China-Italy Tax Treaty Ratified by Italian Senate
On September 11, 2024, the Italian Senate approved the bill to ratify the new tax treaty with China, and the text was transmitted to the Chamber of Deputies. On September 16, 2024, the bill was assigned to the Committee on Foreign Affairs, where its examination began on October 2, 2024.
The new double tax agreement (DTA) between China and Italy was signed in Rome on March 23, 2019. The tax treaty will replace the previous one signed on October 31, 1986, and includes OECD / G20 BEPS recommendations for the prevention of fiscal evasion.
Based on the Italian legislative system, the ratification of an international tax treaty shall follow the general legislative process, which means that a bill shall be first approved by both chambers of the Parliament and then promulgated by the President of the Republic.
The treaty signed in 2019, after a new government came into power in October 2022, it had to be reapproved, and on April 15, 2024, the Council of Ministers, approved the draft law to ratify the Convention against double taxation between Italy and China. In case the new tax treaty could be ratified during 2024 it will enter into force from January 1, 2025.
Compared to the previous tax treaty signed in 1986, the DTA signed in 2019 introduces a reduction on dividends withholding tax rate from 10 to 5 per cent, in case of qualified dividends, therefore with direct participation of at least 25 per cent of the equity held for not less than 365 days.
This rate reduction will grant a tax benefit to companies that receive dividends from their subsidiaries. Besides, the beneficial rate of 5 per cent for qualified shareholdings may increase the equity ratio allocation for investments in both countries.
Concerning royalties, the new tax treaty confirms a standard rate of 10 per cent and introduces an effective rate of 5 per cent for payments related to the use or right to use industrial, commercial or scientific equipment. This new rate on royalties is lower than the royalties rates of main European countries where 6 per cent is the rate on similar royalties for DTA between China and Germany, France, United Kingdom, and Spain.