After a lengthy parliamentary process, Law No. 199 of 30 December 2025 (the 2026 Budget Law) amended the tax treatment of intercompany dividends in Italy. The amendments revise a framework originally established under the 2004 IRES (corporate income tax) reform, which was based on a partial exemption system: profits were taxed at the level of the distributing company, while dividends were largely excluded from the recipient’s taxable income.
The dividend exemption regime was designed to eliminate economic double taxation of distributed profits, counter abusive practices such as dividend washing, and support a broader reduction in the corporate tax burden in the context of capital market integration. Moreover, the regime aimed to facilitate group reorganisations and encourage the relocation to Italy of holding companies previously established in other European jurisdictions that had already adopted similar systems.
The reform: from general exemption to threshold-based access
Under the former dividend exemption regime, 95% of dividends received by corporate taxpayers were excluded from the IRES taxable base and dividends received by individual ‘entrepreneurs’ subject to IRPEF (personal income tax) were partially taxable under different tax rates.
The 2026 Budget Law narrows the scope of this exemption by introducing two alternative eligibility thresholds:
Participation of at least 5% of the share capital in the distributing company; or
Tax basis value of the participation of at least €500,000.
The second criterion should allow the scope of application of the exemption to be extended to cases where the participation is below the 5% threshold.
The participation may be held directly or indirectly. The new rules apply to dividends approved from January 1 2026.
The introduction of quantitative thresholds results in a differentiated tax treatment of dividends depending on the size or value of the participation. Where neither of these conditions is met, dividends no longer benefit from any exemption and are fully included in the recipient’s taxable base.
Italy in the European context
Data considered during the parliamentary works (see “Hearings and briefs”, in Italian) allows a comparison for domestically sourced dividends with other EU member states:
Eight member states do not impose any minimum participation threshold;
Five member states apply a 5% threshold;
Ten member states require a 10% threshold; and
Two member states apply differentiated thresholds depending on the nature of the tax or the distribution.
For cross-border dividends falling within the scope of Directive 2011/96/EU, most member states apply a 10% minimum holding, in line with the directive’s requirements.
The combination of a 5% participation threshold or a tax basis value test is consistent with practices in other European jurisdictions.
Implications for international investment structures
The reform is likely to have effects well beyond the domestic context, especially for multinational groups, cross-border holding structures, and investment vehicles.
In comparative terms, Italy has historically offered one of the more favourable dividend exemption regimes. The introduction of participation thresholds brings the Italian system closer to the approach adopted by a significant number of EU countries, but it may also weaken its competitive position. From 2026, the Italian regime becomes less attractive for highly fragmented or purely financial investments, particularly for cross-border investment vehicles that continue to benefit from more generous participation exemption regimes elsewhere in the EU.
Under the pre-reform regime, even relatively small shareholdings could benefit from the partial exemption, making Italy an attractive jurisdiction for passive and diversified investments. Following the reform, minority participations (below 5% or with a tax basis below €500,000) lose this benefit entirely. This change may prompt foreign investors and cross-border investment vehicles to reassess the location of Italian shareholdings, potentially favouring jurisdictions with more favourable treatment for minority investments.
Potential responses include:
The consolidation of participations to exceed the 5% threshold;
The relocation of holding activities to jurisdictions with more favourable regimes; and
Heightened attention to international tax planning for groups with complex intragroup ownership chains.
From an operational perspective, the introduction of participation and value-based thresholds is also likely to increase compliance burdens, especially for multinational groups with complex and layered ownership structures. Continuous monitoring of both the percentage of ownership and the tax basis of participations will be required, including in cases of progressive acquisitions, intragroup reorganisations, or extraordinary transactions. This will necessitate closer coordination between tax, legal, and accounting functions, with a consequent increase in operational complexity in managing intercompany shareholdings.
