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Latest news on Italian Investment Funds 

Published: May, 2011

Submission: August, 2011


Latest news on Italian Investment Funds: Italian Government withdraws proposed regulatory changes affecting real estate and private estate equity funds and adopts new taxation scheme for investors in real estate funds. 

1) Legal Framework

On 5 May 2011, the Italian Government approved a new law decree (the “Law Decree”) containing urgent financial provisions, which at article 8, paragraph 11, contains specific provisions on the regulatory requirements for investment funds and the taxation of investors in real estate investments funds (“REIFs”). In particular, the Law Decree partially abrogates the provisions of article 32 of law decree no. 78 of 31 May 2010 (“Decree 78/2010”).


Decree 78/2010, which was aimed at preventing the use of REIFs for mere tax avoidance purposes, amended the Italian law definition of “investment fund”, delegated the Ministry of Economy and Finance (“MEF”) to adopt a new regulation specifying the requirements to be met by any investment funds as to plurality of investors in the fund and investors’ influence on the management of the fund, and introduced a special one-off taxation for REIFs not matching said requirements.

On the basis of the provisions of Decree 78/2010, on 7 April 2011 the MEF started a public consultation process on a proposed new regulation (the “MEF Regulation”) amending the existing regulation on investment funds (both real estate and non real estate funds). In particular, the MEF Regulation was proposing to impose a minimum number of investors (not less than five investors unrelated the one to the other) that any investment fund would have to meet in order to be qualified as such, as well as other restrictive provisions mainly affecting private equity and real estate investment funds (see our Newsletter of 8 April 2011).

The MEF Regulation has been widely criticised in the last few weeks because it was seen as restricting excessively the investment through funds and unreasonably discriminating certain classes of investors.

The new Law Decree:

·  maintains the new definition of investment fund provided by Decree 78/2010;

·  cancels the delegation given to the MEF to further specify such new definition;

·  cancels the taxation provided for REIFs that as of 31 May 2010 were not complying with the new definition of investment fund (as further specified by MEF); and

·  introduces a new future taxation regime and a one-off taxation for investors in REIFs.

The Law Decree has not yet been published in the Official Gazette of the Republic of Italy and, accordingly, it might be subject to minor changes before it will become officially effective.

The Law Decree also provides that the Italian Tax Agency will have to issue specific guidelines for the application of the Law Decree.

2) Regulatory Changes

Although it does not provide it directly, the Law Decree should cancel the proposed provisions of the MEF Regulation requiring a fixed minimum number of investors. Accordingly, it should be sufficient for the existence of an investment fund that a “plurality” of investors exists (as it is provided by the EU regulation on collective investment schemes, namely the UCITs IV and the AIFM Directives).

In addition, the Law Decree supports the possibility for a REIF to be participated by only one unitholder, provided that such unitholder is a corporate or contractual vehicle representing a plurality of investors.

The proposed MEF Regulation, however, contains a number of other provisions on investment funds which are not affected by the Law Decree. In particular, the MEF Regulation – adopting an approach more restrictive than the MIFID Directive – contains a prohibition for any investment fund to enter into any transactions with the directors and the shareholders of the fund management company and any of their affiliates.

Accordingly, it will be important to see if and how the MEF will decide to amend the MEF Regulation and which regulatory changes will be adopted.

3) Proposed New Tax Regime for REIFs Investors

The tax regime existing as of today sees REIFs exempted from income tax levies and taxation applied to profits distributed to investors.

In particular, a 20% withholding tax applies to any profit distribution to investors. Only distributions made to the benefit of other collective investment schemes and pension schemes established in countries allowing exchange of information necessary to determine tax beneficiaries and so identified by a MEF decree pursuant to article 168-bis of the Italian Income Tax Act (so called “White List Countries”), international organizations, central banks and sovereign funds are exempted from tax withholding. In addition, the tax withholding rate applied to distributions made to foreign investors may be reduced in accordance with the provisions of applicable double taxation treaties (see Italian Tax Authority Guidelines no. 11/E of ) March 2011).

The Law Decree would introduce a new taxation approach according to which:

(a)  Only some specifically qualified investors (the “Special Qualified Investors”) would continue to benefit of the existing tax regime;  

(b)  For any other investors holding (either directly or indirectly through controlled entities, trust, nominees or family related individuals) more than 5% of the units (the “Relevant Investors”), the REIF would become tax transparent and the income of the REIF (regardless of any actual distribution) would be attributed to Relevant Investors proportionally to their participation;

(c)  The income to be attributed to foreign investors would be subject to a 20% tax withholding (the Law Decree does not contain any reference to double taxation treaties and, accordingly, it will be important to see the Italian Tax Agency view on this matter);

(d)  Although the Law Decree does not state it, it appears that unitholders holding 5% or less of the units of a REIF may continue to benefit of the existing tax regime.

Specially Qualified Investors include: 

· The Italian State and other governmental or public entities;

· Collective Investment Schemes;

· Pensions Schemes (both compulsory and private pension schemes);

· Insurance Companies to the extent investing technical reserves;

· Banks and other Financial Intermediaries subject to prudential supervision;

·  Foreign entities corresponding to any of the above categories, to the extent they are established in White List Countries;

·  Italian private entities pursuing exclusively the social purposes identified in article 1, paragraph 1, letter c-bis of legislative decree no. 153/1999[1] and Italian mutual purpose companies;

·  Any corporate or contractual vehicle more than 50% participated by any of the entities falling in the above categories.


Relevant Investors would be required to pay a one-off 5% tax to be calculated on the average value of the units that they have hold in the year 2010. Such 5% tax will have to be paid in two instalments, on 16 December 2011 and 16 June 2012.

As an alternative to the above, REIFs that as of 31 December 2010 had at least one Relevant Investor may, subject to resolution of its participants to be passed by 31 December 2011, be liquidated and pay (a) a one-off 7% tax to be calculated on the NAV as of 31 December 2010; and (b) starting from 2011 until the liquidation is completed, an annual 7% tax replacing any other income tax. Any profits subsequently distributed to investors would then not be subject to 20% tax withholding and would not be taxed to the extent covered by the above 7% levies.




[1] So called "Settori ammessi": Family and connected relationship; child care and education; schooling, education and training, including editorial materials for schools; voluntarism, philanthropy and charity; religion and spiritual education; elderly assistance; civil rights; 2) crimes prevention and public security; food safety and quality controlled agriculture; local development and social housing; consumers’ protection; civil protection; public health, preventive and rehabilitative medicine; sport; drugs addiction prevention and therapy; mental disorder; 3) technological and scientific research; environment protection and quality; 4) arts, cultural and artistic heritage.





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