This article is intended to help Walliance users understand the taxing of their profits. Tax regulations may have changed in the meantime, so we recommend that you ask your trusted accountant to calculate the tax on dividends received.
Let's immediately start by explaining that the taxation applied to dividends that you will receive from the proposed investments on Walliance can generally be divided into two generic cases.
Investment of a Natural Person: the company providing the dividends applies, at the time of their payment, a withholding tax of 26% on the entire amount, without the possibility of an option for ordinary taxation for the recipient shareholder. Investment of a Legal Person (Company): if the dividend, as often happens, is collected in a subsequent tax period, the amount of the tax is equal to the dividend multiplied by the taxable amount of the same, generally 5%.
Walliance is the first Italian portal of real estate crowdfunding with which an investor can decide to diversify his investments, thanks to the reduction of the typical entry barriers of real estate investments. Walliance allows the investor to access the real estate initiative by investing directly in the corporate entity that develops and manages the real estate subject for crowdfunding: the investor does not purchase any real estate portfolio but participates by acquiring shares/assets of the company that manages the initiative. The investor becomes a "partner" or "lender" of the initiative and Walliance only "helps" the proposing manager of the initiative find the financial resources necessary for its development, and helps investors seek qualified investment initiatives in the real estate sector. Based on these premises, the performance of the investment is directly connected to the performance of the company that manages the initiative, with the consequent risks associated with investments.
Basically, the Walliance Portal acts as a showcase for the Offeror's project, which is presented to the audience of potential investors in the network through the Internet. The establishment of crowdfunding makes it possible to combine even the most modest contributions of numerous small investors, and to realize a significant collection of money that can be used for the development of the entrepreneurial or investment project for which the Offering of financial instruments was conducted on the portal.
The Portal has the primary and exclusive function of facilitating the widespread collection of capital by the public parties who access it. In fact, the provisions of the CONSOB Regulations for the protection of investors establish all the obligations and procedures to be followed by the parties concerned (Investor/Offeror/Portal Operator), and that are necessary for the correct completion of the investment in compliance with the protection system provided by legislation to the benefit of the community of savers.
Now that the type of investment framework has been determined, it is necessary to define the accurate tax treatment which the investor may incur. The cases in which the investment can be configured can be divided as follows:
- Collection of dividends for distribution of profits/reserves;
- Collection of gains from realization/disinvestment of the investment in the offering company;
- Special cases
Collection of dividends for distribution of profits/reserves
Starting in 2018, the tax treatment will change for dividends and capital gains from qualified holdings: there will be a single rate and no division between qualified and non-qualified holdings.
The new provisions contained in paragraphs 999 to 1006 of Article 1 of Italian Budget Law 2018 (Law 205/2017) establish the abandonment of progressive IRPEF (personal income tax withholdings) in favor of the application of a withholding tax (or substitute tax) equal to 26% on capital income (dividends and interest) and other income (so-called capital gain) received by natural persons who hold qualifying holdings outside the company's business, similarly to what is already provided for said income deriving from unqualified shareholdings.
The regulatory intervention makes it possible to overcome the misalignment that has existed up to now between the taxation system of income from unqualified holdings compared to those deriving from the possession of qualified shareholdings.
First, it should be noted that the taxation of dividends takes place according to the cash-flow criterion, namely in relation to the moment of actual receipt, making the date of resolution of the distribution of profits irrelevant. With regard to dividends from qualified holdings, it is necessary to identify the income tax formation period for the company in order to apply the correct amount of tax liability to the shareholder.
The new taxation regime is applied to capital income received from January 1, 2018.
Collection of gains from realization/disinvestment of the investment in the offering company
The new provisions also apply to capital gains and losses realized as of 01/01/2019.
Given that the gains/losses are understood as realized when the sale based on consideration of the investments is completed, rather than in the potential different time when the consideration for the sale is paid (see Circular no. 19/2014): therefore, if the taxpayer receives sums or amounts before 01/01/2019 as an advance on a sale made from 01/01/2019, the relative capital gains will be taxable at 26%, in force at the time the transfer was completed. On the other hand, if the sale based on consideration was finalized before 01/01/2019, the capital gain will be taxed according to the regime before the new 2018 changes, even if received in whole or in part in the course of 2019.
