Italy

From the fiscal year following the one in progress on 29 December 2023 and, therefore, from 2024 for entities with a tax period coinciding with the calendar year, the criteria according to which tax residence is recognized on the basis of the principal business activity has been eliminated.

From that time, companies and entities are deemed to be resident in Italy if they have in the territory of the State, for the greater part of the tax period, either:

• The legal office.
• The place of effective management, which is the place where the company’s strategic decisions are made.
• Their principal place of ordinary management, which is the place where acts of day-by-day management are carried out.

A foreign company holding one or more Italian subsidiaries is deemed to be resident in Italy for tax purposes if at least one of the following conditions exists:

• The foreign company is, either directly or indirectly, held by Italian tax resident persons.
• The board of directors of the foreign company is made up mainly of Italian resident individuals.

Non-resident companies are subject to IRES and IRAP only on their Italian-source income. Specifically, Italian non-resident companies having a PE in Italy are subject to IRES and IRAP with respect to the taxable income generated from the PE in Italy.

Permanent establishment (PE)

The domestic definition of PE is substantially aligned with the OECD model.

Corporate residence of a trust

Trusts are considered as persons subject to corporate taxation.

Residence is defined on the basis of the location of the place of effective management or of the place of ordinary management. In the absence of any such structure, trusts managed by a trustee will be deemed as tax resident in Italy if the trustee is tax resident in Italy; in case of more than one trustee, a case-by-case analysis shall be conducted in accordance to specific guidelines.

In addition, trusts that have the largest part of their assets located in Italy (e.g. real properties or real rights) are deemed to be tax resident in Italy; nevertheless, in case the assets are composed of financial activities, an ad hoc analysis is required to define the place of effective course of business, being irrelevant the residency of the trustee(s).

Note that there are anti-avoidance rules for Italian non-resident trusts, setting out the specific conditions on which these trusts can become Italian tax resident.