No withholding tax is applicable for foreign collective investment undertakings (CIUs) that indirectly participate an Italian real estate funds.
Decree 351/2001 provides for a withholding tax exemption regime to Italian real estate funds profits distributed to the following foreign investors:
The ruling n. 43/2018 deals with a fund set up under the law of the Cayman Islands which indirectly owns a speculative Italian property fund.
In the case represented to the Italian Tax Authority the foreign fund:
The main element to be able to benefit from the exemption is to be considered an “institutional investor qualification”. It Is possible to consider “Institutional investors” as States and foreign public entities set up in "white list" countries that are subject to forms of prudential supervision.
As the limited partnership is a company controlled by a CIU that manages the reserves of a State, the Italian real estate fund indirectly involved can be considered an "institutional fund" thus the withholding exemption can be applied on distributions from Italian real estate funds.
This exemption regime is applied not only in the case of direct participation in the Italian real estate fund but also if the investors participate via a corporate vehicle that implements the investment. The vehicle participated in does not necessarily need to be resident in the same state as the participant.
Thus, the proceeds deriving from the indirect participation of the Cayman Islands fund in the Italian real estate fund will not be subject to withholding tax pursuant to the relevant Decree.
The orientation carried out by the Italian Tax Authority is very important for U.S. institutional investors carrying out, directly or indirectly, investments via Italian real estate funds.