Taxation of trust in Italy

di Marco Stangalini


The common law of trust has been recognized in Italy from 1992 with the ratification of the Hague Convention, but Italian Civil Law does not contain any express provision for the trust.
So a trust set up according to foreign law is recognized in Italy and subject to the provisions of the convention.
The Italian Tax Code (Law 22 December 1986, n. 917)  contains an express provision of trust in the new article n. 73, with effect from January 1 of 2007.
Therefore the Finance Ministry has introduced a tax definition of the trust and antiabuse rule with the Circular 48 E of 2007. This circular explains the approach of the authorities in formulating a tax regime applicable to a foreign law trust.

Definition of Trust

In the circular, there is the  definition of  a common-law trust.
Different trust categories can be distinguished:

  1. The trust in which income beneficiaries can be identified: This is considered a look-through trust. The income arising in the hands of the trustees flows for tax purposes directly to the beneficiaries and is taxed under the normal rules covering income from capital investment.
  2. The trust in which no beneficiaries can be identified: This is considered an autonomous trust, subject to Italian corporate income tax regulations.
  3. A third category of trust is also identified; a mixture of the look-through and autonomous trust. When the trust deed provides that a portion of the income is to be accumulated and a portion paid to beneficiaries, the trust is considered to be an autonomous trust for the income accumulated and a transparent trust for portion paid to beneficiaries.


The residence of a trust is determined according to normal domestic rules on residence. The rules deem a legal entity to be resident in Italy when at least one of the three following conditions is met:

  1. the legal seat  (that is a registered office or place for service) is in Italy;
  2. the place of effective management is based in Italy; or
  3. Italy is the country where the business activities are primarily carried on.

Regarding the place of effective management, it is necessary to look at where the trust has some business premises or employees and where the trustee is resident.
The final criterion is more difficult to be applied in the presence of multiple activities of the trust. In such case, to establish where is the residence of the trust, it is necessary to determine which activity is prevalent. 

Antiabuse Rule and Presumption of Residence

The antiabuse rule :

  • A trust is considered to be resident of Italy when its residence is established within a country that does not allow the exchange of information with Italy (country not included in the so-called white list), and:
    • at least one of the settlors and at least one of the beneficiaries is an Italian tax resident; or
    • following the constitution of the trust, an Italian resident individual or entity transfers the ownership (or any related rights) of real estate to the trust.

In those cases, the tax authorities will consider the trust to be Italian tax resident. However, the taxpayer has the right to prove the contrary.



A trust resident in Italy is considered a nontransparent tax entity and subject to corporate income tax,  the applicable corporate tax rate is currently 27,5 percent.
The criterion to determine the taxable basis is related on the residence of trust and the activity performed:

  • An Italian tax resident trust performing business activities is subject to the same rules provided for Italian companies. The trust is subject to the same bookkeeping compliance, accounting rules, and rules for computing taxable profits just like any Italian resident business. Special rules, such as the participation exemption for capital gains and dividends, CFC regulations, and other similar domestic rules are applicable as well. Also regional tax on productive activities (IRAP) is due in addition to the corporate income tax.
  • An Italian tax resident trust that does not carry on any business is subject to the same rules applicable to individuals, based on different sources of income (real estate income, business income, capital income, and so on). The income so determined is subject to corporate income tax at rate of 27,5  percent but not to the regional tax on productive activities (IRAP).
  • A non-Italian tax resident trust is subject to tax in Italy, limited to Italian-source income only, in accordance with the normal rules for taxation of nonresidents.

From an accounting and compliance perspective, a trust subject to tax in Italy is also subject to tax return filing obligations, but only a trust carrying on a business activity must also meet bookkeeping fulfillments and VAT registration.



The trust is considered  a look-through entity when the deed identifies the beneficiaries and entitles them the right to receive the portion of the income arising in the trust.
Income to which beneficiaries are entitled, even if not actually paid, is taxable on an accruals basis as income from capital investment at the individual beneficiary's marginal income tax rate or corporate tax rate if the beneficiary is subject to corporate income tax.

Income arising from some investments held in the name of an Italian tax-resident trust, that does not carry on a business, is subject to substitute tax (final tax) at source, levied by the payer or financial intermediary. Substitute tax is currently fixed at 12.5 percent or 27 percent. The circular explains that income subject to substitute tax at the trust level is then excluded from taxable basis regardless of whether the trust is considered as a look-through entity.


Indirect Taxation

The circular 3E of 2008 has  determinated that  a trust is also subject to indirect taxation.
The transfer of an asset to a trust is subject to inheritance and gift tax.
The tax rate applicable depends on the familial relationship existing between the settlor and the beneficiaries:

  • Spouse and relatives: 4 percent over €1 million.
  • Brothers and sisters: 6 percent over €100,000.
  • Relatives up to 4th degree and collateral relatives up to 3rd degree: 6 percent.
  • Others: 8 percent.
  • For a purpose trust without beneficiaries: 8 percent.
  • Exception: when the settlor's descendants are nominated as beneficiaries and the trust has as its object a business enterprise or shares of a company that is not subject to indirect tax, an exemption is given under the Italian gift and inheritance tax code.


Italy's rules for trust has tried to fill a gap in the national tax system. These rules are far from be complete and leave many gray zones.
The antiabuse rule on the tax residency of trust is potentially dangerous and may be a trap, it should be controlled in all the cases a trust has any liaison with Italy.
For these reasons the tax treatment of trust in Italy is a theme that will need further attention.