tax residence to Italy must include only 30% of their employment income (as well as their self-employed and business income) in their taxable income. This provides an effective tax rate for the natural person of approximately 13%.

When the requirements of the Inbound Tax Regime are met, the application of the tax benefits described above will apply to the new resident starting from the year in which the transfer of his/her tax residence took place and for the following four tax periods (with the possibility, provided for by the paragraph 3-bis of the provision in question, to extend the period of eligibility for the regime, under certain conditions, for an additional five tax years).

The benefits of the new provision on PE IME are even more relevant when considered in combination with the Inbound Tax Regime envisaged by the Italian legal system. Foreign investment funds may indeed consider the incentives deriving, on one hand, from the PE IME in terms of legal certainty, with particular regard to the safe harbor rule concerning the potential existence of a PE in Italy, and, on the other hand, from the Inbound Tax Regime potentially applicable to its managers transferring their tax residence to Italy, since they will be able to get a higher net wage with the same payout for the non-resident investment fund.

Let’s Talk

For a deeper discussion, please contact:

International Tax Services, Italy

Alessandro Di Stefano

PwC TLS Avvocati e Commercialisti


Dario Sencar

PwC TLS Avvocati e Commercialisti


Mergers & Acquisitions, Italy

Nicola Broggi

PwC TLS Avvocati e Commercialisti


Marco Vozzi

PwC TLS Avvocati e Commercialisti


Private clients, Italy

Pasquale Salvatore

PwC TLS Avvocati e Commercialisti


Gianluigi Bizioli

PwC TLS Avvocati e Commercialisti

Of Counsel