Dividends: regulations and taxation regime

How are dividends taxed? What are the differences between the taxation of dividends for the entrepreneur shareholder and the private shareholder? The taxable portion of dividends and capital gains increases to 58.14% from 2017, for non-entrepreneurs (Articles 47 and 68, paragraph 3 of Presidential Decree no. 917/86) and for entrepreneurs subject to Irpef (Articles 58, paragraph 2 and 59 of Presidential Decree no. 917/86). 

Dividends represent profits deriving from the ownership of a share (quota or stock), in parties liable to corporate income tax (Ires parties, as per Article 73, Paragraph 1 of Presidential Decree 917/86), and in particular:

  • Resident corporations and business entities;
  • Resident non-commercial entities;
  • Non-resident companies and entities.

The category of dividends also includes profits distributed in connection with the withdrawal and exclusion of shareholders, the reduction of excess capital, and the liquidation, including insolvency, of the company.

However, the taxation of dividends by the shareholder is different, depending on whether the shareholder is a natural person acting “privately” or as an entrepreneur.

In both cases, however, the two types of a taxpayer are united by the cash principle.

Therefore, for taxation purposes, the time of actual receipt of the dividend is relevant (the so-called “cash principle”) and not that of its mere accrual.

Let us see, below, how dividends received by companies are imputed and taxed.

Cash basis

For the generality of taxpayers (including, therefore, entrepreneurs), dividends are taxed on a cash basis. The moment of actual receipt is relevant, irrespective of whether the dividend was recorded in the financial statements in a previous year. The date on which the distribution of profits was resolved is not relevant for this purpose.

Taxation of dividends

As a result of the combined provisions of Article 3 and Article 23 of Presidential Decree 917/86, dividends are subject to taxation in Italy:

  • Whenever the party is paying, it is a resident party (or a permanent establishment in Italy of a non-resident party). This is irrespective of whether the entity receiving it is resident or not;
  • Only when they are received by a resident entity (or by a permanent establishment in Italy of a non-resident entity) if the entity paying them is non-resident.

The taxation of dividends varies depending on the characteristics of the recipient, viz:

  • If the recipient is an individual engaged in business;
  • If the recipient is a “private” entity.

We can have two different cases of taxation.


Dividends received by non-entrepreneurial individuals must be taxed in the tax return.

This is in the presence of specific conditions and, according to particular modalities, differentiated according to the:

  • Participation Qualification;
  • To the period of formation of profits;
  • And the residence of the person who produced them.

A distinction must be made according to the characteristics of the shareholding when the profits are received.

We can have qualified and non-qualified holdings.

Qualified and unqualified shareholdings

The requirement of qualification of the shareholding is found, from a tax point of view, in Article 67, paragraph 1, letter c) of Presidential Decree 917/86.

According to these rules, qualified investments are those which (depending on the nature of the investee) have the following characteristics:

  • Companies with securities traded on regulated markets:
    • Voting rights exercisable at the Ordinary Shareholders’ Meeting above 2%;
    • Shareholding in the share capital (or assets) exceeding 5%;
  • Companies that do not have listed securities:
    • Voting rights exercisable at the Ordinary Shareholders’ Meeting over 20%;
    • Shareholding in the share capital (or assets) over 25%.

Taxation systems according to qualification

The distinction between qualifying and non-qualifying holdings is essential.

This is because based on this distinction, there are two different taxation regimes for the dividend received:

Dividends from qualifying holdings

If the profits received derive from qualified shareholdings, they are included in the formation of the overall taxable income limited to the amount of the shareholding:

  • 72% of their amount, for dividends, received up to 31.12.2016.
  • 14% of their amount for dividends received since 2017.

No withholding tax is levied on profits, provided that the requirements of qualified participation are declared at the time of receipt. Consequently, the gains received must be indicated in the annual income tax return.

As of 2018, Law No. 205/2017 provided for the application of a 26% withholding tax.

Dividends from non-qualified equity investments

The company paying the dividends applies a 26% (from July 2014) withholding tax when paid.

They are withholding tax to be applied on the entire amount received as a dividend. This, with no option for ordinary taxation for the receiving shareholder.

Tax return

In the income tax return, the individual who has received, outside the business regime, profits from qualified shareholdings in companies resident in Italy or from shares – including non-qualified shares – in foreign companies and entities of any kind. Including those domiciled in privileged taxation territories, it is required to complete section I-A of the R.L. framework of the Income Tax Return for Individuals.

The relative compilation must be carried out based on the cash principle, recording only the amounts received in the tax period subject to taxation. Irrespective of the time at which the corresponding right arose, i.e., the shareholders’ meeting resolution date to distribute profits.

