The trust was introduced into Italian law with the ratification of the Hague Convention of 1 July 1985 through Law 364/1989, in force since 1 January 1992. Conversely, it was not until 2007 that tax legislation (2007 Tax Act) introduced provisions for the first time regarding trusts and included resident and non-resident trusts among taxable persons for corporate income tax purposes.
The applicable legislation identifies two types of trusts:
"Opaque" trusts: without identified income beneficiaries, in which the income is directly attributed to the trust itself.
"Transparent" trusts: with identified income beneficiaries, in which the income is attributed for transparency to the beneficiaries.
In particular: In the case of opaque trusts residents in Italy (or in foreign countries, except in those nations or territories with privileged taxation, see below), the income they produce is only taxed once and exclusively with respect to the trust.
In fact, income produced by the Italian resident opaque trust is subject to corporate income tax directly and exclusively with respect to the trust. There is no further taxation with respect to the beneficiaries receiving the income.
In the particular case of foreign opaque trusts established in nations or territories that are considered subject to privileged taxation regarding income produced by the trust pursuant to Article 47-bis of the Italian Income Tax Act (according to the Italian Tax Authority's initial indications in the draft Circular not yet published definitively, reference should only be made to the nominal tax rate 50% lower than the one applicable in Italy, taking into account any special tax regimes), the beneficiary residing in Italy is subject to taxation on the allocations of income from the trust (on a cash basis). In this case, the reduced taxation of the foreign trust would correspond to the taxation of the resident beneficiary for the allocation of income by the trust.
In the case of transparent trusts (i.e., trusts with "identified beneficiaries"), the income produced by the trust is allocated to the beneficiaries "in any case" (in other words, "regardless" of the actual receipt and according to an accrual criterion for transparency) and, consequently, that income is taxed (against the identified beneficiaries) as a capital income (applying the income tax rates when the beneficiary is a natural person). "Identified beneficiary" refers to the beneficiary of the "identified income", that is, the subject who expresses an effective ability to pay the tax in respect to that income. Therefore, the beneficiary must not only be precisely identified, they must also have the right to claim from the trustee the assignment of that part of the income that is attributed for transparency. It should be noted that Article 45, paragraph 4-quater of the Italian Income Tax Act provides that, in reference to foreign trusts and distributions to beneficiaries who are Italian residents, where it is not possible to distinguish between income and assets, the entire amount received is considered income.
Regulations on indirect taxes (registration tax, inheritance and gift tax, and mortgage and cadastral tax)
To date, the Italian Tax Authority's approach has been to require the application of indirect taxation starting from the trust contribution stage.
In the Italian Revenue Agency draft circular under discussion and not yet published definitively (2021), with reference to acts that generally impact the life of a trust, the following is specified:
• Trust deed: expresses the will to set up the trust and, if drawn up by public deed or notarized private deed, will be subject to fixed registration tax;
• Deed of endowment of assets in a trust: deeds by which the settlor endows the trust with assets, binding them to the purposes of the trust. If drawn up by public act or notarized private deed, it will be subject to fixed registration tax;
• Transfer of assets to beneficiaries: deeds by which the assets placed in trust are allocated or devolved. Assets placed in trust for beneficiaries qualify for inheritance and gift tax. Therefore, the family relationship between the settlor and the beneficiary must be considered in order to determine the rates and related deductibles;
Concerning non-resident trusts, the Italian Tax Authority (in the draft circular not yet published definitively) considers the deed of endowment of assets in a trust formed abroad to be subject to fixed-term registration since it is a gift that can be defined as a "progressive formation" in which the settlor will enrich the beneficiaries (Italian residents) by means of the contractual program implemented through the trustee. If the settlor of the trust is a resident of Italy, the proportional inheritance and gift tax will apply to the asset attribution deeds, even if the transferred assets are abroad. If the settlor is not a resident of Italy, the previously mentioned tax on the attributions of assets will apply only to the assets and rights existing in the country.
Tax monitoring obligations
In the draft circular not yet published definitively, the Italian Tax Authority considers certain categories of subjects to be beneficial owners, including trust beneficiaries when "identified or easily identifiable".
What matters, according to the current regulations, for the purpose of attributing the status of beneficial owner is that they are "identified or easily identifiable" and that, therefore, they can be easily identified, even indirectly, from the trust deed. For example, in a foreign opaque trust, the beneficiaries descending in a direct line from the settlor, if Italian residents, must complete the RW form in the Italian tax return. Even in the case of discretionary trusts, the presence and precise identification of the beneficiaries in the trust instrument or other subsequent trust instruments, variable as it may be, cannot but be relevant.
Finally, the settlor’s exclusion from monitoring obligations and, subject to verification of particular cases, the exclusion of the holders of powers of representation, management, and administration (trustee and guardian) must be confirmed.
NOTE: more details are necessary
These considerations on Trust taxation in Italy are general in nature and updated to 2021. An in-depth, case-by-case analysis is necessary to get an accurate picture of your personal situation and the resulting tax impact.