Italy has introduced a new Investment Management Exemption (IME) in its 2023 Budget Bill, which is effective from 1 January 2023. The IME is a ‘safe harbor’ provision that allows eligible foreign investment vehicles (including private equity and hedge funds) and controlled entities to avoid being deemed a permanent establishment (PE) in Italy due to local activities carried out by their investment managers.
The IME includes:
- A safe harbor provision aimed at encouraging the establishment of investment managers in Italy. Under certain conditions, such as meeting specific regulatory requirements, this eliminates PE issues for the foreign investment vehicles and controlled entities.
- A connection to the presence of investment managers in Italy, whether they are traders, deal teams, local partners, or otherwise. This removes the triggering of a ‘nexus’ for the investment income of the investment structure and therefore of the investors.
The Italian Ministry of Economy and Finance will implement the IME through a decree. Foreign investment vehicles should analyze their position for Italian tax purposes and consider the potential benefits of the new safe harbor. Additionally, they should consider the potential Italian tax benefits for individuals under the so-called ‘impatriate’ regime, which provides favorable tax treatment for certain foreign workers who move to Italy.
While some issues remain with respect to the IME’s scope and applicability, such as how the regulatory requirements will be defined, implementing provisions will be established by a Ministerial Decree (Article 162, para. 7quinquies).
Investment managers seeking tax certainty in advance can apply for an advance ruling procedure to request an appropriate interpretation of how the regime applies to their specific fact pattern.