The company paying out the dividend or the financial intermediary will apply a withholding tax at the rate of 26% on the entire amount of the dividend.

Taxation of dividends from 2018

Given what has been said so far, dividends received by individuals who are not entrepreneurs are subject to a 26% withholding tax.

In practice, from 2018, the taxation of dividends is irrespective of the nature of the holding (qualified or not). In both cases, the company paying the dividend must apply a 26% withholding tax on the dividend paid.

Under this scheme, the non-entrepreneur partner receives the dividend directly after taxation. For this reason, for the non-entrepreneur partner, the dividend does not have to go through the tax return.


The rules applicable to entrepreneurs are differentiated according to the tax status of the shareholder:

  • Individual entrepreneurs and partnerships: Article 59 of Presidential Decree 917/86;
  • Joint-stock companies: Article 89 of Presidential Decree 917/86.

Individual entrepreneurs and partnerships

Article 59 of Presidential Decree 917/86, and Article 1, paragraphs 1 and 2 of Ministerial Decree 2/04/2008 establish that dividends received by individuals subject to IRPEF (individual entrepreneurs, Snc and Sas) – similarly to non-entrepreneurial individuals who hold a qualified shareholding – are included in the formation of income to the extent of 50%:

  1. 00% if relative to profits accrued up to the financial year in progress as of 31 December 2007;
  2. 72% if produced subsequently until 31 December 2016;
  3. 14% if produced from 01.01.2017;
  4. 100%, if they derive from an investment in a company located in States or territories with preferential taxation.

Joint-stock companies

Dividends are a form of income that can be subject to double taxation:

  • Once in the hands of the collective subject upon formation;
  • A second time in the hands of the shareholder at the time of distribution.

In the current regulatory framework, the (partial) removal of double economic taxation is entrusted to the criterion of exemption.

The company receiving the dividend applies an exemption of 95%. This is what is provided by Article 89, paragraph 2 of Presidential Decree 917/86.

These rules provide for the taxation for IRES purposes of 5% of the dividend received by the resident recipient. This discipline is also applicable if the investor company does not reside in Italy. Except in the case where the investor is located in a Black List country.


For foreign source dividends, the criteria according to which:

  • The profit contributes to the formation of the taxable base within the limit of 5%;
  • No (Italian) withholding taxes apply.

This is what is provided for paragraphs 2 and 3 of Article 89 of Presidential Decree 917/86. Basically, for the Italian company referred to in Article 73 of Presidential Decree 917/86, there is no difference between an Italian dividend and a dividend received from a White List subsidiary.

If, on the other hand, the dividend is paid by a subsidiary resident in a Black List country, the situation is different. In this case, the dividend received is fully taxable.

Dividends received from Black List subsidiary

The notion of countries with privileged taxation applies to all taxpayers (individuals and companies). This is because it is referred to both:

  • Article 47 of Presidential Decree 917/86, which regulates the taxation of dividends received by individuals;
  • Article 89 of Presidential Decree No. 917/86 applies to corporations.

How do you identify a Preferred Tax Country?

To verify whether a state is to be considered as having a privileged tax status, it is necessary to adopt this criterion:


Once it has been determined whether or not the country in which the dividend is paid is a privileged tax country, reference should be made to the taxation rule.

Possible reasons for exemption from full taxation

Alongside this natural regime of taxation of Black List dividends, it is possible to arrive at the disapplication of this legislation.

The disapplication of the discipline on dividends occurs when one of the following exemptions occurs:

  • First Exemption. The investee company engages in actual economic activity through the use of personnel, equipment, assets, and premises;
  • Second exemption. The participation does not have the effect of locating income in States with a preferential tax regime.

The demonstration of the so-called “second exemption” allows to benefit:

  • Only to the extent of 5% of the amount of dividends received in the tax period;
  • 95% exemption of capital gains on investments that meet the requirements for participation exemption (Article 87 of Presidential Decree 917/86).

The second exemption is deemed to be met by demonstrating that the investment in the company located in a privileged tax state did not result in a significant tax saving.

This means that this presumption can be overcome (also) by demonstrating that the tax burden of the foreign subsidiary is not less than half of that to which it would have been subject if resident in Italy.

For these purposes, however, the individual tax levels are required to be compared using the respective effective tax rates.


In this article, I have attempted to outline the taxation regime for dividends. This is for both the individual and corporate recipient.

Receiving a dividend inevitably results in taxation, which differs depending on whether a company gets it or not.

Particular attention should be paid to the derogatory regime for individuals, valid until 31 December 2022.

1 thought on “Dividends: regulations and taxation regime”

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top