The Italian Budget Law 2018 therefore intervened by repealing paragraph 3 of Article 68 of the TUIR, so that the capital gains resulting from the sale of qualified equity investments, algebraically added to the losses of the same nature, were subject to progressive IRPEF tax charged to the transferor, and specifically taxable at 49.72% of their amount (at 58.14% of their amount starting from January 1, 2018). It follows that the capital gains from the sale of qualified and non-qualified equity investments will constitute a single income category that can be offset against capital losses from the sale of qualified shareholdings and not different from those referred to in paragraph 4, and c-ter) of paragraph 1 of Article 67, are algebraically added to the relative losses.
A further amendment to Article 68 of the TUIR concerns the repeal of letter b) of paragraph 7, which regulates the transition from an unqualified holding to qualified during the tax period, since it is no longer applicable due to the loss of the IRPEF progressive taxation. The changes made to Article 68 of the TUIR made it necessary to expand the scope of application of the substitute tax on capital gains by intervening on Articles 5, 6 and 7 of Italian Legislative Decree 461/1997.
Paragraph 2 of Article 5 of the aforementioned Decree is therefore supplemented with the income referred to in letter c) of paragraph 1 of Article 67 of the TUIR which refers to the gains realized by the sale of qualified shareholdings, and at the same time the subsequent paragraphs 3 and 4 are adapted by repealing the provisions that are no longer applicable, such as the obligation to indicate, separately in the annual tax return, the capital gains (and other income) deriving from qualified shareholdings from those deriving from unqualified shareholdings. The budget law extends the scope of application of the administered savings regime as well as that of asset management: pending further clarification, the novelty will allow greater simplifications both for intermediaries no longer required to manage qualified and unqualified shareholdings contained in the same dossier separately, and for taxpayers who can fully delegate the management of taxation of the aforesaid securities to the manager.
As a consequence of the budget maneuver, any capital losses generated by the sale of non-qualified equity investments may be offset with capital gains realized in subsequent transactions also from the sale of qualified equity investments and vice versa.
The aforementioned tax treatments are highlighted below for:
- Non-resident natural persons;
- Resident and non-resident companies and businesses
Sub a) Non-resident natural persons
In reference to non-resident natural persons, the rules refer to Art. 27, paragraph 3, of Italian Presidential Decree no. 600/73, which requires the application of the 26% withholding tax for dividends paid to non-residents, whether natural persons or companies.
Therefore, for natural persons there are no particular innovations from this point of view.
The conversation concerning the realization of holdings by non-resident natural persons is different: the relevance of the participatory nature also remains with reference to the capital gains realized by non-resident subjects, for which the exemption from substitute tax is provided pursuant to Article 5, paragraph 5 of Italian Legislative Decree 461/1997, as long as these are unqualified shareholdings and the seller resides in a state or territory included in the White list, namely in states and territories that allow an adequate exchange of information.
If, on the other hand, the parties do not fall within those covered by the Double Taxation Agreements or those for which the rules provide for Italian taxing power, then as of January 2019, they must pay the same amount required for resident natural persons, namely the new withholding tax of 26%.
In case of the realization of qualified holdings, the withholding tax of 26% will also apply to non-residents included in the white list, subject to the provisions of the Double Taxation Agreements; to date further ministerial clarification is expected on this point.
What is certain is that until January 2019, for non-residents involved in the sale of shares, what is currently in force will continue to apply as follows:
- Sale of unqualified shareholdings: exemption regime as described above for White list and EU parties;
- Exemptions provided for by the Double Taxation Agreements;
- In all other cases, taxability of the sale in the amount of 58.14%.
Basically, even after regulatory changes, the taxation of capital gains for non-residents is in fact the exception and not the rule.
Sub b) Resident and non-resident companies and businesses
The treatment of resident and non-resident companies and businesses diverges. For the aforementioned resident parties:
- The taxation of dividends distributed by investee companies make up taxable income equal to 5% of their amount pursuant to Art. 89 of the TUIR. This is true whether dividends are received by investee companies with minority or majority share interests. The 5% taxable dividend will be subject to an IRES (corporate income tax) rate of 24%.
- Dividends are taxed as cash in derogation from the general principle of jurisdiction and, therefore, are taxed in the financial year in which they were received; the realization of capital gains from the sale of a shareholding is subject to the provisions of Art. 87 of the TUIR that provides for the Participation Exemption (PEX). It is an exemption regime and concerns the non-taxability, for the purposes of direct taxes (IRES), of the capital gain deriving from the sale of investments, which comply with certain requirements governed by Article 87 of the TUIR.
