Taxation of foreign dividends for residents in Italy: tax rates, tax credits and information on international agreements.
Taxpayers resident in Italy who receive dividends from foreign companies (foreign dividends) are subject to a complex taxation system involving three levels of regulation:
• Italian regulations (country of residence of the recipient);
• Foreign regulations (country of origin of the income);
• International double taxation agreements signed by Italy.
Taxation of foreign dividends
Dividends from foreign companies (not resident in countries with preferential tax regimes) are generally subject to double taxation.
Foreign withholding tax
The foreign country may apply a withholding tax, the rate of which varies according to local legislation and treaty agreements.
Example:
Switzerland applies a withholding tax of 35%, which can be reduced to 15% thanks to the agreement with Italy. If a higher amount is withheld, the taxpayer can request a refund, although the procedure is often complex.
Taxation in Italy
Foreign dividends are subject to a substitute tax of 26%. However, the tax base changes depending on the method of collection:
• With a resident intermediary (e.g. Italian bank):
The tax is applied to the net amount, i.e. the amount already reduced by the foreign withholding tax.
• Without a resident intermediary (e.g. credit to a foreign account):
The dividend must be declared in the Income Tax Return (formerly Unico) and the tax is applied to the entire gross amount, without the possibility of deducting the foreign withholding tax. This may result in a higher tax burden.
Tax credit: the latest from the Court of Cassation
Article 165 of the Italian Tax Code (Tuir) provides for the recognition of tax credits for taxes paid abroad only if:
- The income contributes to the formation of the total income;
- The foreign taxes have been definitively paid.
Interpretation by the Revenue Agency
Traditionally, the Revenue Agency denies tax credits for dividends subject to substitute tax, as in the case of individuals who do not operate under a business regime.
Position of the Court of Cassation
In judgments no. 25698/2022 and no. 10204/2024, the Court, in contrast to domestic legislation and the interpretation of the Revenue Agency, clarified that international agreements must be referred to in order to determine whether or not the tax credit is due.
If the convention excludes the tax credit only in cases where the substitute tax is the result of a choice made by the taxpayer, then when the substitute tax is applied by law (such as on dividends), the credit must be recognised.
Conversely, if the agreement explicitly excludes the tax credit even in the case of mandatory substitute taxation, the credit cannot be recognised.
Examples of Conventions
Italy–Switzerland (Art. 24) and Italy–USA (Art. 23):
The tax credit is denied only if the Italian substitute tax is applied at the request of the beneficiary.
→ If it is mandatory, the credit must be recognised.
Italy–Singapore (Art. 22) and Italy–Cyprus (Protocol Art. 2):
The tax credit is recognised only if the income is subject to ordinary taxation.
→ No credit in the presence of substitute tax, even if mandatory.
Methods of recognising the tax credit
• Collection without a resident financial intermediary:
The taxpayer can independently recognise the tax credit when filing their tax return.
• Collection through a resident intermediary:
In this case, it is not possible to apply the tax credit. The only option is to request a refund of the excess tax paid from the Revenue Agency.
Conclusion
In light of the above, in order to determine whether or not foreign dividends are eligible for tax credit for taxes paid abroad (within the limits of the conventional rates), it is essential to refer to the double taxation agreements entered into by Italy.
The most recent case law, in particular the rulings of the Court of Cassation and Aidc’s code of conduct no. 227/2025, has clarified that the tax credit must also be recognised in the presence of a mandatory substitute tax, unless the applicable international agreement expressly excludes this possibility.
Therefore, taxpayers must:
Check the content of the bilateral agreement between Italy and the foreign country from which the dividends originate;
Ascertain whether the foreign tax has been paid definitively;
Determine whether Italian taxation is mandatory or optional.
Only if there is an explicit exclusion in the agreement will the tax credit not be recognised. In all other cases, even under the mandatory substitute tax regime, the credit is legitimately due, thus helping to avoid double taxation.
