Key measures include dividend taxation, the participation exemption (PEX) regime for capital gains, withholding taxes on outbound dividends, and the Italian financial transaction tax (IFTT, so-called Tobin Tax). It also covers targeted measures on variable compensation in the financial sector, IRAP treatment of dividends for regulated intermediaries and insurers, a new VAT assessment procedure for omitted returns, and the revised flat tax for new resident individuals.
Read our analysis to understand how these measures may impact your business.
Dividend exemption regime: new thresholds and minority holdings
Under prior rules through fiscal year 2025, dividends received by resident entrepreneurs generally benefited from a partial exclusion from taxable income equal to 95%, and dividends paid by Italian companies to Italian or EU/EEA companies were effectively taxed at 1.2%, irrespective of the participation size.
From January 1 2026, the Budget Law narrows access to this preferential treatment. The reduced 1.2% effective rate (for dividends paid to Italian or EU/EEA companies) and the 95% exclusion (for resident entrepreneurs) apply only where the shareholder meets at least one of the following thresholds:
- A direct or indirect participation of at least 5% in the share capital or voting rights of the distributing company
- A participation with a tax value of at least EUR500,000. For equity-like participating instruments without voting rights (e.g., strumenti finanziari partecipativi), only the value threshold is relevant.
If none of the above threshold is met, dividends fall under ordinary taxation rules (generally fully subject to Italian income taxes if received by resident entrepreneurs or subject to a 26% withholding tax, eventually reducible under the double tax treaty rules or other special exemption domestic rules, if beneficially received by non-Italian resident recipient), marking a policy shift that distinguishes economically significant holdings from smaller portfolio stakes. This tightening specifically impacts minority shareholdings, including positions commonly used in stock lending, repos and similar transactions.
Capital gains and the PEX regime
Under existing rules, generally, certain capital gains benefit from a 95% participation exemption for IRES taxpayers. The Budget Law aligns the PEX access conditions with the dividend thresholds above. Therefore, capital gains qualify for the PEX regime only if the disposed participation:
- represents at least 5% of share capital or voting rights, held directly or indirectly
- has a value of at least EUR500,000.
The new capital gains measure applies to shareholdings acquired on or after January 1, 2026.
Increase of the Italian financial transaction tax (IFTT)
The Budget Law doubles the proportional rates of the IFTT. IFTT applies to transfers of ownership of shares and equity-like instruments issued by Italian-resident companies above certain market capitalization thresholds, and to transactions in certain derivatives whose underlying or value is linked to such instruments or related indices. A separate higher-frequency trading tax (HFT Tax) applies on captured order-entry activity. The tax is due regardless of the place of execution where the instrument is within scope; collection and reporting obligations fall on intermediaries executing or settling the transaction, or on the taxpayer if no Italian intermediary is involved.
Rates until December 31, 2025:
- 0.2% on purchases of in-scope shares and equity-like instruments (0.1% for transactions executed on regulated markets)
- 0.02% on high-frequency trading
Rates from January 1, 2026:
- 0.4% on purchases of in-scope shares and equity-like instruments (0.2% on regulated markets)
- 0.04% on high-frequency trading
The increased rates apply from January 1, 2026.
Disapplication of the 10% surcharge on variable compensation in the financial sector
The Budget Law 2026 derogates from the 10% surcharge that applied to the portion of variable compensation (including bonuses and stock options) exceeding the fixed component, paid to managers with an employment or continuous collaboration relationship in the financial sector.
From 2026, the 10% surcharge does not apply if the employer pays, in favor of non-profit organizations, an amount at least equal to twice of the additional 10% rate, provided such organizations are not the employer’s direct or indirect controllers, controlled entities, or under common control. Implementing regulations will be issued by the Director of the Italian Revenue Agency.
IRAP treatment of dividends for banks, insurance companies, and other regulated intermediaries
The Budget Law 2026 provides that 95% of dividends distributed by companies’ resident in an EU Member State or in an EEA State allowing exchange of information with Italy are excluded from the IRAP taxable base of financial intermediaries (e.g., banks and SIMs) and insurance companies, provided the Parent-Subsidiary Directive 2011/96/EU requirements are met.
The 95% IRAP exclusion for intra-EU/EEA dividends applies from fiscal year 2025 onwards. For prior fiscal years, taxpayers may claim a refund within 48 months from the original payment for the portion of IRAP paid on such dividends. Alternatively, Italian banks may use the entire excess IRAP amount to offset certain reserves (affrancamento della riserva di extra profitti). Refund claims remain a preferred route for past periods, relying on the binding interpretative effect of the Court of Justice of the European Union’s case law on intra-EU dividends and the Budget Law 2026.
The new statutory measure does not specifically address domestic dividend distributions. However, recent Italian case law has increasingly favored the exclusion of dividends received by Italian financial institutions and insurance companies from the IRAP base, on the view that their inclusion contravenes EU law.
Moreover, the Budget Law establishes a temporary increase of the IRAP rate applicable to financial intermediaries (from 4.65% to 6.65%).
New VAT assessment in case of omitted annual return
Article 1, paragraph 111 introduces a fast-track VAT assessment procedure where the taxpayer fails to file the annual VAT return. In such cases, by December 31 of the seventh year following the one in which the return should have been filed, the Italian Revenue Agency may assess VAT due based on e-invoices, telematic receipts, and periodic VAT settlement data (LIPE).
Penalties are 120% of the assessed tax, reduced to 40% (one third) if payment occurs within 60 days.
Increase of the substitute flat tax for new resident individuals
The Budget Law increases the annual substitute tax for eligible individuals transferring tax residence to Italy and opting for the special foreign-source income regime. Until December 31, 2025, the flat tax is EUR200,000 for the main taxpayer and EUR25,000 for each qualifying family member. From January 1, 2026, the amounts increase to EUR300,000 and EUR50,000, respectively. The higher flat tax applies only to individuals who transfer tax residence starting from January 1, 2026; existing beneficiaries retain both their current flat tax and status.
Special regime for euro-denominated stablecoins
From January 1, 2026, capital gains and other income from crypto-assets (falling under Article 67(1)(c-sexies) of the Italian tax income code) will generally be subject to the 33% substitute tax introduced by the Budget Law.
A reduced 26% rate (instead of 33%) will instead apply for miscellaneous income arising from the holding, disposal, or use of euro-denominated e-money tokens. For the preferential regime to apply, eligible tokens must be stably pegged to the euro, with reserve assets fully denominated in euro and held with EU-authorized entities. In addition, the mere conversion between euros and such euro-denominated e-money tokens, as well as the redemption in euros at nominal value, does not constitute a realization event for capital gains or losses.
