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Italy: Withholding tax on interest, Swiss bank’s loan to individual

Italy: Withholding tax, Swiss bank’s loan to individual

The Italian tax authority issued a tax ruling to clarify the tax treatment of interest income realized by a non-resident taxpayer from a loan made to an individual taxpayer who is a resident of Italy.


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The tax ruling clarifies that interest paid by the individual taxpayer in Italy on a loan granted by a Swiss bank is subject to the beneficial withholding tax rate of 12.5% pursuant to the income tax treaty between Italy and Switzerland.


Italian tax law provides that the corporate income tax rate is 24%, and for banks, there is a surtax of 3.5% for a total rate of 27.5%.

Interest paid by an Italian withholding tax agent (for instance, a company) to a non-resident enterprise that does not have a permanent establishment in Italy generally is subject to withholding tax at a rate of 26% (assuming there is no reduced rate available under certain Italian domestic regimes, under the EU Interest & Royalties Directive, or pursuant to certain income tax treaties). The income tax treaty between Italy and Switzerland, however, provides for a withholding tax rate of 12.5% on payments of interest.

Neither the Italian tax law nor the income tax treaty with Switzerland specifies what happens when the payer is not a withholding agent but is an individual.

Tax ruling

The Italian tax authority issued a tax ruling (No. 41 of 23 October 2018) to clarify that interest on a loan paid to a bank that is a resident of Switzerland by an individual who is a tax resident of Italy must be declared by the bank on its income tax return and is subject to the 12.5% withholding tax rate pursuant to the Italy-Switzerland income tax treaty (and not the standard corporate income tax rate of 27.5%).


Read a November 2018 report [PDF 155 KB] prepared by the KPMG member firm in Italy

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