- The PEX provides for exemption of 95% of the capital gain. The capital gain is considered realized at the time of delivery of the securities or if later, at the time when the transfer effect of the contractually established property occurs (no advance payments or installments are recognized).
- Losses on assets relating to the company, other than those indicated in Articles 85, paragraph 1, and 87, determined using the same criteria established for determining capital gains, are deductible if they are realized pursuant to Article 86, paragraphs 1, letters a) and b), and 2 of Article 101 of Italian Presidential Decree no. 917/86. In essence, capital losses relating to investments with requirements of Participation Exemption are not tax-deductible.
- The requirements necessary to qualify for exemption from the disposal of capital gains deriving from the sale of securities representing capital are: classification in the category of financial assets in the first financial statements ending during the period of uninterrupted possession from the first day of the twelfth month prior to that of the sale, considering that the shares or units acquired on a more recent date are deemed to have been sold first; the Tax Domicile of the investee company in a State or territory not subject to preferential taxation, unless otherwise changed; the exercise of the subsidiary company of a second business company according to the definition referred to in Article 55 of Italian Presidential Decree no. 917/86 (with the exception of companies whose assets mainly consist of non-instrumental properties)
For non-resident companies and businesses, tax treatment includes:
- Profits paid to non-residents are subject to withholding tax in the amount of 26% unless: the shareholdings are related to permanent organizations in the territory of the state; are paid to companies or entities subject to income tax of companies in EU Member States or members of the Tax Agreement on the European Economic Area which are included in the White list (subject to withholding tax at a rate of 1.2%).
- Non-residents subject to withholding tax may request the reimbursement of the tax paid abroad definitively on the same profits upon submitting the appropriate documentation from the competent tax office of the foreign state to the Italian Financial Administration;
- Dividends paid to EU entities may fall within the so-called mother-daughter system of Community dividends (Directive 90/435/EC, implemented by Article 27-bis of Italian Presidential Decree no. 600/73). This represents an exception to the principle of taxation of profits paid to non-resident subjects in the presence of the following requisites: subjective, linked to the nature of the non-resident shareholder, objective, related to the shareholding participation in the Italian company.
- In particular, the parent company (a non-EU resident company that holds a shareholding in the Italian company) must: have the form of a joint-stock company (or in any case equivalent to Italian joint-stock companies), be fiscally resident in an EU state; subject to the state of residence, without the possibility of option or exemption from one of the income taxes of the companies equivalent to the Italian IRES (the list of national taxes is contained in Article 2 of the aforementioned European Council Directive no. 90/435/EC); hold a direct shareholding of at least 10% of the capital of the Italian daughter company which distributes the dividends, without interruption for at least one year.
If these requirements are met, the withholding tax on the dividend:
- May not be applied by the resident company paying out the profits; if applied, it must be fully reimbursed to the foreign member requesting it. The documentation attesting the existence of the requirements for the application of the mother-daughter system must be retained until the terms relating to the tax period in progress at the date of payment of the dividend have elapsed (and in any case until the assessments have been defined) and must be: acquired by the resident company that distributes the dividend, together with the request of the shareholder; submitted to the Italian Tax Authority in the event of a request for reimbursement.
- In relation to the calculation of the period of uninterrupted possession, the Italian Tax Authority has limited the benefits of the mother-daughter system to cases in which, at the time of actual payment of the profit, the minimum period of possession of the shareholdings has already elapsed; in the event this has not occurred, withholdings must be made (Resolution no. 109/E/2005). In any case, the Community parent companies not admitted to the subsidized regime: are controlled, directly or indirectly, by more than 25%, by non-residents in EU countries, holding shares for the exclusive or principal purpose of benefiting from the directive.
- In any case, the exemptions for capital gains realized by non-resident subjects remain unchanged: unconditional exemption for the sale of listed unqualified shareholdings (Article 23, paragraph 1, letter f) of the TUIR); exemption for the sale of unqualified shares, even unlisted, for residents of states on the White list (Article 5, paragraph 5 of Italian Legislative Decree 461/97); exemptions provided by the Double Taxation Agreements.
- The taxation of capital gains for non-residents represents, in fact, the exception and not the rule.