Non-Commercial Entities: Change to the taxation of dividends

Non-Commercial Entities

Change to the taxation of dividends: the news in the 2021 Budget Law 

(Law no.178 of 30 December 2020)

The 2021 Budget Law introduces an important change in the field of taxation of dividends received by non-commercial entities (hereinafter ENC), modifying what was previously established. We describe these changes in detail below.

1) Previous taxation

The percentage of taxation of dividends received by an ENC was increased in 2017, with Article 1, paragraph 2, of the Ministerial Decree of 26 May 2017: this provision raised the percentage of profits that contributed to the formation of taxable income from 77.74% to 100%. In doing so, the legislator deprived the dividends received by the ENCs of any tax advantage.

2) New taxation of ENC dividends in the 2021 Budget Law: scope of application

The 2021 Budget Law, in paragraphs 44-47, regulates the tax exemption of 50% of the profits of the ENCs, starting from 1 January 2021 – provided that these entities exercise, exclusively or principally, one or more public interest activities for civil, solidarity and social purposes, in some sectors identified by law.

         2.1) The beneficiaries

Which ENC can benefit from this new provision? The regulatory change refers to the profits received by the ENCs referred to in letter c) of paragraph 1 of art. 73 TUIR (Consolidated Income Tax Act). It is therefore:

  • public and private entities other than companies
  • trusts not having as their sole or main object the exercise of commercial activity
  • permanent establishments in Italian territory of non-commercial entities referred to in letter d) of paragraph 1 of the TUIR.

          2.2) Conditions for access to the facility

Condition for access to the benefit is that the ENCs exercise, non for profit, on an exclusive or main basis, one or more public interest activities for civil, solidarity and social purposes in the sectors indicated by the 2021 Budget Law, namely:

  • family and related values; youth development and training; education, tutoring and training, including the purchase of editorial products for schools; volunteering, philanthropy and charity; religion and spiritual development; elder assistance; civil rights
  • crime prevention and public safety; food safety and quality agriculture; local development and local social housing; consumer protection; civil protection; public health, preventive and rehabilitative medicine; sport, drug addiction prevention and recovery; pathology and psychic and mental health disorders
  • scientific and technological research; environmental protection and quality
  • arts and cultural heritage.

3) Tax savings’ destination

The 2021 Budget Law also establishes rules for the allocation of the amount excluded from taxation: the tax savings must be allocated to the financing of the public interest activities above, setting aside the amount not yet disbursed in an indivisible and non-distributable fund for the full duration of the ENC.

Profits from investments in companies or entities domiciled or located in states or territories with a privileged tax regime referred to in Article 47-bis, paragraph 1, of the TUIR are excluded from this provision.

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Kind Regards,

Avv. Federica Loreti

Fiat Lux Legal