Italy: Guidance on tax treatment of carried interest - KPMG Global
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Italy: Guidance on tax treatment of carried interest

Italy: Guidance on tax treatment of carried interest

The Italian tax authority issued guidance that addresses the tax treatment of “carried interest.”


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The guidance—Circular no. 25/E (16 October 2017)—clarifies that carried interest will be treated as capital income, and not employment income, if certain requirements are satisfied.


Earlier this year, measures were added to the Italian tax law that defined the tax treatment of “carried interest”—generally amounts representing remuneration attributed to managers and employees holding shares, quotas or financial instruments with “strengthened” economic rights.

A carried interest typically is granted to managers and employees of investment companies and private-equity firms to align their interest with those of other investors. There may be a carried interest when the individual receives a profit that is more than proportional to the quantity of shares held, and there is the possibility of converting the “special shares” into a more-than-proportional amount or number of ordinary shares.

If certain requirements are satisfied, the carried interest can be taxed as capital income at a flat rate of 26%, rather than being taxed as employment income at a rate of up to 43% (plus regional tax, municipal tax, and social security contributions).

Circular no. 25/E

The circular confirms that carried interest will be treated and taxed as capital income if certain requirements (such as a minimum investment, a minimum holding period, and other rules) are satisfied. However, even if the conditions are not satisfied, the circular still allows for carried interest to be taxed as capital income under a case-by-case consideration.


Read a November 2017 report [PDF 163 KB] prepared by the KPMG member firm in Italy

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