Fund Managers’ Carried Interests will be Taxed at 26% in Italy
By Prof Stefano Loconte and Angela Cordasco, Loconte & Partners
In order to make Italy more attractive for relocating private equity partners, Decree n. 50 of 24 April 2017 has officially approved the new withholding tax rate for their carried interests. The new regulation is very favorable, considering the current European scenario after Brexit, since many equity partners must decide in which EU member state they should establish their company’s headquarters and whether to keep their EU passports.
A manager’s carried interest (which means any profit that partners or managers of private equity and hedge funds receive as compensation, regardless of whether they contributed any initial funds) is now considered capital income instead of employment income and, as such, will be taxed applying the substitutive tax rate of 26%. The tax benefit is significant. Before the new reform, a carried interest was taxed as employment income at the Italian marginal tax rate, which, for “wealthy people” who earn more than EUR 75,000 per year, is 43%.
The new regulation provided by D.L. 50/2017 refers to a company’s employees and directors, and aims to align the Italian tax law tax rates with legislation already in force in the main European jurisdictions, such as France and Germany. The aim is to make the country more competitive by implementing clearer and more favorable legislation, thereby attracting new investment.
Prof. Avv. Stefano LoconteLoconte & Partners, Bari, Italy
T: +39 080 572 2880
Stefano Loconte is founder and managing partner of the Loconte & Partners. He was admitted to the Italian Bar and has rights of audience/representation before the Italian High Court. He is a Law and Tax Consultant at the Ministry of Labor. Moreover Mr. Loconte, was appointed counsel to the Chair of the VI Permanent Commission - Finance of the Italian Chamber of Deputies - Hon. Maurizio Bernardo in order to coordinate the working group on taxation of trust and islamic finance.
He is speaker at numerous conferences and author of numerous articles published in newspapers and specialized magazines and he is also Professor and holder of the chair of Tax Law, International Tax Law and Trust Law at the Faculty of Economics and Law and at the School for Legal Professions at the University LUM “Jean Monnet” Casamassima (BA), as well as teacher on Tax and Trust Law at leading Italian business school “Wolters Kluwer Italia-IPSOA” and “Sole 24 Ore”.
Published: Winter 2017 l Photo: napa74 - Fotolia.com