Decree n. 17/2022 has eventually reintroduced the special tax regime that allows the step-up of participations held in non-listed companies by individuals for capital gain tax purposes.
This special tax regime – whose terms have been renewed from time to time in the previous years, and remarkably not renewed by the Finance Bill for 2022 - can be of interest to taxpayers intending to transfer non-listed participations sometime soon.
Ordinarily, the transfer of a participation results in the application of the substitute tax (26% rate) on the capital gain, calculated as the difference between (i) the selling price and (ii) the cost relevant for tax purposes).
The special tax regime allows the step-up of the tax value of a participation up to its market value, through the payment of a substitutive tax at 14% rate.
To execute the step up, the following conditions shall be met:
- the participation shall be represented by shares or quotas in Italian / foreign companies
- the taxpayer shall own the participation as of 1st January 2022
- an appraisal of the market value of the participation as of 1st January 2022 shall be drafted by an Italian auditor or certified tax advisor and sworn by 15th June 2022
- the substitutive tax shall be paid within 15th June 2022, entirely (or only for the first of three annual instalments; on the second and third instalments interest are due).
The substitute tax at 14% rate is to be applied on the entire amount of the market value of the participation as appraised. Therefore, a cost-benefit calculation in terms of convenience between the 14% rate on the total market value of the participation and the 26% rate on the capital gain shall be performed.
The special tax regime can be opted by the following taxpayers:
- Italian tax resident individual acting out of the course of a business activity
- Italian partnerships and non-commercial entities, if the participations are held out of the course of a business activity
- non-Italian tax resident individual with no permanent establishment in Italy.
For non-Italian tax resident individual, the option for the step up is either doable under the application of a Double Tax Treaty, if the taxing rights are allocated to Italy, or in case no Double Tax Treaty has been entered between Italy (as the source State of income) and the State of residence of the owner of the Italian participations.
We are available to provide you with any additional information to verify the implications to your specific case.
